Just as the name suggests, a virtual data room, which is commonly abbreviated as VDR, is an online database where companies can store and share private and secret information which is needed during many financial transaction. You can also think of it as an electronic repository or system of filing documents. As people have become inevitably dependant on computers and other software to run their business smoothly, more and more companies are shifting to creating a paperless office. Using VDRs, the majority of document-heavy operations have been shifted to a new virtual system.
A virtual data room – What is in it?
Virtual Data rooms are utilized by companies to share and store critical and sensitive business data which are used when signing deals. This information is completely confidential and hence it is of high value to the company or to the owner of the virtual data room. Besides traditional record keeping, which is required for legal, financial and tax matters, there are many companies which have vital documents and details which they need to retain and would love to store them safely.
For instance, there are data related to intellectual property like copyrighted works, trade secrets which should be easily accessible but also stored within a secured and safe location. Due to the gaining momentum of data and the ensuing high demand to make sure data is sufficiently protected, the virtual data room was introduced and since has evolved to what it is now.
Virtual Data room – Why use one?
For financial transactions, virtual data room software has become the gold standard which has replaced the ubiquitous physical data rooms. These data rooms had physical limitations and restraints and it was inconvenient and time-consuming for all of the parties involved to source documents this way. As online security system are getting more advanced, the physical data room is gradually becoming an outdated concept, thereby being replaced with a virtual deal room. The common uses of VDRs are as described below:
#1: M&A
Merger and acquisition due diligence is one of the most common uses in case of VDR. Merging with a business or acquiring another business requires enough research and furnishing and reviewing of volumes of documents. Companies have engaged in M&A can participate in negotiations and allow for safe viewing of confidential data by relying on a VDR.
#2: Fundraising
For both large enterprises and startups, engaging in different fundraising rounds is the key to growing a business. As entrepreneurs will know, it is not an easy feat to convince investors to fork over huge amounts of cash. In these fundraising phases, utilizing a VDR can dramatically accelerate the requisite exchange of information.
#3: IPO
IPOs can have onerous transactions and the design can go public, which means that the companies will face added rules and regulations often at the state, local or federal level. This transition needs more transparency for the prospective and public shareholders. If you wish to launch an IPO and make it survive, you will require serious retention of documents and this can only be achieved by using a VDR.
#4: Audits
There arise different situations when external parties will require reviewing a company’s data. The auditors will take a close look at the corporate records of a company or other documents and the entire team will have to find out a way of offering information which they need. This is exactly what a VDR can help you with.
Now that you know what virtual data rooms are for, keep them in mind when upgrading the storage and security capacities of your business. Many other businesses that you transact with in the above manners have come to appreciate the ease of access and security of VDRs as more and more companies are employing them.
