Due diligence is a necessary evil that new and existing businesses have to accept. But, the process does not have to be as dreadful as it seems if companies prepare in advance. The key is to gather everything that will likely be needed during an investigation, along with things that may not even be necessary but are a good idea to have on hand just in case. There is nothing worse than trying to put important information, especially detailed financial matters, into a coherent format at the last minute. And, mistakes are more likely to occur if the team is trying do this under the pressure of having to deliver quickly or risk losing a deal. Here is why a virtual data room (VDR) is the best software tool a company can use to prepare for due diligence:
If your company has not done so already, you should establish a corporate repository as soon as possible following the formation of your business. This is true even if you do not anticipate undergoing a due diligence investigation. It is a lot harder to organize documents after they have piled up, and far more likely that it will never happen if the stack continues to grow unabated, even electronically speaking. And, for companies that do anticipate fundraising, whether through venture capital, private equity, or any other route, an organized deal room will be needed for the due diligence phase.
The great thing about a VDR is that it can have multiple purposes, serving as a general repository and later as a deal room, when needed. Instead of scattering documents on different computers or networks, all of a company's information can be uploaded to one central location. This will ensure that documents are organized from the get go, and it will make it a lot faster to drag and drop any needed items into a specially created folder for any due diligence investigation.
VDRs obviously make saving and locating documents incredibly convenient, but they also facilitate a more efficient due diligence process. As companies reach out to prospective investors, they can quickly provide anyone that is seriously interested with access to the established deal room. Then, for any investors that choose not to proceed, the VDR administrator can quickly disable the firm's or individual's access, ensuring that no one continues to have unfettered access to the VDR's contents. This ensures that things run smoothly, and the team always knows where they are at in the process.
Plus, a solid VDR will have an activity tracking feature that allows companies to see who was actually in the room and what specifically they viewed. This can help companies figure out whether they need to furnish additional information relating to something that may have been viewed frequently or which investors may warrant more of their attention.
The affordability of the more modern VDRs is probably one of its biggest benefits. Rather than waste money on printing materials, saving documents on external drives, or traveling to other cities to do presentations, a VDR offers the perfect way to introduce outside parties to information that is relevant to the deal. Even though in-person meetings and presentations may be necessary at some point, the VDR can still serve as the central repository for any deal-related items that investors or other professionals want to view at any point during the investigation. And, because of the reasonably-priced VDR solutions that are available, companies can hold onto this resource beyond any due diligence phase.
During due diligence, there is no way to avoid the fact that your company will be divulging a lot of sensitive information. The other parties would not be doing their due diligence if they did not scrutinize every single detail, financial or otherwise. However, it can be a bit jarring knowing that so many people will be looking at, judging, and perhaps taking ideas from every aspect of your cherished company.
Fortunately, a reputable VDR provides some level of comfort because of its advanced security features. Just because the due diligence process requires full disclosure does not mean that such disclosure is perpetual or that access must be unlimited. The right VDR solution should mandate multi-layer authentication, allow for limitations on users' access, provide for watermarking or the generation of non-disclosure agreements as appropriate, and implement other measures to ensure that data is protected.