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 share files with professionals outside the company.

A digital data room is considered more secure than 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. A well-organized deal room serves as a great setting for better workflows, effective communication, and robust decision making.

Advantages of a virtual data room

Companies that are just starting to transition from physical data rooms might not be immediately convinced that digitization is the right solution. However, as practice shows, data room technology can benefit virtually any company or project.

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:

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.

The intensified data protection is particularly crucial for handling sensitive documents, such as employee contracts, research data, or initial public offering application packages. Modern virtual data rooms contain all the necessary tools for accessing and managing the required files with confidence and convenience. 

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.

A virtual data room is particularly handy for managing large volumes of documents during due diligence. By simplifying and securing file-sharing processes, data rooms allow their users to focus on more pressing matters and make fast and informed decisions.

Faster transactions

With a VDR, you’re able to make your transactions run smoother. Virtual data rooms deliver plenty of solutions to review documents at any convenient time, from any location and device. This results in faster decision-making and getting deals closed in less time than if using a physical data room.


You can easily view files from any location in your data room. It’s very useful when communicating with clients, potential buyers, or people interested in investing in your company located in different time zones. 

A virtual data room cloud solution is also perfect for remote teams, who are able to get their assignments done and have all needed files in one place. The same access agility applies to accelerating due diligence, managing enterprise-level boards, navigating complex licensing, and more.

Less paperwork and better document storage

Although traditional data rooms have the required capacity to store confidential business information, they are hardly the most practical solution. For example, if documents are not stored correctly, the ink tends to fade, which can blur or distort data. Not to mention the challenges of quickly locating the necessary document in the archive piles.

A virtual data room is an excellent tool for preserving important information while allowing the utmost convenience and cost-effectiveness. You can retrieve and open the needed files in a matter of seconds, saving precious time for more valuable activities. 

Virtual data room use cases

Virtual data room solutions are suitable for enterprises across 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.

But the shift from physical data rooms to dealing with virtual data is primarily beneficial for the following industries and projects.

Mergers and acquisitions

The most effort and time-consuming stage of any M&A transaction is proper due diligence. This process involves a lot of back and forth document sharing, discussions, and analytics. 

For the selling side, the biggest challenge is to provide all the required documentation without putting extra-confidential documents, such as intellectual property files, at risk. Virtual data rooms secure the documents on various levels while also allowing participants to connect and address all arising questions and issues. 

Board management

Board members remain in constant control of many people and projects. In such scenarios, virtual data rooms help centralize all workflows, facilitate board communications, and retrieve the necessary insights from the stored data. 

Your board can segregate several data room sections to support its duties, from communicating with legal counsel to monitoring portfolio companies. Additionally, some board-focused virtual data rooms supply a complete set for hosting remote meetings, allowing members to contribute regardless of their location.

Due diligence process

Virtual data rooms streamline and secure document sharing during most paperwork-centered procedures. But VDR tools are especially helpful if your company undergoes or facilitates due diligence processes. A data room allows instant access to large volumes of files with the option to amend, sign, and comment on any particular document in real-time.

And user-based rights will help you ensure that each file is only accessible to people with appropriate authorization levels. This feature significantly accelerates due diligence by allowing multiple parties, including external experts, to review the files without distracting each other or risking security. 

Real estate

Virtual data rooms help real estate professionals portfolio company projects and clients, communicate with potential buyers and participate in large-scale deals. Besides offering a secure approach to data storage, some virtual data rooms introduce many industry-specific solutions such as surveying, reporting, and advisory, which significantly improve operational efficiency for many firms and individual agents.

Investment banking

Investment bankers deal with intense amounts of confidential files, contracts, and contacts. A virtual data room is an irreplaceable tool for investment banking professionals, as it helps organize any process from consulting with legal firms to facilitating capital raising and overseeing financial transactions.

Life sciences industry

Most business transactions have a lot in common. However, life sciences ventures typically require another level of security implementations as they operate with classified information such as research results, patient profiles, and patents. 

Virtual data rooms help guarantee document integrity during the due diligence process as well as day-to-day operations.

Secure data sharing and storage, online due diligence, and M&A are the most common reasons 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. 

What is a virtual data room for M&A?

An M&A virtual data room is a centralized platform for handling all transaction-related procedures. A well-equipped data room will allow you to adjust the deal handling space as the transaction progresses and employ various tools to ensure the most optimal outcome.  

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. 

Below is a summary of the main data room advantages for M&A transactions.

Confidentiality protection

When undergoing mergers and acquisitions, companies seek utmost security for their sensitive information. Virtual data rooms facilitate comfortable file sharing while introducing extra shielding for files that contain intellectual property details, employee contracts, strategies, and other classified data pieces.

Faster processing

Virtual data rooms provide space and tools to help you streamline the due diligence process. But apart from document organization, virtual data rooms supply instruments for accelerating all supporting procedures, allowing for a faster closing. By using a virtual data room during M&A, you will benefit from:

Improved communication

Virtual data rooms create a safe space to interact with prospective investors, fulfill due diligence requests, answer questions, and negotiate. You can choose the most convenient way to communicate and always be sure each connection is secured.

Remote collaboration

A virtual data room works as a storage space with numerous collaboration tools to work with internal employees and other parties. You can use the data room to assign tasks, track their progress, host conference calls, and a lot more.


Hidden activity or documentation can hurt legal proceedings. A virtual data room secures your files while allowing you to keep track of who and when accessed sensitive information and which actions they took.


Most data rooms offer solutions for automatizing and templating forms, processes, and organizational approaches. This makes file sharing faster and easier, allowing you to concentrate on more vital tasks.


Virtual data rooms gather all the parties involved in the M&A in an equipped and controlled environment. Participants can take advantage of integrated document sharing features, calendar planning, group discussions, and Q&A. At the same time, you will have access to detailed notification settings, which will help you ensure timely and fast distribution of important information.

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. 

Virtual data rooms ensure data safety on two principal levels: hardware and software, with the next essential specifications:

Strategic physical location mapping of ultra-secure serversHuman error prevention via user permissions and different access levels 
Sensitive documents are secured via 256-bit data encryption during storage and transition Secure file sharing with dynamic watermarking, redaction, and view-only rights
Established virtual data room providers undergo strict auditing according to standards such as ISO 27001 and SOC 2Reduced-risk virtual data rooms’ access via two-factor authentication and complex passwords
Regular data backups and disaster-prevention protocol testingIncreased activity transparency through audit logs and reporting
High server uptime.Remote destruction of already downloaded documents.

Key virtual data room features

Different VDR providers may offer various features. However, there is an essential feature set that most data rooms have. Such 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, improve productivity, and track user interactions.

The must-have data room features include:

Intuitive interface

Despite delivering sophisticated technology, virtual deal rooms must be easy to operate on the user end. The less time you need to navigate the deal space, the sooner you can proceed to the actual decision making.

The best virtual data rooms supply a minimalistic, self-explanatory interface, sometimes with an option to customize brand colors, logo, and some layout elements. Look for features like:

  • Several language options and built-in translation
  • Wide device adaptability, including apps for iOS and Android
  • Single sign-on for multiple projects
  • Dynamic watermarking
  • No-plugin access

Data security

Virtual data rooms that facilitate due diligence or any other document-heavy transaction must ensure information integrity at all times. This is achieved through features such as:

  • Granular user access permissions
  • Time and IP restrictions
  • Two-factor authentication
  • Access revocation

Document and user management

Experienced virtual data room providers can make managing data and people nearly effortless. Examples of virtual data rooms’ instruments that simplify organization include:

  • Bulk document uploads and user invitations
  • Role-specific settings
  • Broad file format support
  • Third-party integrations with email and calendar tools
  • Full-text search

Reporting and analytics

Virtual data rooms use automatic reporting to provide valuable insight into internal interactions, deal progress, and other key aspects. Depending on your requirements, you can observe the engagement levels, completion milestones, and more. The features that accelerate data room reporting are:

  • Color-coded and infographic visualizations
  • Individual and group performance metrics
  • Audit logs for tracking internal compliance

What to consider when choosing a data room provider?

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

  1. Security. You should check which security certifications and compliances the provider has earned and their experience with various financial transactions. This information is typically available on the provider’s website. Also, you should go through the security functionality of the virtual data room to be confident that it can protect your documents.
  2. Functionality. Most providers build their data rooms with specific use cases and industries in mind. You need to identify which features would be the most useful to your case to make the right choice. On top of that, you should evaluate how intuitive the VDR is, how to set it up, and how to work with different features.
  3. Price. With a set budget, you can easily narrow down the virtual data rooms options, making the process of finding the right one faster. You should also research the provider’s pricing structure. For example, you need to check the additional fees for adding storage or extra features.
  4. Customer support. Data rooms you consider must provide 24/7/365 customer service, so in case you have any technical issues, you can quickly reach out to support to get help resolving it.
  5. Client reviews. After narrowing down a list of virtual data rooms you’re interested in, it’s worth reading user reviews to get an idea of how well they meet expectations. Focus on the feedback that is applicable to your situation, for example, from verified realtors or investment bankers. Based on these reviews, you can compare data room providers to see which one best suits your business. 

How to set up VDR software?

Well-built 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. The major steps of setting up a virtual data room are:

  1. Select a VDR solution that meets your criteria

Decide on the primary purpose you want your online repository to serve. This can be anything from handling day-to-day task management to securing intellectual property or private equity. Consider the size of your business, the specific requirements of your industry, and the volume of data you will store.

  1. Decide on the structure of the data room

To simplify planning the layout of your VDR space, picture a physical data room and apply the organizational principles that work best for your case. This way, the documents can be stored alphabetically, by department, by confidentiality level, or by any other criteria. 

Make sure that sensitive data is separated from the main flow of documentation and has the appropriate security measures applied.

  1. Upload files and organize them according to your planned structure

Gather the required documents and place them into folders and subfolders you outlined during planning. Take advantage of features like bulk uploading and auto-indexing to speed up this process. 

  1. Establish permissions and invite users

Define the roles of all participating internal and external parties, assigning each authority tier with corresponding access privileges. Then distribute the data room rights accordingly. Your main task is to ensure all employees and other interested parties have convenient and secure access to all the necessary files. 

  1. Maintain the data room and keep your files updated

To ensure the security and productiveness of all financial transactions, it is crucial to keep confidential documents regularly updated. Create a schedule for reviewing data room contents and rearranging them according to the current deal stage.

How much does 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 required documents.

  • Per-user

Some VDR providers include a set number of user licenses in their pricing packages. With this approach, you can add additional users for an extra charge. Prices vary among providers, so it’s important to check how many users are allowed before incurring extra charges. This pricing solution is most suitable for businesses with low employee count, such as private equity firms or legal consultancies. 

  • Storage size

While a physical data room is limited by space, virtual data rooms face processing capacity limitations. If you are considering data room providers that charge by storage, estimate how much data you will operate with. 

You can also inquire about document sharing and other features associated with each package. For example, lower GB sometimes can translate into slower uploading speed and limited functionality.

  • Flat monthly fee

This is often considered the best pricing option, as it offers the most flexibility with the lowest risk of hidden fees. You will pay a predefined subscription price that will cover specified storage, number of users, services, and functionality.

Cloud storage vs. virtual data room

Cloud storage solutions may seem appealing, especially for 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. 

Here is a summary of the advantages and disadvantages of employing cloud storage for data room purposes.

Cloud storage

A fast and simple way to exchange documentsStoring data is associated with high breach risks
Typically free or inexpensiveWeak protection of confidential documents 
More convenient than physical data roomsNo tailored tools for business transactions and communications
Contribute to negative impressions and reduced trust of partners, investors, etc. 
Cloud storage pros and cons

It’s worth taking extra security measures to protect confidential information, so using a data room instead of cloud storage would be the better choice for business. With data rooms, you get access to top security features for protecting your files, which basic cloud storage services don’t offer.

Below is the summary of virtual data room advantages and disadvantages.

Virtual data room software

Various levels of access privileges for multiple parties and user categories The abundance of online data rooms makes it hard to find the right one
Utmost security measures on multiple levelsElevated costs, depending on the vendor
Tools for niche projects such as private equity management, M&A, or board operationsSenior employees might have a harder time transitioning to a digital solution. 
All confidential information is centralized in a monitored environment 
Built on the core principles of physical data rooms: security, access protection, and centralization, minus the physical storage aspect.
Virtual data room pros and cons

Virtual data rooms offer a wide variety of features for document management and communication, making team workflow more efficient. And the best data room providers comply with international regulations to ensure maximum data security.

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