TOP 12 Virtual Data Room Providers
Best Virtual Data Room Software: The Complete Guide
What is a virtual data room?
A virtual data room — also known as a virtual deal room or online data room — is an online platform for securely storing, sharing, and collaborating on documents. While there are virtually unlimited ways to use a data room, the most common cases include M&A, corporate due diligence, portfolio management, and real estate.
When it comes to what devices they work on, a digital data room can be available for desktop computers, mobile devices, or both. Some virtual data rooms are available on different operating systems, while others work on only one.
It’s important to note that online data room providers usually offer their clients different service plans and that there is often at least one plan that allows admin users to create multiple secure data rooms. This is crucial for businesses that are working on multiple projects simultaneously since they can have one separate data room per project.
Virtual data room technologies are confidently taking over the deal-making scene across the globe. Some users find value in enhanced security combined with the convenience of online collaboration. Others seek specific tools and approaches to improve their workflows by using various deal room services.
In recent years, the tendency towards digitizing work processes gained unprecedented momentum. Companies across all industries found unique benefits in remote collaboration and decision-making.
Virtual data room providers played a crucial role in the global shift, as they addressed the most crucial concern for online document sharing: security. Sensitive data leaks can have catastrophic repercussions, especially for high-stake transactions, which are the main focus of a digital data room and its users. This is why the possibility of using a secure data repository has been a game-changer for remote work.
In recent years, the tendency towards digitizing work processes gained unprecedented momentum. Companies across all industries found unique benefits in remote collaboration and decision-making.
Virtual data room providers played a crucial role in the global shift, as they addressed the most crucial concern for online document sharing: security. Sensitive data leaks can have catastrophic repercussions, especially for high-stake transactions, which are the main focus of datarooms and their users.
Who uses virtual data rooms?
How it all started
The data room industry began long before anything digital was around. Before data rooms became digital, they were physical — brick-and-mortar securized rooms that functioned as a corporate repository for printed confidential documents. Physical data rooms were mainly used during due diligence for mergers and acquisitions.
The first digital storage solution for corporate documents was the floppy disk, introduced in the market in 1971. Storing documents on floppy disks saved an enormous amount of storage space and made it easier to transport large quantities of documents. It also saved time — when reviewing documents, it was much easier to do it digitally than having to work one’s way through thousands of printed pages.
Information technology continued to evolve, and over ten years later, in 1984, the CD-ROM was launched. It had a much larger storage capacity than floppy disks. But still, it didn’t solve the problem of sharing confidential documents with people in other locations.
But that was soon to change. The Internet had become a part of the corporate world in the early 1980s, and by the second half of the 1990s, the first digital deal rooms started to operate. Though at first virtual data rooms had security issues, there was continuous work to bring them to a security level superior to that of physical data rooms. Soon the new solutions changed the course of deals, increasing security and collaboration on sensitive data.
Virtual data room solutions were originally used for storing corporate data by financial institutions, including various funds and banks, accounting services, etc. However, they soon expanded to other industries as well. Now enterprises from practically all business sectors use online data rooms.
Who uses virtual data rooms now
Modern data room vendors offer solutions for all kinds of use cases. However, the primary users of data room technologies remain in the following sectors:
- Investment banking
- Real estate
- Healthcare and pharmaceuticals
Although the companies from the above sectors all serve a different purpose, they have one common requirement for the deal room they use. The VDR has to guarantee multiple-level security by establishing ironclad policies and following industry-defining standards.
Along with security, a virtual data room needs to feature a sufficient toolset for all possible implementation cases.
What are the main use cases for virtual data rooms?
Data room software is used across many industries (if not all of them!), by large businesses as well as small companies. This happens because any process that involves storing and sharing sensitive documents can be better carried out with the use of a virtual data room — whether it’s distributing confidential information within a film production company, storing the results of life sciences research in a biotech company, or licensing intellectual property.
In fact, there are hundreds of different ways to use virtual data room solutions. But the most common use cases are the half dozen listed below.
Mergers and acquisitions always involve a series of intricate financial transactions and processes. A virtual data room can help with streamlining the entire workflow by centralizing all the documentation, offering specific benefits at every stage of the deal.
For example, during a corporate merger, the deal marketing team can use the virtual data room software to share materials and gather feedback, while the company’s HR can upload the employee contracts and other necessary files.
As another example, when a company is acquiring another, their legal departments can use a VDR solution to share all the legal documentation necessary for the transaction, including:
- purchase agreement
- employment agreement
- non-competition agreement
- consulting agreement
- transition services
- office leases
Thorough document checks are a part of any critical transaction, including acquisitions, investments, and more. A data room can work as both the file repository and the collaboration and interaction platform for all the parties involved in a due diligence process.
For instance, in real estate transactions, online deal rooms are the best solutions for agents and managers to collect and share with their prospects confidential documents such as:
- the seller’s financial records
- tax certificates
- property titles
- zoning regulations
The main challenge of raising funds remotely is the number of potentially interested participants. Using datarooms in such a case allows capital seekers to monitor the process better, evaluate enthusiasm levels, and share just the right data with each entrant.
For instance, in fundraising for startups, the startup founder can use a virtual deal room to share with potential investors confidential documents such as:
- financial statements
- annual projections
- list of references (team members, advisors, current investors, etc.)
By accessing user data analytics and reports, the data room admin can check who is viewing each file, how many times, and for how long. This allows them to gauge the interest of each potential investor in the startup, and decide on whom to invest their time and attention.
A secure data room is also an excellent solution for various audits, mainly financial ones. The data room offers the necessary amount of transparency brought by activity tracking and user-level rights management. This way, the auditing happens more smoothly and productively than it would if the auditors were using a physical data room.
Using virtual data rooms, company managers can share with auditors sensitive documents such as:
- payroll reports
- data on corporate bank accounts
- the general ledger
- copies of legal documents
Besides ensuring data security, virtual data rooms offer the possibility of naming and organizing files and folders so that it’s easy for auditors to go directly to what they need, saving time. Virtual data rooms also make it possible for external auditors to work remotely, with no need to commute to the premises of the company they are auditing.
Filing for an Initial Public Offering is a multi-stage process that requires the expertise of many different contributors, such as investment bankers and lawyers. Virtual deal rooms simplify the process of gathering documents, sharing them with experts, and getting their opinions and edits.
A virtual data room also makes it possible to organize the phases of the process by separating them and helps managers closely observe the overall progress.
Secure document sharing
Exchanging critical data is also essential to board management, expansions, restructuring, and many other procedures, including legal procedures. Virtual data room software that meets the specific needs of each project while offering top-grade security and versatile features always makes an invaluable addition to the workflow organization.
For instance, in civil litigation, a virtual data room can be the best solution for lawyers to organize and work together on confidential data such as:
- legal research
- records of witness interviews
- documents they need to review
In the case of board management, the board secretary can use a data room solution to share multiple files, such as meeting agendas, board packs, meeting minutes, and other board documents. Board members can collaborate on the documents ahead of the meeting, or even during it.
What security features make virtual data rooms unique?
Virtual data room providers rightfully prioritize security, as it is the foundation of every remote deal’s success. Efficient data room software can significantly improve the way sensitive data is handled by automating most processes and reducing the risk of human error.
There are several key factors to consider when evaluating the security approaches of different data room vendors. They are the following.
Since secure cloud storage is the reason why VDRs exist in the first place, data room vendors must take all the necessary measures to comply with industry-wide security standards for data protection. Examples of virtual data room certifications and compliances include ISO/IEC 27001, SOC (SOC 1, SOC 2, and SOC 3), GDPR, HIPAA, and others. When a data room has these security certifications, you can take it as a guarantee of protection for your confidential data, and of safe information exchange.
Since physical servers power data room software, it is crucial to know where the VDR data centers are, how the provider ensures their maintenance, and what security measures are in place to protect them. Some virtual data room services facilitate their own data storage, while others employ third-party services such as AWS or Microsoft Azure.
Not every virtual data room user has the same rights and privileges. Based on every contributor’s part in the project, the datarooms need to allow role-specific permission assignment for groups, individuals, and even particular sections of the online data room, thus ensuring thorough access security and file protection.
Visual document protection
Even authorized users can accidentally compromise data security by accessing the virtual data room in a public space. That’s why advanced data room providers offer secure-view features like fence-view or instant shield, which ensure sensitive documents won’t be seen by the wrong eyes.
A good virtual data room software will also let users configure the safety conditions on the document level. For example, datarooms can facilitate assigning file expiration, NDA pop-ups, terms of access, and other conditions that increase document security.
User activity reports
Experienced virtual deal room providers know how important it is to keep a hand on the pulse of the deal by monitoring the progress in general and every participant’s activity in particular.
Virtual deal room services such as remote shredding, printing limitations, screenshotting, and downloading restrictions can further improve users’ sense of control and confidence.
What are the real benefits of a virtual data room?
Virtual data rooms simplify all document management processes because they do not suffer from the same limitations as physical data rooms. With a virtual data room, there’s no need for data managers to spend time and effort printing, binding, and transporting thousands of printed pages. There’s no need for them to spend more time and effort filing, organizing, and updating documents. There’s no need for external stakeholders to travel to a different location to consult documents. And there’s no need for any party to worry about leaks of confidential data.
Let’s look more in detail at the benefits that modern virtual data rooms provide, and why they are more convenient than both physical storage, and non-secure cloud-based storage (such as Google Drive).
Ease of use
Data management is much easier on virtual data room solutions than in traditional data rooms. With a few clicks, an admin can create a new data room, upload documents to it, rename and organize document files, and set secure sharing permissions for multiple users.
Had this admin been dealing with physical documents, he’d have to spend hours on time-consuming tasks — printing hundreds of pages, binding them, and mailing or delivering all the documents to several different people. If any updates were necessary, he’d have to repeat the entire process.
Besides it being easier for admins to share confidential files in a digital deal room, there are VDR collaboration tools that make it much more convenient for other interested parties to view and work on deal documents.
And precisely because virtual deal rooms are so much easier to operate for both admins and other users, VDRs significantly streamline the entire deal process.
With physical documents, it’s very difficult to have full control over sensitive information. Printed pages can be seen by unauthorized people, or they can be stolen, copied, and put back — and no one will know. Even if a company uses a physical data room, it can happen that someone unauthorized gains access to it.
Non-secure cloud services can be even less secure than a physical data room — a Google Drive link can be shared around, an email can be forwarded to the wrong party, and downloaded documents can be sent to just anyone.
Virtual data room solutions on the other hand greatly increase document security. In online deal rooms, the confidentiality of sensitive corporate information is protected by multi-factor authentication, data encryption, access control features, and several other security features described above in the section “Secure virtual data rooms: unique features”.
User tracking and control
When a company uses virtual data rooms to share confidential documents, they can check the data room activity of every individual user, in each folder and file. This ensures that the admin knows exactly who’s doing what. If any critical documents leak, the admin can find out who caused the leak — and knowing the admin has this level of control, users feel a strong incentive to make sure they respect data confidentiality.
But besides ensuring secure document storage and file sharing, user tracking offers another advantage to data room managers. During transactions in which multiple bidders compete against each other, admins can gauge each bidder’s interest by the amount of time they spend on the deal’s documents.
Just think of all the time, effort, and money you save when you store your data in a secure online repository instead of a physical deal room, and you will easily see why virtual deal rooms are cost-efficient. It’s true you will spend a monthly or annual sum to hire virtual data room services, but the amount you will save largely compensates for it.
When it comes to using a free online storage platform versus paid-for virtual data room solutions, it may seem that the free solution is the more cost-efficient of the two. But how much would a leak in confidential information cost your company? When you pay for a VDR, you are ensuring data security — and your own tranquility.
6 steps to help you choose the best virtual data room
The most challenging step of transferring your project to a virtual data room is selecting the best data room software. The data room defines how fast the deal will close and how convenient the process will be for everyone involved.
Considering the abundance of products in the current virtual data room market, the best solution is to follow a decision-making framework. Here are the steps to follow when looking for a fitting secure data room:
Step 1: Allocate the data room budget
Data room services cost differently depending on the user’s company size, project type, and the provider’s price formation policies. The best idea is to look at past clients of data room providers to estimate the approximate budget.
Step 2: Identify available data room providers
The next step is to gather a list of available, secure data room providers based on the price, regions of operation, and market expertise. Shortlisting the best data room providers for your company will include checking websites and examining relevant feedback.
Step 3: Outline the required virtual data room features
Different use cases call for specific virtual data room features. The crucial aspect here is to define the data room services and tools that will bring value to a specific project. When you complete this step, you should have a list of necessary features — which you will use in the next step to compare virtual data rooms.
Step 4: Compare datarooms
The next stage is to compare your shortlisted data room options using the criteria you decided on in the step above. By drawing up a virtual data room comparison table, you will quickly find out which providers can fully answer your business needs. Picking two or three data room providers out of these should be enough.
Step 5: Contact the data room providers
Once the target virtual data room companies are identified, it’s time to reach out to the support teams of the different providers to ask questions about their VDR services, estimate the project’s cost, and address any other concerns.
Step 6: Request a virtual data room demo
A data room demo can help make a more hands-on decision. And if a virtual data room offers a free trial period, you can sign up for trials with one or two providers. This will help you check which one is the best virtual data room for you, and you can also use the trial period to prepare the data room of your choice for future operations.
Why you should use a virtual data room
It used to be that when a company needed to store and manage sensitive documents, they used a traditional, brick-and-mortar data room. We’ve seen why that’s no longer the case — virtual data rooms replaced physical ones because they:
- are easier to use
- increase transaction speed
- are more secure
- give admins greater control over user activity
- are more cost-efficient
Virtual data rooms facilitate data management and data sharing for all kinds of business transactions. Using the services of a VDR provider, companies and nonprofits can securely store documents online and use collaboration tools to improve processes such as file sharing, M&A due diligence, financial transactions, and countless others, across all industries.