For aspiring entrepreneurs and startup companies, knowing how and when to raise capital for their businesses can be a challenging endeavor. This challenge only becomes compounded when you consider the dynamic digital landscape that all companies are required to navigate. Now more than ever, there is a growing need for companies to be able to provide secure and easily accessible information to their potential investors while minimizing lead-times through seamless virtual data exchanges.VDRs (Virtual Data Rooms) have been a popular choice for growing businesses when it comes to organizing and sharing documentation that helps support strategic investments. These document sharing systems provide a secure, centralized location to manage on-demand access of business reports, contracts, and agreements, and create a more productive environment when it comes to coordinating fundraising rounds and business acquisitions.
However, when raising capital for their business, some may feel that taking the time to invest in and manage a VDR might be an unnecessary expense, especially considering the number of file exchange systems to choose from. While this may be the case, it's important to understand the difference between VDRs and other file-sharing programs and when a VDR makes the most sense for deployment.
Virtual Document Management: Understanding Your Options
When it comes to organizing and sharing important business documentation, typically companies use one of two formats to do so effectively - either through cloud-based storage options or virtual data rooms.
- Cloud-Based Storage - Popular online solutions like Google Drive, Dropbox, and iCloud make it easy for companies to store, sync, and share files across multiple systems and are extremely approachable for new businesses. These solutions essentially enable you to create a shared folder of documentation that allows other users to access, download, and edit files stored there.
- Virtual Data Rooms - VDRs are organized differently than programs like Dropbox in that they serve a more specific function when it comes to organizing information for time-sensitive transactions. Rather than being an open repository for all types of corporate files or documentation, each data room serves a specific purpose, making them much more efficient for managing multiple projects in their own secure location.
Balancing Convenience with Security
An important distinction to make between standard file sharing platforms and VDRs is that they are designed differently when it comes to the balance they strike between convenience and security. The main reason why programs like Dropbox were invented was to create a more simplified approach to sharing files within an organization and with outside parties. This is why so many companies look at popular file-sharing systems as an easy way to prepare and share their documentation with investor groups. However, when managing sensitive business materials and making them easily accessible to a variety of outside sources, file-sharing systems can create privacy issues as confidential documentation is freely downloaded and distributed outside your network. This problem can be solved with the deployment of a VDR.
Business security is the main functionality of a VDR. Unlike file-sharing systems that only allow you to protect your documents through the file transfer process, VDRs keep your documents encrypted at all times and through all stages of the sharing process. This is done through a secure business portal that allows companies to track access and interactions with all their files and required investor documentation.
Is a Virtual Data Room Necessary When Raising Capital?
For companies who want to know if a VDR is necessary when raising capital, the answer is not clear-cut. While VDR provides more functionality than a simple file-sharing platform, not every business can justify the expense of a highly-secure document management solution. For smaller companies with very limited needs when sharing investment documentation, consumer-level sharing solutions may be perfectly suitable for the short term.
However, if your business is looking to scale its funding capabilities over time, or open up more opportunities with a more substantial amount of investors down the road, then adequately securing, tracking and maintaining your business documentation at all times is essential. Not only do VDRs provide a high-level of security for your business privacy, but they help to create a more efficient way of managing investment opportunities from start to finish, significantly improving results from fundraising rounds and investment cycles.