For many companies in the corporate world, it is inevitable to have to share documents with all kinds of users. This makes data security a priority, given the high level of data traffic being shared. With the threat of hackers and because of the numerous online privacy rules, data security becomes essential.
Fortunately, a virtual data room (or VDR, as virtual data rooms are known), solves the security problem. In the following sections, we'll examine the main use cases for a VDR.
First, however, let's better understand what a virtual data room is and how it serves data security in the corporate world.
What is a virtual data room?
When a company needs to store and share information with third parties, especially in cases such as due diligence for M&A (mergers and acquisitions) and litigation processes, full protection of this information is essential. A virtual data room creates a secure space to store and share information between a company's internal team and external entities.
The Virtual data room applications
Due diligence for mergers and acquisitions (M&A)
This is one of the most common use cases for a virtual data room. Due diligence (or due diligence) for mergers and acquisitions forms the essence of any business-to-business transaction in the corporate world. With a VDR, companies can execute interactions or transactions remotely and securely. With document sharing, one can easily check the business and financial portfolios of other entities. Confidential data can be viewed through a secure cloud-based platform.
Whether it is a startup being acquired by a larger company or the union of two mega-companies, VDR provides a safe point to share encrypted and controlled documents to prevent leaks. It also mitigates some of the risks of someone stealing virtual information as user access can be controlled, monitored, and restricted as required. The VDR also restricts the ability to copy, duplicate and print documents.
When raising funds for a venture or to finance a business, you need to use secure cloud-based software to store the confidential financial records that investors will need to see. You also need to share this financial information with potential investors or sponsors without allowing it to fall into the wrong hands.
In these cases, virtual data rooms are used to ensure the shared data is protected. They also help create a transparent process where everyone knows what is happening and everyone can see the data traffic within the organization and between potential investors.
When a company has offices in multiple locations, a virtual data room offers the most secure environment to share data easily - even in the case of a huge team based in different places. With the platform, managers can give access to authorized employees, while limiting permissions to specific documents and files. This prevents those without sufficient authorization from being able to view confidential files.
Consider the case of a firm that needs to undergo a tax audit. In this case, a virtual data room provides the right cloud-based platform to share the firm's financial records with an external auditor.
With the data room, the auditor does not need to move from one organization to the other - everything is done remotely. During the audit, the frequently asked questions section allows the auditors to interact with the company, requesting clarifications as needed.
Due diligence for IPOs
When a company conducts due diligence for an initial public offering (IPO), the virtual data room provides the right platform for the company to share confidential data with the financial institution. Then, the bank analyses the company's data and determines its sustainability as a business model, among other indices to be measured during the process. Generally, the data room helps create a transparent and efficient due diligence process, without errors or security issues.