What is a Virtual Data Room?

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Virtual data rooms, or VDRs, are a relatively recent entrant into the field of secure online data sharing and storage. In past decades, individuals and companies with the need to share sensitive data with multiple others used a physical data room, or PDR. 

The manual labor involved with using a PDR for legal due diligence, mergers and acquisitions and other similar goals was steep. Not only was it necessary to document in detail who visited the room, what data they reviewed, how long they reviewed it and when they left, but each hard-copy file also required meticulous management.

Today, much of this cumbersome process has been streamlined by the invention of virtual data rooms. In this post, learn more about what a VDR is, how it functions, its benefits and how to use one.

What is a Virtual Data Room?

Let's say you have something to sell, such as a subsidiary branch of your company. There are many documents that potential investors want and need to review before deciding whether to submit a purchase proposal. You also have an increasingly large number of potential investors who want to review these documents. And your timeline to sell is short, which means you have a lot to share with a lot of people in a very short period of time.

virtual data room is an online space that makes meeting each one of these criteria fast and easy. The virtual data room is open 24/7, so investors from different time zones can visit at any time of day or night. Multiple investors can be in the virtual data room at the same time without even realizing they are not alone. Plus, the VDR itself keeps meticulous notes about who enters when, how long they stay, what they review and when they leave. When they return, the VDR also prompts them if any new documents have been added that they have not yet reviews.

In short order, every potential investor has been able to visit the VDR and review all pertinent documents so they can submit their proposals before the expiration date and you can choose a seller within your timeline. 

What Can a Virtual Data Room Offer?

While early virtual data rooms were often used just for secure online meeting sites, today's virtual data rooms are fully multi-purpose. Here are just some of the many functions a virtual data room can provide:

- Secure document storage and retrieval.
- Secure document sharing, editing and removal.
- Password-protected access.
- Ability to add or remove access rights at any time.
- Logging all activity for auditing or due diligence purposes.
- Automated email alerts when new documents are added.
- Search features make it easy to find and retrieve specific documents.
- Ability to meet securely online.
- Tracking questions, answers and data use to assess buyer interest levels.
- Data access by multiple individuals simultaneously.
- Totally paperless process that is sustainable and cost effective.
- Activity logs are maintained automatically which eliminates manual labor.
- Watermarks can be automatically added and updated.
- Extremely sensitive documents can be set up to self-destruct after a certain time.
- The ability to set different viewing permission levels can direct who sees what data.
- The virtual data room automatically backs up all data housed inside.
- Data is scanned for viruses and encrypted automatically.

How to Choose a Virtual Data Room?

The growing popularity of VDRs ensures there is no shortage of providers to review. But aside from vendor-specific extra bells and whistles which may or may not justify their cost, these basics cover the most important criteria of selecting a trustworthy, secure virtual data room:

- Secure. Encryption, activity logs, access control, two-factor authentication of users, virus scanning, automatic backups and other features are the lifeblood of VDRs.

- Intuitive. Setup should be fast and easy and data access should require no special expertise on the part of approved visitors.

- Convenient. Any VDR should offer 24/7 access with a large data storage capacity and the ability to set viewing restrictions for different levels of visitors.

- Affordable. A startup company will have different virtual data room needs than a multi-national corporation. VDRs can be both affordable and secure.

- Advanced data management features. In a physical data room, files are labeled, moved, updated, checked out and returned manually. A virtual data room should offer tools to make finding and using electronic-based files easily and quickly.

By understanding what a VDR is, how a VDR works, the major benefits and what to look for when selecting a virtual data room, you can maximize the advantages of a VDR technology for your own company.

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