The Ultimate Guide to Virtual Deal Rooms and Their Benefits for Businesses


The Ultimate Guide to Virtual Deal Rooms and Their Benefits for Businesses

In 2021, 81% of companies tried to adopt some type of digital technology in their governance processes — to automate repetitive tasks, improve administration, and increase overall efficiency.

That laid the basis for the virtual data room’s rise, which made global dealmaking unbelievably faster and safer. Where financial transactions like mergers and acquisitions used to take months or sometimes years, data room software has reduced that period to weeks or even days.

What are virtual data rooms? What else can businesses use them for? Who can use them? What to look for when choosing a data room? What are their benefits? Here is what you need to know about online data room software.

What is a virtual data room?

Known by different names — like an electronic data room or online data room software — a virtual data room is a digital, cloud-based documents repository primarily used to share, store, and manage documents during dealmaking.

A virtual deal room generally consists of multi-purpose tools for online meetings, digital communication, due diligence, and project management.

What is a virtual deal room mostly used for?

M&A and due diligence are among the most common use cases of virtual data rooms.

Virtual deal rooms improve the due diligence process by minimizing the physical paperwork and minimizing overhead costs and clutter. Data room software makes it possible to give instant, 24/7 access to users or third parties involved in such transactions.

Additionally, data rooms make M&As a breeze by bringing all data sharing and storing processes to one centralized location. Third parties can request data access, leave notes or annotations, request clarifications on ambiguous information, and share data in real-time. Also, VDR technology creates a secure communication bridge between everyone in the transaction.

In a nutshell, data room software is commonly used for due diligence and M&As due to its:

  • Safe data sharing between external and internal parties
  • Secure data storage
  • Project management capabilities
  • Data analysis and tracking features
  • Online communication management tools

Who can use data room services, and what for?

Apart from M&A and due diligence, virtual data room providers have spread into other use scenarios as well. For example, nowadays there are dedicated data room vendors specialized in capital raising, real estate management, audits, strategic partnerships, private equity transactions, biotech licensing, clinical trials, litigation, and more.

Similarly, some vendors target small and medium businesses, while industry giants provide services to enterprises and the corporate sector. Data room services can be further segregated into commercial businesses, nonprofits, clubs, and government institutions.

That said, the following industries are the major consumers of data room technology:

  • Financial institutions — banks, credit card companies, investment bankers, etc.
  • Private equity firms
  • Telecommunication
  • Life sciences
  • Education
  • Oil and energy
  • Information technology
  • Services industry
  • Corporate sector

What factors to consider when choosing a data room?

The data room selection process depends on the needs and nature of the business subscribing to it. Yet, the virtual data room price to quality ratio is the most important for making a sound business decision.

Ronald Hernandez, Founder of an expert data room comparison platform, says that: “Virtual data room pricing is the trickiest selection criteria to consider. Many data room vendors employ hidden fees and sophisticated pricing policies, which makes it difficult to identify them at a preliminary review stage, thus ending up paying more than initially expected.”

To reduce risks associated with pricing, look for a vendor with:

  • Transparent fixed fee pricing
  • Several package offers depending on business needs
  • No hidden fees

Additionally, you should compare virtual data rooms based on:

  • Your needs and objectives to identify the functionalities you need from a data room
  • Budgeting to decide how much you are willing to pay for data room services
  • Virtual data room solution expertise to assess its market reputation, customers’ data room review results, and other important criteria
  • Free trials to complete a test drive and understand whether the potential service provider has everything you need

Top benefits of using virtual data rooms

Data rooms benefit businesses and professionals in various ways. Here are some of them.

Safe data management

From data storage to data sharing, data rooms give businesses the exact level of security they need for their confidential information. They not only can control the flow of data in the VDR but also minimize the risk of data leaks or breaches. Most notable security features include 256-bit data encryption, multi-factor authorization, dynamic watermarks, document shredding, and access permissions settings.

Remote data access

Data room software makes it possible for employees, business teams, board members, investors, stakeholders, and third parties to access data rooms from anywhere in the world. An internet connection and a smartphone, tablet, PC, or laptop are enough to access information stored in your VDR.

Administrative cost minimization

Virtual data rooms are not only cheaper, but they also minimize other administrative expenses. For example, easy and instant access to digital documents minimizes the need for paper documents, thus reducing paper, printing, and distribution costs.

Summing it up

Virtual data rooms are cost-saving, easy-to-use digital data repositories used by businesses for data management, deal management, mergers, acquisitions, due diligence, and other similar transactions. 

While data rooms have spread into every business sector, the choice of a reliable solution is difficult due to sophisticated pricing procedures and hidden fees employed by some vendors. 

To minimize pricing risks and find the solution that can fully satisfy your needs, look for a vendor with transparent fixed fee pricing and no hidden fees. Additionally, you should evaluate its feature set, estimate its market expertise, and leverage a free trial to find out whether the vendor fully meets your needs.

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