What is a Data Room?

Types of data rooms

A data room is a secure place to share documents. It allows information to be disclosed to specified individuals, while minimizing the risk of it being seen by anyone else. Data rooms are therefore used in mergers and acquisitions (M&A) and other sensitive business transactions, for some legal processes, and also for general file sharing and storage.

Historically, data rooms were physical rooms containing hard copy documents. Today, most data rooms are secure websites. These are sometimes called virtual data rooms (VDRs). Being software-as-a-service (SaaS), they can offer more customized levels of security, and supporting features in addition to basic file sharing.

Who uses data rooms?

Data rooms are essential to M&A. Users of an M&A data room will include corporate development teams, investment bankers, private equity professionals, and legal teams. Data rooms are also vital for initial public offerings (IPOs), as these require both transparency and confidentiality.

Data rooms may also be used in company audits, by providing a single secure repository for all the documents that the auditors, accountants, lawyers and regulators need to see. Collaborative business projects may also use data rooms to centralize key information. A business might also use a data room simply for file storage and sharing.

What features should be included in a data room?

Here are the key features you should look for when choosing a data room:
  • bullet-lock.png
    Security

    Preferably ISO 27001 and SOC2 certifications, and high quality data encryption.

  • Flexible permissions

    The ability to set different levels of access based on role.

  • Data backup

    Preferably involving multiple servers across multiple locations.

  • Smart bulk upload

    Being able to retain file structures saves a lot of time.

  • Automatic categorization

    To help you file everything in the best place.

  • Redaction

    Hiding sensitive information in documents with the option to disclose it later.

  • Watermarking

    To guard against illicit copying/sharing of documents.

  • Optical character recognition (OCR)

    To make scanned documents searchable.

  • Translation

    Many deals will involve documents in multiple languages.

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    Q&A process

    A data room makes this quicker while reducing risk of errors.

  • Analytics

    Track a project's progress and findings.

Why should you

use a data room?

  • Security

    Copy about Security.

  • Risk management

    Copy about Risk management.

  • Efficiency

    Copy about Efficiency.

  • Speed

    Copy about Speed.

  • Easy to use

    Copy about Easy to use.

  • Protecting deal value

    Copy about Protecting deal value.

How do you create a data room?

You can set up a data room in just a few steps. At the simplest level, these are:

  1. Find a data room provider
  2. Upload the documents you wish to keep in it
  3. Categorize and index the contents in the most suitable file structure
  4. Redact any information that users should not see (or should not see yet)
  5. Create roles (i.e. define the different types of users who will need access) and set their permission levels
  6. Import any checklists you need to manage and track the project

If you have any additional questions about data rooms, feel free to contact us.

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