What Is a Virtual Data Room and What Are the Different Types of It?

By Clinton Courier | April 27, 2023 |

From paper documentation to computer systems to cloud storage, the field of data management has seen remarkable changes in the 21st century. Although a huge number of businesses have on-site data management systems, companies are now switching to cloud storage for better access and more data security.

The need for remote data management solutions like virtual data rooms has grown immensely in the last few years. Virtual data room software was usually associated with M&A activities, but they have become popular in other business spheres in a matter of 4-5 years.

As a matter of fact, virtual data room providers are now offering different types of data room services for various industries. Also, the data room software industry has already crossed the $1 billion figure and is expected to reach $3.5 billion by 2026.

So, what is a virtual data room, and what type of businesses does it serve? Let’s find out!

What is a virtual data room?

Virtual or electronic data room, or simply data room, is a cloud-based, online data management platform for companies, businesses, organizations, professionals, corporate boards, nonprofits, and government institutions.

In broader terms, online data room software combines different technologies for data management, deal management, and online communication. Lots of companies use an iSCSI that is connected to their SAN or NAS via an Ethernet connection. It allows your data to remain in your facility, and you can manage it remotely through the internet. In simple words, a virtual data room is like having a secure and virtual version of your physical data room, accessible anytime and anywhere with an internet connection.

Using a virtual data room, you can store, access, share, edit, distribute, exchange, and organize your routinely-used and sensitive business documents. In addition to that, your business or team members can use data room software for group and private communication.

What’s more, its deal management tools allow dealmakers, private equities, and investment bankers to manage complex transactions online. Simply put, a virtual data room addresses three major processes in any business setup.

Why use virtual data rooms?

A large number of free or cheap data-sharing tools are available, then why should businesses consider virtual data rooms?

“Although VDR provides solutions for deal management and communication, what sets this technology apart from other data storage tools is the level of digital security it provides,” says Ronald Hernandez, Founder of dataroom-providers.org.

According to Hernandez, some notable names in the data room market include iDeals VDRs, Merrill Datasite, DealRoom Deal Room, Firmroom, and Citrix Sharefile.

According to statistics, the United States reports over 1800 cases of data breaches which affected over 422 million records in 2022. Similarly, more than 22 billion records (globally) were compromised as a result of 4100 data breach cases in 2021.

It is evident that despite unprecedented efforts in the field of cyber protection, businesses still need to control data breaches. Common reasons behind these data thefts include human errors and weaker security systems.

Virtual data rooms provide businesses with the much-needed security to minimize cyber threats. All the best data rooms are mostly ISO, FINRA, FISMA, GDPR, SOC2, and HIPPA certified. Their multiple security layers make sure your sensitive information is safe from internal and external threats.

Common types and use cases of data room software

Virtual data rooms are primarily used for deal management; here are some of the most common use cases of data rooms.

1. M&A data rooms

M&A is a commonly used term for mergers, acquisitions, divestitures, and transactions alike. Virtual data rooms have been serving the M&A industry for over a decade now; it is still the biggest consumer of VDR technology.

M&A VDR is often called the due diligence data room as it mainly streamlines the due diligence, a fundamental phase in M&As.

Data rooms help dealmakers by streamlining and securing the data-sharing process. Built-in communication tools ensure safe and real-time communication, while data analytics help sellers assess buyers’ interests. Modern-day data room vendors offer VDRs for buy-side and sell-side.

2. Real estate data rooms

Commercial real estate has rapidly become a significant consumer of online data room technology, especially during the Covid-19 period. Buyers, sellers, investors, and financial institutions often require immediate access to blueprints, financials, and other important documents related to real estate projects.

Virtual data rooms allow them to access data remotely and share files without any restrictions. Data rooms also serve as a central meeting point, allowing users to conduct online meetings whenever needed.

3. Data rooms for litigation

Lawyers or law firms use virtual data rooms to ensure maximum protection for highly confidential documents. They can safely share those files with general counsel, third parties, and external law firms during the litigation process.

Legal firms also use data rooms as a mode of internal communication. Data rooms like iDeals provide law firms with tonnes of legal forms templates needed for litigation.

4. Data rooms for IPOs and capital raising

Fundraisers and companies employ data rooms for complex and lengthy processes like IPOs. The law requires fundraisers to share necessary information with potential investors, which is a risky process. VDRs ensure that investors have 24/7 access to due diligence documents, while fundraisers can protect corporate secrets.

Wrapping it up

Data room technology has penetrated almost every business sector. It provides data security, ease of use, and fast communication. Common use cases of virtual data rooms include M&As, real estate, litigation, IPOs, biotech, healthcare, and telecommunications.

To make an optimal choice of a VDR solution, it is recommended to conduct your data room review and comparison. Check out software review websites and expert platforms where users share their experience using top data room solutions.