Why you need a virtual data room
18. April 2017
The cloud is everywhere and we often take it for granted. In fact, not every cloud is the same. You might be ok with storing pictures of your last vacation on whatever cloud service—practice we advise against anyway!—but your business information should never be stored and shared uncritically. That’s where virtual data rooms (VDRs) come in: they offer a higher degree of protection for everything confidential.
The quick decline of physical data rooms
Traditionally, the term ‘data room’ referred to the physical rooms that served as the document repositories where M&A transactions took place. A vendor would gather the information relevant to the deal and invite the teams of bidders to revise it. Responsible for organising location and amenities, the vendor oversaw all the costs implied in inviting people who often came from the four corners of the earth.
Lawyers, advisors and other due diligence specialists would spend weeks reviewing documents in these rooms. Eventually, the vendor had to provide missing or outdated documentation, which involved additional costs and time.
Virtual data rooms lead to time and cost savings
It is worth talking about physical data rooms in the past tense, as the digital revolution contributed to the quick disappearance of an expensive and time-consuming business practice. The benefits of digitisation for the transaction industry have been overwhelming.
VDRs are digital repositories for the exchange of documentation. They differentiate from the well-known cloud solutions in that they permit a highly secure transfer and storage of the information, usually regulated by elaborated user management rights.
Although data rooms have been largely developed to support transaction making, the range of use cases of this SaaS software covers all situations needing an especially secure document management and sharing software. This post will focus primarily on use cases outside due diligence.
If you are not sure whether a VDR is something for your business, then the following advice will help. There are also resources available for more experienced users. The cloud may be ubiquitous, but not every cloud is the same.
The cloud is not enough for the C-suite
American political scientist P. W. Singer affirms: ‘Ninety-seven percent of Fortune 500 companies have been hacked’. Whatever the business, a company produces tons of data that needs to be secured. Although cybersecurity is a matter involving businesses at every level of their hierarchy, as we showed in a previous post, the C-suite is especially involved.
Sharing PPT presentations, company reports and numbers between members of the board-room (or with an investor!) should not be done uncritically. In these situations, you need a secure cloud solution with a strict user right management.
Securing readiness in fundraising
Startups pitching for investment need to have their company information at hand always. Bidders might access the documentation at different times and you want to make sure you know which information is available to whom. Also, you might want to give different permissions to different users according to their role and how you are pitching your investment.
Only a professional VDR enables you to manage your documentation in a successful way. Using regular cloud storage without a detailed user rights management may even jeopardise your pitch.
Lawyers should make reasonable efforts to protect the privacy of their clients. In the era of digital disruption, they must be technology-competent. This means being aware of how and where their client information is stored. If the most conservative lawyers still secure their information in a physical locker, this practice carries more than one disadvantage.
For instance, when a specific document needs to be reviewed or shared, or when one of the parties has a specific question or need, then it is important to be able to access the information quickly. Also, thanks to optical character recognition (OCR) technologies, it is possible to skim through the documentation swiftly.
Not having client documentation at hand can result in wasted time. Calling your secretary at 7 pm and asking her to provide you with a scan of a specific document is really outdated. VDRs secure remote access any time.
Intellectual property as your most valuable asset
Intellectual property (IP) is a critical asset, the loss of which can be crippling for any business. Don Fancher from Deloitte states in a recent survey: ‘Managing risks to trade secrets, drawings, plans or proprietary know-how that drive your organization's revenue and competitive advantage often includes quantifying how loss of that IP would impact the business, preparing to identify and pursue adversaries, and building a defensible chain of data custody to counter future IP cyber theft threats.’
Keeping control on IP turns out to be key in every organisation. A VDR is the tool allowing controlled access to IP material. Features such as granular reporting and watermarking decrease the risk of theft by deterring insiders to steal the information. Every step made in the VDR is traceable, which is a great advantage for the most privacy-sensitive users.
The range of use cases for VDRs is big. Any organisation needing to manage confidential business information in the most secure, versatile and efficient way should look for one. Cloud solutions are everywhere, but they are not all the same.