Home Virtual Data Rooms for Due Diligence: Essentials, Instructions, and Tips

Virtual Data Rooms for Due Diligence: Essentials, Instructions, and Tips


On this page:

Introducing virtual data rooms for due diligence

High-quality due diligence is the third most important predictor of M&A success, while digital workflows become more critical to successful due diligence. That is why, competitive U.S. companies spend $1.5 billion annually on secure virtual data rooms to make informed due diligence decisions. 

In addition, with the 2025 outlook for debt, equity, and M&A markets showing optimism, fueled by expected interest rate declines, more IPOs, and a less burdensome regulatory environment, the need for effective due diligence tools has never been greater.

So how do you choose the right diligence virtual data room? What are the benefits, and how to use VDRs for maximum efficiency and security? Our ultimate guide covers all you need to know about using a due diligence data room.

Top 3 data room for due diligence

1

Overall rating:

4.9/5

Excellent

Check price
2

Overall rating:

4.7/5

Good

View Profile
3

Overall rating:

4.6/5

Good

View Profile

What is due diligence?

Due diligence is a thorough investigation and analysis of relevant documentation performed before a major transaction, such as a merger, acquisition, or investment. Its purpose is to collect, verify, and evaluate key information about the target company, asset, or deal to determine its value, risks, and liabilities.

The scope of due diligence may vary depending on the type of transaction, industry, and specific deal terms. However, it typically includes the following:

  • Financial due diligence. Analyzing financial statements, cash flows, and profitability.
  • Legal due diligence. Reviewing contracts, licenses, litigation history, and intellectual property.
  • Operational due diligence. Assessing the target’s business model, processes, and supply chain.
  • Tax due diligence. Examining tax compliance and liabilities.
  • Environmental due diligence. Evaluating environmental risks and sustainability practices.
  • Commercial due diligence. Studying market position, competition, and growth potential.

Historically, the due diligence process took up significant amounts of time and effort, as it involved the expertise of various specialists and excessive volumes of data. What’s more, companies used physical data rooms for conducting the due diligence process, which often required a lot of physical space and required the presence of authorized parties.

However, with the recent rise of virtual data rooms, companies started to digitize the due diligence process, saving time and funds. And perhaps the biggest data room shift happened in the mergers and acquisitions (M&A) sector.

What is a due diligence data room?

A due diligence data room is a security-first digital workspace tailored to all the aspects of modern M&A due diligence. Virtual data room services offer collaborative tools, document redaction, data analytics, process automation, and unlimited cloud storage. A data room can help you streamline due diligence in these areas:

A data room can help you streamline due diligence in these areas:

  • Financial due diligence
  • Sales and customer service
  • HR and employee management
  • Compliance and legal due diligence
  • Administration, technology, and processes
  • Environmental due diligence
  • Strategic decision-making
  • Asset due diligence

With the help of an advanced virtual data room for due diligence, the sell-side and buy-side can facilitate the business transaction and collaborate on the deal more effectively.

Modern virtual data room providers offer a number of dedicated services traditional data rooms can’t provide. However, the main reason company executives choose a virtual data room over a physical data room is the security measures every virtual data room provider takes.

However, there are many other features that the best virtual data rooms offer for successful due diligence. Some of the most popular services include reporting options, the ability to assign tasks and track progress, and collaboration tools.

Due diligence virtual data room: Top 5 solutions compared

Ideals logointralinks data roomdatasite dataroomonehub data roomvenue data room
General information
Due diligence features
  • 8 levels of access control
  • Built-in redaction
  • Q&A workflows with bulk actions and auto-forwarding
  • Integrated FAQs
  • PDF auto conversions
  • File labels
  • Full-text search
  • Scheduled drill-down reports
  • Full audit trail
  • Automatic indexing
  • AI redaction
  • Activity reports
  • Zoom integration
  • Q&A workflows with bulk actions
  • Automatic indexing
  • AI redaction
  • AI indexing
  • AI translation
  • Built-in Q&A with FAQ sections
  • Excel data trackers
  • File previews
  • Automatic indexing
  • FTP getaway
  • Role previews
  • Client dashboards
  • Multi-file redaction
  • AI contract analysis
  • Activity dashboards
  • Automatic electronic archiving
  • Scheduled reports
Pros
  • 30-day free trial
  • 14-language interface
  • No plugins
  • 30-second live chat reply
  • No billing until project goes live
  • Dedicated project manager
  • Predictable cost and fixed subscription
  • 15-language interface
  • Quick customer service
  • Practical activity reports
  • Customer support in 20 languages
  • VDR consulting
  • Flexible pricing
  • 14-day free trial
  • Fixed pricing
  • 24/7 phone support
  • Flexible pricing
  • Country-specific support
  • 10-language interface
Cons
  • Long file paths when archiving
  • Limited interface branding
  • No free trial
  • Per-page pricing
  • Cumbersome interface
  • No free trial
  • Complex interface
  • No document referencing
  • Rigid and impractical access controls
  • Outdated interface
  • Limited integrations
  • Lack of automation
  • Limited permissions
  • Complex interface
DetailsCheck priceLearn moreLearn moreLearn moreLearn more

Top 5 due diligence challenges

  • 1. Data quality
  • 2. Time constraints
  • 3. Cultural clashes
  • 4. Compliance requirements
  • 5. Security concerns

1. Data quality

The concept of accurate data is highly relevant to due diligence. Low data quality is the number one obstacle to in-depth investigations:

  • Frequent data errors. The rate of data entry errors is around 2% and sometimes can be as high as 26%. These errors complicate analysis and force teams to cross-verify information, which slows the due diligence process.
  • Low data availability. Financial, operational, or security data may be unavailable, creating uncertainty for due diligence teams. Missing information leads to incomplete evaluations, posing risks in decision-making.
  • Information discrepancies. Significant discrepancies between values in different databases often force DD teams to make rough approximations. This can undermine the accuracy of their findings and lead to flawed conclusions or overlooked risks.

2. Time constraints

Due diligence is time-consuming and may take 60-90 days and sometimes up to 100 days post-closing for several reasons:

  • Manual processes. DD teams often manually collect, upload, convert, and standardize thousands of data points. This labor-intensive work leaves room for inefficiencies and human error.
  • Decentralization. Traditional due diligence processes don’t have centralized data storage. Collaborators usually work with files locally and exchange them via email, leading to a fragmented workflow.
  • Coordination challenges. Decentralized teams are challenging to align and collaborate with. That is why DD workstreams often miss critical interdependencies, delaying the identification of key risks and opportunities.

3. Cultural clashes

Executives attribute 30% of M&A failures to cultural clashes between the two organizations. Unfortunately, they begin during due diligence when the two companies must collaborate tightly. Businesses face the following cultural challenges during due diligence:

  • Work environment differences. Companies may have different formal norms for document submissions, communication time, and technology use. These disparities can create friction and slow down the procedure.
  • Different communication styles. Two companies may prefer different software solutions and communication styles, making a seamless due diligence checklist exchange difficult.
  • Different decision-making approaches. Organizations often have different hierarchies and decision-making processes. While one company may prioritize a top-down approach, the other may rely on consensus-building. These differences can lead to misaligned expectations, delays, and misunderstandings.

4. Compliance requirements

Due diligence professionals may face several compliance challenges:

  • Reporting and disclosure. Traditional due diligence workflows make it challenging to log activity and produce comprehensive reports. All administrative and data entry tasks must be done manually, increasing the risk of incomplete records.
  • Data privacy. It’s difficult to meet GDPR, HIPAA, HITRUST, or FedRAMP requirements while sending due diligence materials via email. Thus, compliance issues can expose both parties to regulatory penalties and reputational damage.
  • Cross-border regulatory challenges. Compliance becomes even more complex when dealing with international M&A transactions. Different jurisdictions have varying regulations regarding reporting, tax laws, and data privacy, complicating the process for due diligence teams.

5. Security concerns

IBM has found that over 30% of data breaches occur during M&A. Cyber attackers threaten due diligence workflows when companies exchange massive data volumes. The common challenges companies face are the following:

  • Lack of workflow privacy. Companies cannot control the level of privacy of documents they work with, which increases the risk of unauthorized access and data leaks.
  • Lack of online protection. There is end-to-end encryption in traditional due diligence. It makes transmissible data vulnerable to hackers. This risk is particularly concerning when sensitive financial, operational, and intellectual property data is exchanged.
  • Poor security compliance. Thorough security compliance requires companies to search for advanced security features unsupported in traditional workspaces. Without these features, companies expose themselves to risks and liabilities.

Due diligence as an M&A stage

M&A deal handlers rely heavily on virtual data room technology, allowing for both comfortable and safe workflow. When chosen correctly, a virtual data room will offer unique value at every stage of the operation.

01
Pre-marketing

The sell-side creates a due diligence data room checklist and gathers all the necessary financial statements and other sensitive documents in a virtual data room to prepare for the deal and ensure that everything is in order before reaching out to potential buyers.

02
Deal marketing

The seller seeks potential buyers. They may share high-level information in a virtual data room, ensuring only interested parties access confidential materials. This phase often involves preparing the offering memorandum, business summaries, and other marketing materials.

03
Due diligence process

Once potential buyers show interest, the deal enters the due diligence phase. The buy-side accesses documentation to evaluate the seller’s financial, legal, and operational details. It is a critical stage where buyers scrutinize every aspect of the business to assess its value and risks.

04
Negotiation and agreement

After due diligence, the parties enter negotiations. They use data rooms to finalize deal terms, exchange agreement drafts, and share necessary supporting documents. As this phase involves back-and-forth data exchanges, the software enables quick updates and revisions, ensuring everyone has the latest information.

05
Post-merger integrations and operations

Following the deal’s closing, both parties continue using online deal rooms for post-merger integration, such as sharing integration plans, operational procedures, and compliance documents. The platform enables effective collaboration and monitoring of the integration process to ensure a smooth transition.

But what are the specific benefits of employing a data room for due diligence?

Let’s explore them further.


On this page:

8 benefits of virtual data rooms for due diligence

Virtual data rooms unlock an average of $75 million in M&A value due to cost-saving opportunities, security, and process automation. Thus, VDRs can save up to 80% of contract review costs. The following VDR features help companies achieve these benefits.

Strong security with global compliance certificates and data controls.

A virtual data room ensures strong data protection from every possible angle, including access management as well as user-level and document-level control. Security standards like SOC 1, 2, 3, GDPR, ISO 27001, HIPAA, FISMA, and FedRAMP make the system impenetrable.

Instant team communication through a rich set of features.

Improved communications inside an online data room allow for faster and more informed decision-making. The system fosters direct and concise communication via email invitations, Q&A and FAQs, document annotations, comments, instant notifications, follow-ups, and more.

Hassle-free upload of documents in bulk.

Most due diligence data rooms offer such document management features as drag-n-drop or bulk upload. These tools help to upload large volumes of due diligence data in a few clicks to enable starting the due diligence process faster.

Easy document arrangement, rearrangement, and navigation.

The automatic index numbering tool allows for quick data organization, which results in a clear virtual data room structure that captures potential investors’ attention. There’s also in-document search, full-text search based on OCR technology, and various labels and tags to simplify data room navigation.

Ready-made due diligence checklist, fully adjustable to individual needs.

Some virtual data rooms provide a due diligence checklist that helps determine what due diligence documents are required to upload for a particular transaction. Checklists often include dozens of items related to products, services, litigation, licenses, and many more.

Full audit logs and reporting.

Detailed activity reporting lets deal administrators stay abreast of the whole collaboration process. They can get in-depth insights on activity of all collaborators of the data room, their interaction with files, time spent viewing certain documents, and more.

Rich customization and branding options.

With the help of customization options most online data rooms provide, it’s easy to give a virtual data room your company’s branded look. That’s perfect for users willing to walk the extra mile in an attempt to impress business partners.

Instant, round-the-clock access to all critical information.

Due diligence data room providers offer round-the-clock accessibility via a single secure link, reducing the need for physical presence during the document review process. It drastically accelerates decision-making processes because each stakeholder can work independently and at its own pace.

6-step guide for setting up a due diligence data room

  • 1. Configure security settings
  • 2. Set The Right Data Room Folder Structure
  • 3. Follow the due diligence checklist
  • 4. Set the permissions
  • 5. Upload the documents
  • 6. Invite users

1. Configure security settings

Data rooms offer many secure document sharing features besides permissions, and enabling them for the best protection is recommended. Here is the checklist of the best security features for maximum data protection:

  • Two-factor authentication (2FA). Enable 2FA in your account settings. You may need to contact customer support for enabling 2FA on the VDR level.
  • Single sign-on (SSO). It’s often available as an integration. 
  • IP address and domain allow lists. Include domains and IPs you can trust and restrict traffic from all other sources.
  • Session timeouts. Set inactivity thresholds when users are automatically logged out.
  • Email verification. Make authorized users confirm access to their emails.
  • Watermarking. See if watermarks are enabled and review the displayed info settings.

2. Set The Right Data Room Folder Structure

Data rooms give you the privilege of effortless data organization. But to make it work, setting the right folder structure is essential. The idea is to balance between adding too many and too few folders. Our suggestion is to divide information into key themes and areas:

  • Tax folder
  • Commercial folder
  • Corporate and financial folder
  • Legal folder
  • Technical folder
  • Environmental folder
  • HR folder
  • Operations folder

This type of data room index will help all participants navigate complex data structures easily. You can build a folder structure directly in the data room. However, you can also import an existing index from your device. All you need to do is drag and drop the folder structure.

3. Follow the due diligence checklist

A virtual data room ensures a smooth due diligence process, but it becomes much more efficient when you follow a dedicated due diligence data room checklist. The list should contain standard due diligence documents and steps to execute a due diligence process. We are talking about these important documents:

  • Corporate information and legal structure
  • Assets and liabilities
  • Financial documents
  • Profit and loss statements
  • Contracts
  • Licenses and permits
  • Human resources documents
  • Technology and IT system documents
  • ESG considerations
  • Regulatory compliance documents
  • Benefits
  • Possible drawbacks

You can make this checklist a part of the FAQ section available for both buy-side and sell-side participants. It will help members easily reference documents and conduct Q&A sessions more conveniently.

4. Set the permissions

The best thing about due diligence data rooms is the ability to securely manage sensitive data and confidential documents. Unlike traditional data rooms, virtual counterparts enable you to set the right access levels for each user or group of users.

Depending on the role, each user will have different permission in terms of accessing sensitive documents, uploading or deleting files, editing information, and so on.

ProviderPermission levelsPermissions
iDeals8
  1. No access
  2. Fence view
  3. View
  4. Encrypted download
  5. PDF download
  6. Download original
  7. Upload
  8. Manage
Intralinks7
  1. No access
  2. See protected / no print
  3. See protected
  4. See
  5. Control / protected/ no print
  6. Control / protected
  7. Control
Onehub7
  1. Viewer
  2. Printer
  3. Downloader
  4. Creator
  5. Collaborator
  6. Moderator
  7. Administrator
Dfin Venue6
  1. No access
  2. View
  3. Print
  4. Save
  5. Edit
  6. Upload
Datasite5
  1. No access
  2. View
  3. Print
  4. Download
  5. Manage

5. Upload the documents

Now it’s time to upload all the relevant documentation into the due diligence data room. That includes financial statements, data on business transactions, contracts, investments, and asset inventories. Of course, do your best to double-check all the information and documents before you upload them.

ProviderUpload size limitBulk uploadDrop file uploadAutomatic file
iDealsNo limitYesYes25+ file formats
Intralinks25 GBYesYesNo
Datasite10 GBYesYesPDF to Excel Image to Excel
Onehub5 GBYesYesNo
Dfin VenueN/AYesYesNo

6. Invite users

Once your data room is fully configured, organized, and populated with documents, the next step is to invite users. Modern data room providers simplify this process, allowing administrators to send invitations with a few clicks.

Here is how to ensure this stage goes smoothly:

1. Determine user roles and access levels

Before sending invitations, define user roles and assign permissions. For example, buy-side participants may need viewing and Q&A access, sell-side advisors editing and uploading rights, and third-party auditors limited view-only access. Proper role-setting ensures confidentiality and smooth collaboration.

2. Streamline invitation processes

Most platforms allow batch user uploads for larger teams, making it easier to add multiple users simultaneously. You can send personalized email invitations with instructions for logging in, ensuring users know how to access the platform and what to do next.

3. Facilitate user onboarding

Provide new users with guides or tutorials explaining how to manage data rooms effectively. Include tips for using search features, understanding folder structures, and submitting questions during due diligence.


On this page:

How to organize your data room for due diligence

We already mentioned that data rooms should contain relevant folders, but how do you organize them? Follow the steps below:

  1. Define folders to upload your due diligence document to. First of all, you should think about the documents to be included in each folder. Most companies sort these documents into common categories such as financial, legal, risk management, human resources, tax information, technical information, etc.
  2. Break folders into subfolders based on the types of documents they contain. Then you can subdivide each category further with subfolders depending on the type of documents contained in them. For example, you can have a folder for contracts and another one for benefits in the legal section. You don’t have to be too precise when organizing folders, but you should make sure that all the relevant documents are easy to access.
  3. Double-check the suggested structure. The point is to ensure quick access and orientation. However, you should also avoid overcomplicating the folder structure, as this can lead to confusion and slow down the due diligence process. You should also make sure that users have access only to what is necessary for them. This will help protect sensitive data and reduce the risk of unauthorized access.

How to start using a due diligence data room?

Now that we’ve got all that covered, the next question is how to start using a due diligence data room. It largely depends on your business needs, but we will cover the basic steps here:

1. Choose the best VDR

It all begins with the VDR selection. The good thing is that we already tested multiple options and concluded that Ideals is the finest data room for due diligence. This platform makes a virtual data room solution for companies across all verticals. Users praise Ideals for its powerful features:

  • Ease of use. It’s easy to set up a data room. With drag-and-drop uploads, single-sign-on, and auto-indexing, users can get a data room running in just 15 minutes.
  • Customer support. Clients enjoy the privilege of customer support speaking 11 languages, in-app live chat with 30 sec response time, and dedicated managers — all on a 24/7 basis.
  • Security. With 8 levels of granular permissions and complete audit logs, the Ideals data room offers a level of protection that cannot be compromised.

2. Beware of software and hardware security

Data room technology is a combination of advanced cloud computing and top-grade physical storage facilities. The following features indicate the virtual data room providers’ commitment to ensuring high-level security:

  • At least 98% server uptime
  • Continuous data backups
  • Data transfer encryption using 256-bit AES keys
  • Unauthorized access protection via multiple-step authentication
  • Versatile security configurations inside the data room

Another approach to ensuring data security is locating proof of certifications and compliance by independent organizations, such as:

3. Structure folders and send user invites

When everything is in place, you can start to create folders and upload documents. Afterward, you can send user invitations to the participants of your deal. You should also enable audit trail monitoring, customization tools, and other features.

Besides that, you are free to assign tasks to other users and track the progress of their activities. This will help you keep your data room organized and make sure that due diligence is performed correctly.

Tips for the due diligence virtual data rooms maintenance

In order to make the most of your data room software, it’s necessary to avoid common due diligence mistakes. Besides that, you can follow a few practical tips to protect intellectual property and ensure proper maintenance of data rooms. Here’s how to do that:

title icon

Use a proper due diligence checklist

As we already mentioned, the due diligence checklist is the starting point for all data rooms. Make sure to have a complete list of documents and steps even before you start preparing the data room.

title icon

Keep documents updated in real time

Make sure to update documents regularly with fresh information. This will prevent any misunderstandings throughout the whole process and make the entire due diligence process smoother, with more accurate results.

title icon

Rely only on fresh audits

If you decide to require an audit report, make sure it’s as recent and up-to-date as possible. This will reduce the risk of discrepancies between the documents and ensure proper due diligence maintenance.

Key takeaways

Here are the key points to know about due diligence data rooms:

  • A virtual data room is one of the best due diligence solutions to protect confidential data and streamline the process. The platform strengthens security, improves collaboration, and automates workflows.
  • Leading virtual data room providers resolve due diligence challenges like data quality, time constraints, and security risks by offering centralized storage, bank-grade security, and effective automation tools.
  • Setting up a due diligence data room involves configuring robust security settings, organizing data with a clear folder structure, assigning permissions, uploading relevant documents, and inviting users with defined roles. Data room providers streamline the process with secure access controls, easy organization, and efficient collaboration tools to ensure a smooth and secure due diligence experience.

Visit our main page to compare virtual data rooms and choose the best providers for due diligence available on the market.

This website uses cookies to ensure you get the best experience on our website Learn more