When your business is preparing for a major financial transaction, like the sale of the company, a fundraising round, or an Initial Public Offering (IPO), you need a safe place to store all of the documents required for third parties to conduct a due diligence investigation.
There are a couple of common ways to execute this task. Most of the time, a data room is utilized to facilitate due diligence, but there are various types of data rooms and factors to consider when determining what your company needs for a successful transaction. This article covers what a data room is, common features and functionality, data room pricing, and things to consider when choosing a data room provider.
What is a Data Room?
A data room is a secure location or database where important documents are stored and accessible only to individuals with the appropriate credentials. Files housed in a data room typically contain private or confidential information that a business needs to protect and share securely during due diligence, including:
Traditionally, data rooms were physical locations where this sensitive information was protected under lock and key by security personnel. Today, virtual data rooms (VDRs) are the preferred method for protecting sensitive data and sharing with specific individuals during due diligence for significant financial transactions and business deals.
Data Room Features and Functionality
Every virtual data room solution comes with a unique combination of features to protect your sensitive data and facilitate the due diligence process. Here are some of the most important features and functionality to look for when comparing virtual data rooms.
Based on the importance of the documents that are stored in data rooms, having a comprehensive set of security features is a must. Most data rooms come with a variety of security protocols including data encryption, customizable NDAs, multi-factor authentication, and personally-identifiable watermarks to remind users that documents may contain confidential information.
Data rooms serve as searchable document repositories that allow users to instantly find any file or key term. Whether you’re investing in a data room to help with a one-time financial transaction or are using it to permanently store and organize sensitive or confidential documents, search functionality will help you find needed information quickly.
Permission-based user roles provide a way for system administrators to set varying levels of file and folder access within your data room. For example, admins can set one level of access for potential investors and another for auditors, so each group can only access the documents relevant to their specific roles. Common user roles include no access, view-only, download, and full access.
Audit logs serve a number of purposes in data rooms. Perhaps most importantly, activity audit logs allow administrators to see who viewed specific documents when, which can provide valuable insight to better understand the level of interest from potential buyers during the M&A process. Audit logs also provide an additional layer of security by revealing detailed information about a user’s actions.
Questions will undoubtedly come up during the due diligence process, and the Q&A feature in data rooms provides a simple, straightforward way for a business to answer those questions. The Q&A feature enables users to ask questions about a document discreetly within the data room, and keeps the conversation contained in the secure environment.
Dashboards are visual representations of key activity in your data room, and allow select users to see high-level information at a glance, like which documents are viewed most frequently, who the most active users are, and more.
Some data room solutions also come equipped with built-in electronic signature functionality. This simplifies the process of getting NDAs signed before third parties are given access to your intellectual property, private financial information, or any other documents that you want to protect from a broader audience.
What Does a Data Room Cost?
Data room pricing ranges from one solution to the next, so it’s important that you select a provider that aligns with your specific requirements. Variables including document count and number of users, and additional features all factor into your VDR price, so be sure to understand exactly what you’re getting from each data room when comparing solutions and pricing packages.
Most providers offer free trials so you can experience the software before deciding whether or not to purchase. Take advantage of this opportunity to determine if the platform does what it says it does and determine how user-friendly and intuitive each data room is. You want to find a data room that is easy to navigate, both for your team and any third party users that will be accessing your information. Added features and functionality can enhance your experience, but they also have the potential to drive up data room costs and slow down the deal process by making it harder to find needed information.
Choosing a Data Room Solution
As mentioned previously, data rooms vary greatly in terms of pricing, features, complexity, and more, so the solution you choose should reflect your specific goals and requirements.
If you’re planning to give hundreds of users access to your documents, finding a data room that offers unlimited users makes more sense than paying on a per-user basis.
If you need to get your data room up and running right away to capitalize on a time-sensitive opportunity, it makes sense to prioritize ease of use and simplicity in your data room search.
If you have colleagues and partners around the world with varying levels of experience working with data rooms, choosing a solution that offers 24/7 support and training will ensure all of your users have the help they need when working in your data room.
Software review sites like Capterra can provide valuable insight to help you choose the right data room solution. After narrowing down your choices based on user reviews and alignment with your software requirements, you can then start the free trial process with your top candidates.
SecureDocs Virtual Data Room is known for its transparent pricing, practical features that actually get used, an intuitive, user-friendly interface, and industry-leading 24/7 customer support. Contact us today to start your free trial.