How Data Rooms Can Help with 5 Amazing Use Cases
Storing confidential data securely is of great importance for many companies. For example, a software production house cannot afford a data breach. All the work-in-progress and prototypes stolen by an external party will not only seize the competitive advantage but also dent the reputation of the firm.
The importance of data security becomes even more evident when one business shares data with another business during transactions. These transactions may include mergers, acquisitions, strategic partnerships, asset trading, etc. The data-sharing process has been made safer by virtual data rooms.
15 years ago, the financial sector employed data room software for M&As. Since then, virtual data room software has been an integral part of the M&A industry and facilitates many other financial transactions. What follows next is the introduction and top five use cases of online data room software.
What is digital data room software?
A digital or electronic data room is a certified, highly-secure online document repository for corporations, enterprises, professionals, managers, directors, government organizations, nonprofit organizations, associations, clubs, and any other entity with data storage and management needs.
Any standard virtual data room has three primary functions, including:
- Data management (storage, sharing, and organization)
- Virtual collaboration or communication
- Deal management
Let’s elaborate on each of them a little.
1. Data management
Many businesses use VDRs as their primary data management solution. They store their corporate secrets, financial statements, and data used in regular transactions. Data rooms give you complete freedom to organize your files in any matter or structure you prefer which also makes the file retrieval process more effortless.
2. Virtual collaboration
In addition to data management tools, digital data room software provides you with communication tools for online business meetings, Q&A sessions, and chat messengers for one-to-one and group conversations.
3. Deal management
Data room technology was first used for mergers and acquisitions. Now, it is an essential section in business deal-making, such as strategic partnerships, clinical trials, litigation, project bidding, due diligence, asset trading, and real estate transactions. Some of the most notable VDRs for deal management include iDeals, Firmex, DealRoom, Merrill, and FirmRoom.
5 most common use cases of virtual data room services
1. Mergers and acquisitions
As mentioned earlier, mergers and acquisitions are the biggest global use case of data room technology. Virtual data room providers help businesses minimize physical interaction during M&As in two ways:
- Digitalizing the due diligence process
- Ensuring 24/7 communication
During M&As, data rooms are mostly employed by the target companies to get full control of data flow. The VDR acts as a centralized data repository where the target company uploads the due diligence documents, as data room vendors often provide due diligence checklists that are ready to use.
The acquiring company, investors, shareholders, directors, advisors, and other concerned parties can access the due diligence data from anywhere in the world. In addition to that, VDR’s real-time communication tools make collaboration faster. In all of that, the target company is always in control of the data flow.
2. Litigation
Civil attorneys, corporate lawyers, and law firms are arguably the second biggest use case of data rooms. Electronic data rooms are the safest data storage platforms for lawyers who have to deal with highly secretive case/client data.
Corporate lawyers use the data room software more due to their regular coordination with companies. VDRs provide a platform where lawyers can communicate with company officials, arrange meetings, and do all the data sharing. Data rooms become more useful during lawsuits.
3. IPOs, capital raising, and fundraising
Businesses, especially startups, employ VDR technology for all fundraising activities. It may be difficult for startups to pitch their ideas and business plans by visiting every investor in person. Therefore, fundraisers use data rooms as a medium of data sharing and communication.
IPOs can go on for weeks or even months, and data rooms make sure that all potential investors have enough time to perform due diligence. Most importantly, the due diligence documents are always safe and in control.
4. Audits
Auditing is a yearly, semi-annually, quarterly, or even monthly activity conducted in all types of companies. The corporate sector utilizes the electronic data room for internal and external audits. In both cases, businesses create temporary data rooms, upload documents for audits, restrict auditors’ access as per their needs, and communicate within the VDR. VDRs make auditing more cost-efficient than traditional channels.
5. Joint ventures and partnerships
Companies often form temporary or permanent alliances or undertake joint ventures for mutual benefits. In such cases, digital data room software acts as a virtual meeting point between the companies. They use the VDR for:
- Board communications
- Business meetings
- Project management
- Data sharing and management
VDRs ensure 24/7 collaboration, and that too in a highly cost-effective manner.
Final words
Deal/transaction management is the biggest use case of virtual data room technology. The corporate world primarily uses VDRs for M&As, IPOs, capital raising, auditing, joint ventures, and partnerships.
