Strategy

Different Types of Virtual Data Rooms

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The use of virtual data rooms has increased significantly in recent years, and a large number of business sectors have incorporated data room software in their operations. Although the traditional use of data rooms was limited to data storage, businesses now use VDRs for advanced purposes. That is why virtual data room providers have started offering specialized data room services.

Companies use data rooms for complex processes like M&As, real estate transactions, legal affairs, and corporate use. These transactions require unique features, and data room vendors now design data rooms accordingly.

For instance, DealRoom specifically provides services for M&As, while law firms globally use iDeals data rooms. In simple words, how to set up a virtual data room depends on your business needs. Fundraisers set up VDRs differently, while pharmaceutical companies do it differently.

Here are some of the most common types or use cases of electronic data room software.

Use cases of a virtual data room

1. Data rooms for corporate transactions

The corporate sector is one of the biggest use cases of online data room software. Here are some notable solutions data room software provides for corporate transactions:

  • A highly organized and well-structured arrangement of corporate documents for various uses.
  • Amazingly fast data-sharing within and outside the organization.
  • Highly secure, granular access to the authorized data room users from anywhere in the world.
  • Ability to access corporate documents from any recognized device, including laptops, desktops, mobile phones, etc.
  • Top-of-the-line communication tools for smooth, efficient, and safe communication between users.

2. Due diligence data rooms for selling businesses/M&As

Data rooms are commonly used when the owners want to sell a business or merge with another company. Here is how to set up a virtual data room for such purposes:

  1. Make a digital form of all mandatory business documents.
  2. Organize the documents in the recommended or preferred order.
  3. Create folders in the data room and upload those documents accordingly.
  4. Give buyers access to the data room.

It takes less than an hour to set up a data room and upload all the documents if you already have digital versions of company documents. What’s more, virtual data rooms boost the chances of a successful transaction because of their online collaboration tools as they make negotiation easier and faster. Last but not least, the seller can deal with multiple buyers and create separate data rooms for them.

3. Data rooms for fundraising

Fundraising is a long process that usually takes weeks, and sometimes it goes on for months or even years. During this process, potential investors review corporate documents, including financial statements and other vital records.

Virtual data rooms help fundraisers in different ways. First of all, they can invite potential investors to the data rooms and give them 24/7 access to all necessary documents. The good thing is that fundraisers can control how investors access these documents and protect them from being misused.

Similarly, fundraisers can continuously update documents with the latest information. They can respond to the comments added by investors and answer their queries in real-time.

4. Data rooms for risk management

Be it environmental changes, revised legislation, or evolving market practices, a business continuously faces risks at various levels. In fact, making transactions with external bodies itself poses threats of different sorts. Here is how a risk management data room helps businesses to mitigate risks:

  • Management can have complete control over all the transactions in progress. Tracking tools keep track of different transaction stages, while audit trails provide a detailed picture of data room activities.
  • In case of any suspicious activity, the data room administration can immediately remove a user or revoke document access and delete downloaded documents.
  • Data rooms also allow for incorporating changes in the documents as per the legal requirements.

5. Data rooms for managing legal documents

In some businesses, data security is not just an option but a legal obligation. That is why corporate legal departments, attorneys, law firms, banks, courts, and local, state, and federal governments use virtual data rooms.

The banking-grade security systems in virtual data rooms use various security layers to protect documents from all possible cyber threats. What’s more, users can immediately access required documents in time-sensitive affairs or share them with concerned parties.

Similarly, when a team of lawyers is working on a case, they can get granular access to the shared documents, files, or other sensitive material. In fact, they can add their clients to the data room and share the latest updates with them.

Modern, high-end VDRs allow users to sign documents within the data room, and data room vendors provide a massive library of legal forms ready for use.

Rounding it up

Present-day data rooms are not just data storage places — they are complete packages for advanced transactions like risk management, project management, asset acquisitions, mergers, acquisitions, fundraising, real estate deals, and due diligence.

Frank is a senior editor and productivity enthusiast. Loves hunting and reviewing new tools. When he's not writing he's normally cooking, gardening or reading.

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