Last Updated on December 26, 2020
Virtual Data Room Selection Checklist – Virtual data rooms (VDRs) help businesses securely share confidential documents and manage intellectual property concerns. Data security issues can make or break corporate deals, shape companies’ reputation and affect the future of the business. This is why it is so important to choose an experienced vendor who can help protect your information and your business.
VDRs are often used in mergers, fundraising, or large transactions. However, many companies use virtual data rooms simply to allow employees to securely and remotely access internal documents. If VDR is part of your long term file sharing process, choosing the right vendor is important.
There are lots of online data repositories available, and it may be tricky for you to determine which one to choose for your business. So, how can you be sure you select the right virtual data room vendor?
Here is an all-inclusive virtual data room selection checklist – the things that you need to investigate in your virtual data room before you make any decisions about finalizing your M&A.
Table of Contents
Virtual Data Room Selection Checklist
1. Ease of Use
Protecting your business’ privacy shouldn’t mean you have to jump through hoops to access documents. A good virtual data room will actually make sharing files easier than other traditional methods. You will want to make sure it’s easy to perform basic tasks, such as inviting users to your virtual data room and uploading files. Also, look for features like drag and drop, bulk upload, and the ability to sync folders from the cloud.
You will also want to make sure you can easily upload, view and edit different file types. A data room that allows you to perform keyword searches across file types is a major benefit. In short, a more intuitive interface will save a lot of time and avoid the need for special employee training.
2. Ease of Access
It’s important that anyone who needs to access the data room can do so. For example, when a business is raising capital, there are a lot of different people who need access to sensitive information, and ease of access can save valuable time.
Many companies that use virtual data rooms use them for many months, or even years. Ensuring that your files are easy to access will help you avoid frustration and help keep things moving smoothly during these periods.
3. Control
Control is a powerful thing when it comes to file sharing. If a business deal falls through or a contract ends, how will you protect your intellectual property? To maintain control over your data, make sure you can set detailed user permissions for your projects. IT teams will often give different levels of access to different people within and outside of a company. “The online data room can be established to allow access to all documents or only to a subset of documents, and only to pre-approved individuals,” M&A professionals Richard Harroch and David Lipkin write at AllBusiness.com.
Usually, there are internal teams dedicated to assigning these roles, especially during mergers and acquisitions. “A buyer should charge its team of data privacy and IT experts engaged in the diligence process to work with the buyer’s integration team to ensure regulatory compliance, appropriate regulatory and consumer notices, and other proper steps are taken to limit post-closing integration risks,” attorneys John T. Bradley and David A. Rosenfield explain at Lexology.
4. Reporting
Reporting is another feature that shouldn’t be overlooked when considering a VDR vendor. A good data room will show you file history and provide valuable insights. “An online data room provides a greater level of security, visibility and negotiating leverage for you because you can see who has accessed what files and how deep some buyers have gone to understand your business,” says John Warrillow, founder of the Value Builder System.
Some data rooms will let you filter files by date and time, or alert you of document uploads and other activity. This type of information can be incredibly helpful, especially when you’re dealing with large volumes of data.
5. Support
During important business deals, employees often work around the clock to make things happen. The best VDR vendors will be able to support you 24/7, too. This level of service is what separates great virtual data rooms from average file storage options.
“Most VDRs include access to data room project managers, live support teams and other service coordinators to not only ensure the data is appropriately included and shared, but they also provide a nice ‘warm fuzzy’ touch to ensure both buyers, sellers and the trusted advisors being represented are amply supplied with the knowledge they need to use the system,” says Nate Nead, investment banker and principal at InvestmentBank.com.
Some of the better VDR vendors will even provide a dedicated project manager for your data room. “If you’re a global company, you may find language barriers across platforms become your blockers,” says Dominic Kent, author at Mio. So, ask for project managers who can support you in languages other than English if necessary.
6. Security
Security is the reason many businesses seek out VDRs in the first place. It goes without saying that security is one of the most important features of a data room — but what does that mean exactly?
First, look for vendors that offer high levels of encryption. It’s a good sign if a vendor goes into detail about encryption protocols. Also, make sure your data room uses a two-step authentication processes during the login. “A password alone will not protect sensitive information from hackers–two-factor authentication is also necessary,” warns Brandon Vigliarolo at TechRepublic.
Another way to secure your data is through watermarks and restricted view functions. This will help protect your documents from unauthorized viewing and screenshot capture. Some VDRs can even alert you of such suspicious activity.
Data security is one of the primary threats to modern businesses. “Failing to spot an issue which ultimately leads to a cyber-breach can also cause huge reputational damage to a business that ultimately destroys the value of an M&A transaction,” warns Tim Bird in an article at Personnel Today.
7. In-Room Communication
If it’s easy to communicate inside the virtual data room, you can avoid sending emails and wasting time with other forms of communication. A great feature of VDRs is the ability to post a question related to a specific document.
8. Pricing
Different pricing models make sense for different scenarios. For example, some VDR vendors charge based on the amount of data stored, while others charge for each user. Always look for hidden fees and contract clauses.
For monthly or yearly contracts, consider what happens if a deal takes longer to complete than anticipated. “Even the simplest merger and acquisition (M&A) deals are challenging. It takes a lot for two previously independent enterprises to join forces, identify and eradicate redundancies, agree on prices and strategy, and maintain employee productivity,” says Sean Ross, financial writer at Investopedia.
Though virtual data rooms do require an investment upfront, they usually help companies save substantial sums of money long-term. “Think about the amount you’ll save on fuel, printing, and delivery. You also get to skip paying lawyer’s fees just to get your documents collated and sorted out for you,” investor Vikas Agrawal writes at Tech.co.
9. Implementation Time
Last but not the least. When choosing a Virtual Data Room (VDR), it’s important to find the solution that fits your needs quickly. It’s likely you’re in the market for a VDR to help facilitate an upcoming M&A transaction, a round of fundraising, or another financial event that requires immediate action, so implementation time should drive your software selection process.
We hope the above data room selection checklists helped you choose the best data room vendor for your business.