Introduction to data rooms
Virtual data rooms have become a necessary part of the modern business world, especially since the lockdowns and quarantine. Businesses of any size, working in various industries have decided that reliance on physical documents is not sustainable anymore. Having a physical data room only brings a lot of challenges and takes important resources.
Companies started embracing digital solutions, as they saw a great opportunity and benefit from using modern virtual data rooms. And nowadays, virtual data room services have become common when it comes to secure sharing and storing of confidential documents.
Virtual data room serves as a secure online repository for data exchange and storage, which gives users the ability to control document access and manage sensitive corporate information effectively. Online data rooms facilitate complex financial transactions, like M&A, due diligence, IPOs, and more.
Key takeaways
How virtual data rooms can be used
The virtual data room can be used by many companies, both huge enterprises and small businesses working in a variety of industries. Having numerous advanced features together with providing a secure environment for file sharing makes digital data room a perfect tool for handling complex projects.
When it comes to sharing confidential information, virtual data rooms offer an amazing solution for medium and large businesses that makes difficult tasks much easier. Virtual data rooms simplify time-consuming mundane tasks, so you can focus more on collaboration, communication, and more important responsibilities.
M&A and due diligence
This is the most common use of virtual data rooms. Mergers and acquisitions procedures require dealing with large amounts of files, especially during due diligence. Merging with or acquiring other companies involves good research, a thorough review of financial documents, and quick detailed communication.
A virtual data room for due diligence offers a secure place for the finalization of the deal. Using virtual data room solutions is a reliable way for all parties involved to review and exchange confidential documents during negotiations. All these important tasks become much more efficient and less time-consuming. Besides, an M&A data room allows the sell-side party to have full control over documents and access permissions.
Thanks to advanced collaboration tools, all communication between parties is going through one secure place. Moreover, the entire deal process can be managed using a reliable online data room, so you don’t need to switch between different platforms. All needed proprietary data, confidential files, deal documents, and main communications are stored in one secure place.
Legal
Legal firms use virtual data room services to share sensitive documents with their legal teams, clients, and third-party professionals or experts for business transactions and litigation. Virtual data room providers offer an excellent service, which allows legal teams and professionals to exchange information securely outside of their company’s firewalls.
In times when several lawyers from various firms should review and negotiate many confidential documents, there is a need for an organized online system, which can be trusted. Data rooms for law firms come in handy during specific situations like class-action lawsuits, involving many people. In a secure VDR, you can quickly add new users and assign user permissions depending on their role.
Initial Public Offering (IPO)
The IPO is a complicated transaction, as when a company decides to go public it is subjected to many regulations and rules at local and federal levels. This transaction requires going through a significant amount of paperwork. Better transparency is highly appreciated and shows the company’s trustworthiness to the public, state, and the shareholders.
All necessary steps to launch an IPO include meticulous document management, which is easily achievable with a reliable data room. There are many third-party professionals involved in the IPO process, that’s why using secure data rooms is a must.
Healthcare industry
Virtual data room solutions are very useful in the life science and healthcare industry. Data security is extremely important for healthcare firms, such as medical equipment and clinical research companies as they want to ensure all the documents and confidential medical data are stored in a controlled secure platform.
There are many stakeholders involved in different activities related to healthcare projects who have to exchange critical information, that’s why using a virtual data room becomes an obvious choice. Medical device manufacturers, pharmaceutical or biotech companies will always need to use a secure repository for storing and sharing critical data for different purposes.
Fundraising
Many startups and large enterprises are taking part in different fundraising rounds, as these are critical for the company’s potential growth and success. Fundraising requires transparency and good document organization. Convincing investors to fund a certain business is a challenging, yet achievable task with a data room for fundraising.
With a data room for investors, it’s much easier to deal with due diligence investigation. A well-structured fundraising data room can be a sign of professionalism and trustworthiness to investors.
Strategic partnerships
Strategic partnerships are very important for business growth and expansion in new markets. And as most partnerships do, this type of partnership requires substantial data sharing. In a secure VDR, you can manage sensitive documents and share them with partners. Even if companies don’t merge, it’s always good to have partnerships and engagement with other ventures.
In this case, using a VDR will prove crucial, and will ease the collaboration between companies’ leaders, as they’re sure about document security and protection of valuable data. The best virtual data room makes a powerful tool for file sharing and storing documents online, which is perfect for managing partnerships.
Investment banking
Investment banks rely on virtual deal rooms to keep merging and acquisitions deals going and streamline due diligence. It’s a reliable solution for complex procedures like that. An investment banking data room plays a proactive role in M&A transactions. Here are the main reasons the VDRs are used in investment banking.
1. Secure document storage
Mergers and acquisitions transactions involve a lot of review and analysis of a huge amount of files from company information to financial documents, especially during the diligence process. Thanks to VDRs all this information is in a secure location, protecting not only the company but also the employees. A secure VDR lowers the risk of confidential data leakage or information theft.
2. Enhanced collaboration
VDRs provide many collaboration tools together with document management features, which allow for a two-way flow of information, therefore improving collaboration. Also, these tools encourage board communications, even when they’re collaborating from different locations. No matter what time zone, VDRs are beneficial as they can be accessed anytime and from anywhere.
3. Better transparency and accountability
With advanced security features and audit trail, investment bankers can clearly see all activity within the data room and track tasks, including how much time is spent on certain items. It’s important as it helps to create better transparency and accountability for all users. Tracking and analytics features can also help investment bankers predict potential problem areas and the buyer’s or seller’s engagement.
4. Faster deals
Data room providers offer great solutions with advanced security and management features. Using VDRs allows investment bankers to close deals much faster, as mundane and time-consuming tasks are optimized and communication flow is smooth.
Real estate
A real estate data room allows efficient management of real estate portfolios and transactions that require complex components. Quick and easy access to documents is crucial to all parties involved during the real estate deal negotiations.
Physical property often involves a huge amount of data, which should be stored in a secure place and managed for potential buyers, third-party experts, and members of financial institutes to review. Also, professionals working in real estate can store financial data for transactions, so it can be further shared with buyers or sellers. With security features and collaboration tools, it’s easy to set up the needed system for convenient use.
In the real estate industry, buyers, lenders, financial institutions, and other interested parties need quick and easy access to all financials, blueprints, and property information itself. Traditional tools like email or simple cloud storage are very limited and don’t provide needed access settings, and the right levels of security for such types of documents. VDRs allow multiple users to securely view and collaborate on large files.
Startups
Many startups use virtual data room software for file sharing and storing critical documents, which are used for complex projects like fundraising. Data rooms for startups serve as a secure space for storing private financial documents as well as other critical details about the business operations. Also, startups can use VDRs for managing their intellectual property without the worry of confidential information getting leaked.
Main facts about virtual data rooms
Here are gathered the key facts about data rooms and the virtual data room industry as a whole.
Statistics for data rooms for the last 5 years: trends, changes, growth
The virtual data room market is constantly growing and evolving due to the rapid surge in demand for secure solutions for file sharing and data management among various businesses and legal firms.
Main VDR trends
The virtual data room market trends include the following points:
- High volume of business data arising from different M&As done by firms
- New data privacy regulations and laws getting imposed by the government
- Growing need for intellectual property and risk management fuels the growth of the market
There are also different cyber security issues related to the virtual data room, which hinders the market growth. Still, the surge in adoption among small and mid-size enterprises and increase in investment by various organizations in virtual data room technology solutions are expected to show major opportunities for future market expansion.
Main changes in the virtual data room market
The virtual data room market is constantly changing due to increased demand and digital transformation. Many companies have noticed that using a reliable data room helps to manage complex deals more efficiently and get needed results spending less time and resources. Here are two main changes currently noticeable in the VDR market.
Rise in need to securely store and analyze huge volumes of data during M&A
Data sources are continuously increasing, creating the need for storing this data in a secure place. The advanced features, document security, and intuitive interface of the virtual data room have led to the development of numerous powerful platforms on which M&A and due diligence can be managed effortlessly.
The virtual data room solutions are not only for due diligence processes. They are also becoming a medium for managing different financial transactions as well as the whole deal cycle.
Many institutions, both big and small, leverage many benefits of VDRs for their regular business activities. They mostly use them as corporate repositories and sharing information, which automatically fuels the growth of the market.
Increase in demand from venture capitals
The adoption of a virtual data room solution is increasing among many firms, especially venture capital firms. A data room enables these firms to conduct the procedures like due diligence and document preparation in an efficient and cost-effective approach. Compared to physical data rooms, online data rooms are much cheaper to maintain and easier to use. The increased number of venture capital deals resulted in higher demand for the VDRs.
Moreover, various firms have increased their usage of data room software due to the numerous benefits, such as time and money savings, and the ability to share confidential files with more users during the deals. 39.8% of total revenues for the virtual data rooms industry came from the demand that venture capital firms created.
The growth of the VDR market
In 2018, the global virtual data room market was valued at $1.3 billion. The market is projected to reach $3.63 billion by 2026. And the solution segment is responsible for more than 70% of the global revenue share in 2019. It’s due to the accelerating demand for data room software in various industries for complex deals, including mergers and acquisitions, financial transactions, fundraising, IPOs, and others.
Many other applications have also increased the demand for a reliable virtual data room around the world. These are audit and compliance, restructuring and bankruptcy, and clinical trials. This demand helped the solution segment to have a notable revenue size in 2019.
Main Features of data rooms
Different providers have various virtual data room features, however, there are typical VDR functions that most data rooms share. These usually include the following advanced functions:
Security features
Top enterprise-grade data security is currently very valuable, as there are many cybersecurity risks and attacks which can be extremely damaging for business. VDR providers offer not only advanced security functionality, but also compliance with strict international security standards such as ISO 27001, SSAE 16, and ISAE 3402.
The most common security features include access restrictions, encryption, customizable advanced permissions, role-based access levels, fence view, dynamic watermarking, multi-factor authentication, and more. For example, you can restrict access to a certain document, so only those who have permission can view or download the document.
Artificial intelligence tools
A lot of paperwork, communication, and files are being shared back and forth. Artificial intelligence features will help you keep everything organized and easy to access. You can also be sure that no document is duplicated. Sophisticated AI features save a lot of time and help optimize mundane tasks. so you can be sure that documents are not duplicated.
Customer support
24/7 customer service is a sign of a good virtual data room provider. It’s crucial, as it will help you fix any issue you may have using a VDR no matter in which timezone you’re located. You can easily reach out to technical support at any time and get a quick response regarding your issue. The customer support team is usually friendly and responsive, making the whole process much better.
Document upload and management
Among other important features, there is bulk uploading that allows you to quickly get all needed files uploaded onto the data room. In a virtual data room, admins can efficiently manage sensitive documents by creating a certain structure and indexing system. This functionality is crucial for effective data management. It allows you to index and organize in the easiest and most efficient way for you.
Some apps or platforms require uploading documents one at a time. And most data rooms have a drag and drop upload feature together with bulk uploading, making the whole process quick and easy. There are also customization features, which you can use to add your brand colors and logos.
Some apps or platforms require uploading documents one at a time. And most data rooms have a drag and drop upload feature together with bulk uploading, making the whole process quick and easy. There are also customization features, which you can use to add your brand colors and logos.
There is also auto-indexing, which helps to keep all files organized. You can find the needed information in just a few seconds, making the due diligence process run quickly.
Activity tracking
Activity tracking and analytics are some of the greatest features online data room software has. You can track the logging on/off of the team members, how much time is spent viewing a certain document, and which file was viewed the most.
You can then use information from activity reports to help close the deal by catering to their wants and needs. Additional functions may include reporting tools that allow administrators to stay up to date with what’s going on within the data room and what’s the overall progress on tasks.
Communication and collaboration
A good data room has a good set of collaboration tools and communication features, including a Q&A section, commenting on the documents, sending information or file requests, and more. It’s extremely helpful to also have life-chatting features, especially when team members can’t be in the same room together or are located around the world.
Team members can send messages back and forth in real-time. Live chat also has a written chain of communication, which can be referred to anytime when needed.