If you work in the UK corporate world, chances are high you’ve already heard of virtual data rooms. Because, though VDRs were initially designed to facilitate M&A and IPO due diligence, more and more companies are using them for other kinds of due diligence — and in fact, for just about any process that involves sharing confidential information online.
According to this UK Market Research Report, “the digitization of business processes (…) has supported a shift in document management and storage solutions from physical data rooms to more secure and functional virtual data rooms”.
So, VDRs are an increasingly popular tool. But if you haven’t actually worked with one yet, you may be wondering — what exactly is a virtual data room, and how does it help you with due diligence?
Due diligence data room — what is it?
The first word to keep in mind when you think of a virtual data room is this: security. Because that’s what sets online data rooms apart from other virtual data-sharing tools such as email, Skype, WhatsApp, WeTransfer, GoogleDrive, Dropbox and so forth.
A virtual data room for due diligence is a secure online platform where you can store and share all documents necessary for a due diligence process, while keeping full control of who can view the confidential information they contain.
How does that work? On the frontend, security is ensured by a series of features that allow you, as data room administrator, to decide:
● which users you invite into the data room
● which folders and files those users can access
● whether a user can view, edit, download or print a file
● which private information you want to redact from a file, so the user can view the file but not that specific data
● whether you want to watermark a document with the viewer’s personal information
● when to revoke access, so that a user no longer able to enter the data room or even open files they’ve already downloaded
Other frontend security features in a due diligence data room can include two-factor authentication for user login, Single Sign-On, fence view, expiration date for file or data room access, among others.
On the backend, due diligence data room providers ensure security with measures like multi-layered data encryption, restricted access to physical data centres, real-time data backup, and more.
How to use data rooms for due diligence
So, if you’re convinced that a virtual due diligence data room is what you need, what should you do to start using one?
1. Research and choose a data room provider. There are dozens of due diligence data room services on the market. In order to choose a good fit for your company, it’s important to know what you need and who can provide that.
2. Sign up for a free trial. It’s best not to commit to a provider without first trying their product, so if possible, do a free trial before you sign up to a paid plan.
3. Set up your data room. Here’s where you start operating your VDR. Create a data room for your due diligence project, name it, and if you have the option to, customise the interface with your company’s colours and logo.
4. Upload folders and files. The best VDR providers will allow you to drag and drop folders and files directly from your device into the data room. Bulk upload is usually possible, and spares you hundreds of clicks.
5. Organise your data room. Make it easy for other users to find what they need by renaming folders and files. The best data rooms have automatic renaming and indexing tools, which save you a lot of time.
6. Set up user and group permissions. By adding people’s email addresses, you create user profiles for them in the data room platform. You then decide who is able to interact with your files in which way.
7. Test with “View As” mode. The best data rooms give you the possibility to ensure you’ve granted the right permissions to each user by impersonating them before you actually invite them into the VDR.
8. Invite users. They will get an email invitation to join your VDR.
9. Create a Q&A room. The best data room providers allow you to save time and effort by publicly answering individual users’ questions in a Q&A room.
10. Control user interest and activity. With tracking and reports tools, you can check how users are interacting with your documents, track how the due diligence is going, and determine which prospects and bidders are most interested in the deal.
Due diligence data rooms’ benefits
By now you probably have an idea that there are many advantages to using an online due diligence data room. Let’s list them:
● Greater security. By moving your due diligence process to a secure platform, you practically eliminate the risk of sensitive company information being lost, stolen or misused.
● Lower costs. If up to now you’ve been using physical documents to conduct due diligence, an electronic data room for due diligence will save you all expenses of printing and mailing. If you were using a physical data room for due diligence, that’s also an expense you can strike off your budget.
● Increased speed. There’s no comparison between the amount of time it takes to share and review due diligence documents by email or messaging and the amount of time you spend on electronic data room due diligence. With the latter, you upload a document once, and invite users once. Later updates and edits are all automatic. And other users don’t have to spend time looking for dozens of different documents and versions in past emails or messages. This is why using an online data room helps your due diligence process go considerably faster.
● Less effort and stress. That nightmare of different versions emailed to dozens of people (some of whom can’t open the files), edited versions that must be integrated, updated versions that must be mailed out again — it’s all over. For you and for your prospects, bidders and partners.
● Added insights. Thanks to the data room’s analytics features, you can have an in-depth look at the due diligence process itself, assessing which points in which documents are likely to raise issues, and finding out who is really interested in the deal based on the time they spend in the VDR.
● Streamlined reporting. If legislation or company rules demand compliance, you can easily generate activity reports within the data room, showing proof that everything is being done as it should.
Data room due diligence checklist
In order to find the best online data room for your company, there are some steps you should follow. They can vary according to your personal modus operandi — but just to help you get started, here’s a due diligence data room checklist:
1. Decide what features you need in a virtual data room for due diligence. Some of these will be general — like bulk upload and granular user permissions — while others will be specific to your industry and even your company — like a document checklist for real estate due diligence, the ability to view the data room in a foreign language, or the need for training on how to use the software.
2. Decide how much you can spend on due diligence virtual data room services.
3. Research industry and providers’ websites, and shortlist several providers who offer all the features you need.
4. Check the pricing systems and plans those providers offer, making sure you don’t miss any hidden costs or fees. Eliminate the providers that don’t fit your budget.
5. Check customer reviews on independent websites to have a realistic idea of the service you will be getting from each provider. Remember to check reviews from companies in your industry, as their needs are probably the most similar to yours.
6. Pay special attention to what users say about customer support. Even the best software can have glitches, and in that event you want to be helped promptly by someone who will solve your issue quickly, efficiently, and cheerfully. Also, make sure the provider operates during business hours in your country. If you need support available 24/7 — supposing you have important stakeholders in various time zones — there are VDR providers who offer that in their plans.
7. Sign up for a free trial of your first pick or two. This way you can really see if the software works for you, your team and other stakeholders.