What Is a Virtual Data Room? Beginner’s guide

A virtual data room is a secure online platform, where you can quickly share and store confidential data. Different organizations working in various industries can find the VDR software useful for their business processes. An online data room is a must for cumbersome deals like M&A when the firm has to review and disclose or share files with professionals outside of the company. 

A digital data room is considered to be more secure compared to a physical data room, as the risk of files getting destroyed or lost is extremely low. Moreover, an electronic data room has many security features, so files stored in the VDR are protected and the risk of a data breach is minimized. 

The deal process handled in a virtual deal room is much faster. Best of all, the deal room of data room serves as a great setting for better workflows.

Advantages of a virtual data room

Using a VDR often leads to many positive changes within the company. For example, when document management is easier, more growth opportunities appear. A data room offers the following benefits:

  1. File security. A VDR offers exceptional security features, such as user permissions, access roles, watermarking, and two-factor authentication. These help to protect data and share it without worrying that the file will be downloaded or copied by unauthorized users.
  2. Document organization. Proper document organization provides greater convenience, especially during important transactions when you quickly need to find a certain file. Also, investors, partners, and clients appreciate a well-organized data room, which leads to better partnerships and business growth.
  3. Faster transactions. With a VDR, you’re able to make your transactions run smoother. Reviewing documents is quicker and easier, as files can be checked anytime from anywhere. This results in faster decision-making and getting deals closed in less time than if using a physical data room.
  4. Accessibility. You can easily view files from any location in your data room. It’s very useful when communicating with clients or people, who are interested in investing in your company, located in different time zones. It’s a perfect solution for remote teams, who are able to get their assignments done and have all needed files in one place.
  5. Less paperwork and better document storage. When preserving important information, a virtual data room is a great tool. For example, if documents are not stored correctly, the ink tends to fade, which can blur or distort data. 

Use cases of virtual data room solutions 

Virtual data room solutions are suitable for many enterprises working in many industries, including tech, life science, finance, real estate, investment banking, and more. Almost all businesses have important documentation to manage, so that’s where a VDR comes in handy. 

Secure data sharing and storage, online due diligence, and M&A are the most common reasons why organizations prefer using VDRs. However, businesses also use VDRs for other important transactions, such as fundraising, strategic partnerships, and consultancy.

Using a data room for M&A 

Mergers and acquisitions is one of the most popular use cases of a virtual data room. It is a complex transaction that requires sharing confidential data with experts and third-party professionals during due diligence. A data room for M&A deems efficiency and security as top priorities, so users can effectively manage each step of the transaction. Also, VDRs for M&A offer great collaboration and communication tools to respond to document requests quickly. These features make communication faster and clearer, which results in better deal outcomes.

Security of VDR software 

Security is the key feature of a trustworthy virtual data room. The best VDR providers comply with the strictest security standards and have certifications to prove their trustworthiness. 

They also offer top security practices that guarantee the highest document security. These include two-factor authentication, data backups, 256-bit data encryption,  audit logs, dynamic watermarking, different access levels, and user permissions.

What functionalities do virtual data rooms offer? 

Different VDR providers may offer various features, however, there is a basic feature set that most data rooms have. Their services include quick and easy file uploads, intuitive interfaces, document management tools, and file security features. Together these features help create an environment for efficient work. VDRs help you streamline workflows easily, improve and track user interactions.

What to consider when choosing a data room provider?

Choosing a data room provider can be a challenging task. However, if you do it with care, you can quickly get what you need. Here are some things to consider when looking for a data room provider:

  • Security. You should check which security certifications and compliances the provider has earned — you should be able to find this information on the provider’s website. Also, you should go through the security functionality of the VDR to be confident that the VDR can protect your documents. 
  • Functionality. You need to identify which features would be the most useful. You should consider how intuitive the VDR is, how to set it up, and how to work with different features. 
  • Price. With a set budget, you can easily narrow down the provider options, making the process of finding the right one faster. You should also research the provider’s pricing structure. For example, you want to check the additional fees for adding storage or extra features.
  • Customer support. It’s important that the provider has a 24/7 customer service team available, so in case you have any technical issues, you can quickly reach out to support to get help resolving it. 
  • Client reviews. After narrowing down a list of providers you’re interested in, it’s worth reading user reviews to get an idea of how well they meet expectations. Based on these reviews, you can compare data room providers to see which one best suits your business. 

How to set up VDR software? 

Most VDR software is easy to set up. If the basic customization is done correctly, it shouldn’t take much time to start using the software efficiently. Even though the process is very straightforward, you can always refer to a virtual data room tutorial for guidance. But basically, the major steps are:

  1. Select a VDR solution that meets your criteria
  2. Decide on the structure of the data room
  3. Upload files and organize them according to your planned structure
  4. Invite users, establish their roles, and set user permission levels
  5. Maintain the data room and keep your files updated

How much can a virtual data room cost? 

The VDR cost solely depends on the provider. There are common pricing structures for VDRs, which include:

  • Per-page. This pricing model depends on the scope of the project and the number of pages used. This pricing structure is suitable for smaller projects, which have a set number of documents. 
  • Per-user. Some VDR providers include a set number of user licenses in their pricing packages — for an extra charge extra, you can add additional users. Prices vary among providers, so it’s important to check how many users are allowed before incurring extra charges.
  • Storage size. Some data room providers charge by storage capacity.  
  • Flat monthly fee. This is often considered the best pricing option, as it offers the most flexibility. You pay a flat monthly fee for storage, number of users, and functionality without worrying about unexpected charges.

Cloud storage vs. a virtual data room

Cloud storage solutions may seem appealing, especially small businesses, as they are free and fulfill the basic needs of storing and sharing files. However, it’s important to understand current cybersecurity risks and the possibilities of data breaches from cyberattacks. It’s worth taking extra security measures to protect confidential data, so using a data room instead of cloud storage would be the better choice for business. 

Additionally, virtual data rooms offer a wide variety of features for document management and communication, making team workflow more efficient. The best data room providers comply with international regulations to ensure maximum data security. You get access to top security features for protecting your files, which basic cloud storage services don’t offer.

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