In this post, we will consider what is a Data Room and the purpose of using this tool.
Why businesses choose Data Room
Lawyers who deal with M&A transactions (of course, not only them) quickly get used to the large volume of documents that need to be reviewed. Gigabytes of data are subjected to a systematic scrupulous analysis, formulations, numbers, deadlines, and obligations are carefully verified. Not so long ago, the conclusion of the deal was preceded by a “cult trip” of the buyer’s lawyers to the seller’s office to get acquainted with all the documents necessary in the due diligence process in a separate room. Technologies have made it possible to speed up the work due to the exchange of electronic versions of documents. This can be done by sending the requested files via email or using cloud storage like iCloud, Google Drive, or Dropbox. The problem with both options is security. Maybe someone didn’t know, but it’s unsafe to share important documents simply by mail or by throwing a link to Dropbox. Thus, a useful technology that solves these problems was implemented. We are talking about virtual data rooms.
The Virtual Data Room (VDR) provides secure data exchange and storage in a private corporate cloud, or within the perimeter of the organization.
The use of the data room in operations, fundraising, and overall company strategy serve as a tool for transparency and consistency.
Requirements to creating a Data Room
The main function of the VDR is to provide access to secure documents for authorized users through a dedicated website. So, there are the following requirements when setting up this software:
- The data room must be stored in a secure folder or file-sharing You can usually use Dropbox or Google Drive, both of which are free and have great tools.
- The data room should be organized into categories (eg legal, intellectual property, marketing, etc.) to simplify the search for documents.
- Sharing a data room doesn’t have to be that easy. You share the information that underpins your business – everything you have built will be displayed in these documents. Reread the last sentence.
There are many ways to keep your information secure with Data Room:
- Use secure links that only certain emails have access to (this will ensure access only to people you have personally interacted with);
- Set expiration dates for links (5 days to a week should be more than enough, but 5 minutes or hours is clearly not enough);
- Prevent file uploads;
- Never grant access permanently (just don’t let someone sneak into your data room whenever they want to).