How to choose and use a virtual data room for due diligence?
Knowing that due diligence is often a dreadful and time-consuming task, setting up a due diligence data room software is a smart decision. It’s no secret that these days, virtual data room is a must-have tool for making the due diligence process more perspicuous and transparent.
What is due diligence data room software?
Data room due diligence software is a virtual corporate repository offering high security, efficiency, organization, and cost-effectiveness to your business operations. Virtual data room software helps facilitate a more simple and efficient due diligence process. With extensive automated functions, due diligence software is a useful tool not only for gathering and organizing all necessary data but also for sharing data securely and collaborating with internal and external team members.
Why do businesses choose VDR software for due diligence?
Business owners typically chose a virtual data room for several advantages. For example, a lot of companies see it as a great opportunity to reduce administrative costs and improve work efficiency. Most VDR solutions offer a lot of automation when it comes to file organization, auditing, and analysis.
Perhaps the most common advantage for business owners is confidence in data security. The best VDRs comply with top security standards allowing users to be assured their data is being stored and shared securely. Companies also choose data room due diligence software for their multi-functionality and ease of use. Setting up a VDR can help reduce clutter and disorganization, thus making business operations less stressful, more transparent, and overall improve decision making.
A recent increase in needing to provide remote access securely without losing data control has also led many companies to use VDRs. Data rooms have enabled remote work and collaboration opportunities by providing a secure, encrypted platform without limiting data access to specific times or places like the office premises and office hours.
Important VDR features for due diligence
Introducing a virtual data room in your business comes with a lot of different benefits. This list highlights the most useful VDR features for speeding up a due diligence process.
Access security and control
Due diligence data room allows setting up different user groups, configure granular access, and thus control who can view what files – crucial functions for collaborating with many internal and external teammates. Data room security features ensure fewer possibilities for human error, like accidentally sharing a document with the wrong party.
Data security
The best virtual data rooms for due diligence comply with top security standards such as ISO27001, SOC1, and SOC2, as well as use strong encryption and offer a lot of additional security features. For example, you can set up two-factor authentication, view each user’s activity via a comprehensive audit trail, or you can protect your documents by digital watermarking, remote shredding, and restricting print, save or download functions.
Document management
Virtual data rooms make it easy to create and use a desired document management structure. Automatic index numbering numbers folders and documents sequentially as they are uploaded. Features like drag-and-drop upload, bulk upload, and labels for categorization also come in handy during a due diligence process. The best VDRs provide an option to convert any file format into PDF before download, offer multiple search filter options, and extensive file managing functions like merge, restore, rename, move, etc.
User activity management
The granular user permission feature is useful not only for security purposes but also for keeping track of user activity. VDRs allow you to restrict certain functions like view, print, save, modify for certain users by creating custom user groups and configuring their access. Or you can set up specified permission for certain file types. For example, specifying that spreadsheets can only be viewed without formulas or as read-only copies without saving them as PDFs.
Accessibility
Choosing a data room provider compatible with all devices (computer, web, mobile, tablet) and all platforms, including Windows, Apple iOS, Android, Linkus, and Mac OS can ensure maximum accessibility for your users. Integrate your virtual data room for due diligence with a web browser to easily synchronize contents across devices or connect the data room to an already existing enterprise content management system.
Q&A functions
Q&A in a data room includes features like encrypted Q&A chat function for quick and secure communication, option to create a frequently asked questions page (FAQ), have live discussions and create threads, label and sort questions by their status, address questions to specific teammates and deliver Q&A reports in different formats (spreadsheet, summary, PDF, etc.). All of this is very important to speed up due diligence, determine some roadblocks and ensure transparency.
Customization
Some VDR providers offer an option to integrate companies’ color schemes and logo in the data room giving your virtual workspace a more professional and unique look. Look for options to add the company’s branding (logo, theme colors, custom invitation email for the new users), customize the interface and layout for your needs. Also, if relevant some providers offer a chance to customize terms and conditions of use, automatic reports, watermarks, headers & footers of downloaded files.
Reports
Due diligence data room software ensures access to full audit trails recording every action in the data room. Authorized users can track how long someone spent on a certain document, where clicks were made on the document, and where else a viewer has spent their time in VDR. Reports by user group can also be generated summarizing statistics, presenting data on a “heat map” by user activity or different charts.
Tips for choosing a due diligence data room provider for your industry
When choosing a virtual data room provider for due diligence, it is important to find the right solution for your business needs. For example, a solution tailored to the finance industry might not be the best software for nonprofit due diligence. The two most important things to look for are experience in your industry and security compliance.
Software provider experience in your industry
Some providers market themselves as a one-stop-shop suitable for any business. However, a lot of online data rooms for due diligence are specifically designed for certain industries or use cases, such as M&A deals or real estate transactions. Such due diligence data room software could be a better fit for your industry-specific workflows, compliance policies, and requirements.
Choosing an experienced data room provider in your field can ensure you get the most useful features and have access to customer support already aware of your industry specifics. When researching a prospective vendor, check their previous clients and ask them about their experience in your field.
A couple of requirements worth considering for your specific industry:
Finance:
- Top security compliance
- GDPR compliance
- Software functioning as a deal room
- Software specifically tailored for M&A or IPOs
- Large or unlimited storage
- Additional document security features (watermarking, restricted viewing, two-factor authentication, etc.)
Legal:
- Top security compliance
- GDPR compliance
- Well-functioning Q&A sections for effective communication
- Extensive reporting and record keeping (user activity log and full audit trail)
- Additional document security features (watermarking, restricted viewing, two-factor authentication, etc.)
Life science:
- Large or unlimited storage
- Extensive and secure collaboration features to ensure open collaboration on highly confidential matters)
- HIPAA compliance (if dealing with patient medical data)
- Granular access control for access control in larger teams
Energy:
- Large or unlimited storage
- Supported all file formats, even non-standard (AutoCAD, seismic data, high-resolution maps, plans, etc.)
- Unlimited upload space
Information technology:
- Large or unlimited storage
- Suitable upload, download speed
- Customization
- Additional document security features (watermarking, restricted viewing, two-factor authentication, etc.)
Real estate:
- Support of all file formats and unlimited upload space (e.g., architectural/construction file formats DWG, DXF, RVT, SKP, etc.)
- Well-functioning Q&A sections for effective communication
Nonprofit organizations:
- Board room features
- Integration with video conferencing for remote board meetings
- Easy-to-use interface
- Easy report generation
Software compliance with top security standards
The sole purpose of a virtual data room is to keep your information safe – be it a trade secret, employee personal data, financial statements, or any other sensitive data. To be confident a virtual data room is reliable in this sense, check for compliance with international security compliance.
Check if:
- The software has security compliance such as ISO/IEC 27001:2013 certification (the most comprehensive security certification for providers of virtual data rooms), SOC 1(SSAE 16, ISAE 3402), SOC 2 Type II, FedRAMP, or, if relevant HIPAA/ITAR, GDPR and Privacy-Shield compliance.
- The provider offers additional layers for security such as two-factor authentication, automatic, customizable watermarks on documents, document encryption, and revoking access even after download (remote shred), encrypted chat function, option to restrict certain functions (download, forward, print) to some users.
Due diligence checklist for setting up a virtual data room
Due diligence checklist is generally a list of all necessary information and documents needed for a successful acquisition, merger deal, or analyzing companies’ worth. Following such a list equips business owners with well-organized material information about their assets, contracts, and potential roadblocks. It also increases confidence in decision-making and mitigates risks associated with business transactions. Typically, a due diligence checklist is used for:
- Mergers and acquisitions deals
- Fundraising and negotiations with potential investors
- Preparing annual reports, financial statements
- Auditing
- Preparing to go public (IPO)
- Applying for grants, loans, etc.
- Preparing for a joint venture
Setting up a due diligence data room checklist is an important step on your way to confident data management and decision making. Every due diligence checklist will vary depending on the deal it is used for, but generally, the following categories of information are included:
- Corporate and legal structure
- By-laws
- Management and employee information
- Financial and tax information
- Assets and liabilities
- Existing contracts and agreements
- Regulatory compliance
- Markets and competition
- Litigation
- Insurance information
Having these documents organized and indexed will be a great advantage to speed up the due diligence process. Look for data room software that offers file indexing features. Virtual data room index is a method that automatically numbers files as they are uploaded and renumbers them when you rearrange something or add additional files. This feature is being increasingly demanded from online data room providers as it saves a lot of time and effort.
How to organize a virtual data room for due diligence?
Coherent and well-organized document retention can often increase your business’s success. To organize a due diligence virtual data room, follow these simple steps:
- Create a due diligence checklist listing all necessary files, documents, requirements
- Digitize all documents and files if necessary
- Name your files following a specific file naming system
- Create a structure with folders, subfolders, branches
- Upload the files to the VDR sequentially per your planned structured
- Set granular permissions for users/ user groups
- Invite users by a secure email link
- Start working on your due diligence and update files regularly if necessary
Virtual Data Room Services for Due Diligence
Practice shows that Asian online data room providers put a heavy focus on customers’ data safety. They offer such
features as:
- 256-bit encryption and other military-grade encryption methods;
- detailed and quality virus scanning;
- granular access control options;
- features of identity recognition, for instance, optical eye recognition;
- two-step authentication.
Benefits of Using the Data Room Due Diligence
Do you still doubt whether you need a virtual data room for M&A due diligence operations? Consider how many benefits the due diligence data room yields for your business:
- You use a single environment to store all of your corporate documents and can control access to them. Share, let employees and third parties preview, download, or print out the materials – you set the access based on roles, IP, and many other aspects. That eliminates the need to perform a boatload of work with papers and saves your time and money.
- With a virtual data room due diligence, you ensure the bullet-proof security of your documents. Hackers and malignant users cannot breach your safety because of the following features. Such as encryption, access block, IP limitations, and personal identification.
- Quick and easy access. The most advanced data rooms are available in a variety of formats: SaaS, web-based, cloud, or mobile applications (most are both iOS and Android compatible). Therefore, data room users can access all necessary documents wherever they are. Internet connection is the only requirement. Files are synchronized in real-time.
- The vast majority of data room providers offer backup options. That means that even if the documents disappear from the main server, its copies are stores in another place. So materials can be restored successfully.
- Virtual data room due diligence software is not only about document storage. In fact, you can reap the benefits from a myriad of options. For example, there are notifications on document updates and new files. Collaboration tools allow to work on files collectively and see updates in real-time. It goes without mentioning document tagging and indexing. The data can be quickly sorted out, which simplifies search access.
- To top it off, thanks to the data room due diligence process becomes cheaper and faster. Imagine how much time and effort it takes to make document copies, fax or send them by traditional mail, and so on. That requires plenty of time, and there’s always a risk of document loss. What if your confidential information falls into unworthy hands? With a data room due diligence, you don’t have to deal with papers anymore! Just upload the file in its format (most data rooms support all popular document formats) and control access to it.