VIRTUAL DATA ROOM 101
Virtual Data Room FAQs
New to Virtual Data Rooms? No problem. These FAQs will get you up to speed.
What is a Data Room?
What is a virtual data room?
Why are VDRs used in M&A deals?
A VDR streamlines M&A transactions by automating manual processes and moving the information exchange online, so parties don’t have to travel to a physical location to participate.
During the M&A process, companies often share highly sensitive information, including trade secrets and intellectual property. Mergers and acquisitions are highly sensitive transactions that demand the utmost in secrecy. M&A deal leaks regarding even potential negotiations can impact a sale price or just kill a deal altogether. Virtual data rooms are more secure than physical data rooms and are built with
What is Due Diligence?
What is the difference between virtual data rooms and other "secure" file sharing platforms?
Virtual data rooms were built specifically for due diligence and sharing other highly sensitive business information. They have
Aren't all virtual data room providers the same?
No. A good VDR provider will invest their money in continually upgrading their products with the latest technology and security features. They are able to rely on
What should I look for when choosing a VDR?
Security. Ease-of-use. Service. Value. A good virtual data room will be built on the latest technology stack and deploy the latest in encryption and advanced security features. It should be
VDRs: Everything You Need to Know
Virtual Data Room Security Documentation
Learn about SmartRoom’s Next-Gen virtual data room security features and encryption
Virtual Data Room Security
But what is multi-layered security? And how does it protect your data?
Multi-layered security is pretty much like it sounds. It’s multiple levels of protection so that if one barrier is breached, there are more behind it to stop people from getting access to your information. Think of it like this. If you live in an apartment building, there’s probably
The data you store in your VDR is valuable to you and your business. But if it falls into the hands of a hacker, it could compromise a transaction, your intellectual property or bring your entire business to a halt. A network breach in 2011 compromised customer data for 77 million Sony PlayStation accounts, resulting in the PlayStation Network being shut down for more than three weeks. Others break into systems and try to extort money from their victims. This was precisely the case with HBO, where hackers implied they wanted a $6 million ransom. And of
You might think that simply protecting your information from the outside is enough. But that’s not the case. A 2015 study from Verizon said that about half of all security incidents came from inside the company walls. In fact, according to the report, 20 percent of all compromised data is related to employees stealing information, misusing it, selling it or engaging in similar activities. For example, in 2014, a Tufts Health Plan employee stole data (including names, Social Security numbers
So what can you do to keep your data secure?
You need to have a strategy and then implement a plan that protects data at all its potential touch points. While a critical first step, it’s not just a matter of ensuring that your firewall is secure. You also have to ensure your vendor’s VDR platforms are built with bank-grade security. To return to the earlier analogy about the apartment building, that’s similar to only having a front door key. It’s a main line of defense, but it’s not enough.
When implementing your own security and evaluating virtual data rooms, you need to consider the following items:
- What kind of encryption do you have?: You want a high-level like TLS 1.2 AES 256-bit encryption for internet browsing and data transmission key encryption at 1024 bits.
- Logins and Passwords: Passwords are a key element of
defense. But it’s important to use them in a way that tracks when people log in to files and what documents they view. Also, logins should be encrypted, have minimum lengths and required resets.
- Infrastructure protection: When it comes to servers, make sure you know who has access and how they can enter those facilities. Things like security badges and multi-point authorization can keep controls tight.
- Logs and Event Tracking: This allows you to monitor who is accessing various files and when. This information is key should that information ever be compromised.
- Data availability and redundancy: In the
eventsomething happens to your data at one location, you need to make sure you have it fully backed up elsewhere.
SmartRoom is a secure virtual data room that was designed to offer precisely these features because we’re
Hackers seeking targets is just an unfortunate reality in today’s internet-connected world. But there’s something your business can do to guard itself against being its next victim. And that’s ensuring your virtual data room is built with multiple layers of security.
Virtual Data Rooms vs. Secure File Sharing Platforms
Virtual data rooms vs. secure file sharing platforms. There are differences. The following are four major categories for document sharing and content management and virtual data room services. Each
FTP (File Transfer Protocol): These systems have been around for many years. In fact, the first FTP specifications were written in 1971. It’s primarily a useful way to send and receive large files, but there are significant security risks and no collaborative features.
Cloud Storage Platforms: For the most part, these originated as consumer-centric services. In that, they were designed for collaboration and file sharing. But one area they lacked was
File Sharing Platforms: These services provide a central data repository that can be reached via the internet. They are also scalable and integrate with leading business office software. But they do present some major setbacks. They are often clunky and expensive. From a deployment standpoint, SharePoint and
Virtual Data Rooms: These services were initially designed with mergers & acquisitions and the enterprise in mind. They place an emphasis on security and real-time content
Choosing a Virtual Data Room Provider
There are a number of different virtual data room and secure content management providers. If you’ve begun investigating this market, you’ll notice that not all are the same. Not by a long shot. Before selecting a solution, consider your business requirements and technology infrastructure. Identify your needs and outline your use cases. The following are items you should consider before choosing a Virtual Data Room Provider:
- Security: Will you be storing or sharing sensitive information such as corporate financials or customer information? If so, you will need a VDR that offers multi-layered security including the highest levels of encryption, administrative controls, and firewall protection.
- Accessibility: Will only internal employees be able to access or share files or do you want a solution where you can share files with external parties as well? Do you want to allow people to access documents remotely and from mobile devices?
- Data Capacity: Does your business require a large volume of data? Is the virtual data room equipped to handle the quantity you plan to store and share?
- Usability: Is the platform user-friendly and can it easily be adopted into existing workflows? If the platform is not user-friendly you run the risk of low adoption and can find yourself back at square one.
- Collaboration: Would you like to collaborate on documents with other stakeholders, or are you simply using the solution to send files back and forth?
- Connectivity: Do you want to connect your existing applications such as Microsoft Office? If so, the platform needs to have an accessible API.
- Customer Support: Do you require
assistanceimplementing the solution? Would you likehelp troubleshooting issues? What about tips for best practices?
- Pricing model: What model fits your business best? Does it make more sense for you to pay by volume or by
user? A monthly or yearly subscription or a one-time-fee?
Virtual Data Rooms for Mergers & Acquisitions
Virtual data rooms for M&A are used quite often. Merging or
Virtual Data Rooms for Private Equity
Virtual data rooms are also common in private equity. Similarly to M&A, PE firms must often share an collaborate on large amounts of highly sensitive information. Private equity is capital that is not noted on a public exchange. Private Equity is composed of funds and investors that directly invest in private companies. They often use virtual data rooms in the following events:
Portfolio Company Aquisition: Private equity firms must perform due diligence on companies to become part of the PE fund. They often use VDRs to host the information used for the PE fund to perform due diligence on the potential portfolio company.
Private Equity Fundraising: Private equity funds raise money from investors so that they can make investments in an effort to generate a return. Virtual data rooms can be used to host documents for the fund so that potential investors can do their due diligence.
LP Reporting: Private equity funds use SmartRoom to share financial reports and results with their investors. VDRs are used to share and exchange results and reports with their investors.
Portfolio Company Sale: As a PE fund winds down, they often sell or combine portfolio companies and/or entities to generate returns. Virtual data rooms can be used to store the documents used for the buying company to perform due diligence on the portfolio company.
IPOs: When a private portfolio company goes public and ready for the first sale of stock, private equity funds use VDRs to due diligence on the company issuing stock and also for the regulators to review documents for IPO compliance.
Virtual Data Rooms for Asset Backed Securities (ABS)
- Auto Loan, Credit Card, Student Loan, and Equipment leases
* Learn how one of the world’s leading financial institution was able to facilitate $290 billion dollars worth of NPL sales with a virtual data room here.
Virtual Data Rooms for Legal Departments
Common virtual data room use cases for legal departments include:
- Contract Management
- Equity Administration
- Litigation Matter Flow
- Legal Review of Marketing Content
- Board Reporting
- IP Information Transfer
Virtual Data Rooms for Compliance
Virtual Data Rooms for Finance Departments
Common VDR use cases for Financial Departments include:
- Budget planning and reporting
- Payroll management
- Audit management
- AP/AR invoice transactions
- Compensation planning
- IP information transfer
Virtual Data Rooms for IPOs
The IPO process is one of the most important yet complex events that a growing company will go through. From financial scrutiny by investors, auditors, and regulators to continuous collaboration amongst investment bankers, lawyers, and accountants, companies must be prepared to manage large amounts of information and accompanying analysis. Information is everything when it comes to billion-dollar Wall Street transactions. Should key points of data fall into the wrong hands or leak out before an offering goes live, an investor road show or the entire deal could be compromised. One wayward email or unsecured document can change everything. As a result, bankers need to ensure the highest level of security for their files at all times. Virtual data rooms are cloud-based platforms were built for these purposes and help facilitate the IPO process. VDRs help companies share and collaborate on content securely. Many provide detailed reporting on what potential investors are looking at and are able to restricted viewing, printing, and saving capabilities on sensitive documents. VDRs provide the tools needed to ensure the IPO process is managed efficiently and securely. Use a virtual data room to streamline the IPO process by allowing multiple stakeholders to access critical information from anywhere at any time on these ultra-secure platforms.
Virtual Data Rooms for Fundraising
During a round of fundraising, startups and other companies have to share sensitive and other high-value information with potential investors. These companies often invest in a virtual data room to host the due diligence for this process. One of the reasons VDRs are used is in this process is to maintain security of intellectual property (IP) and ensure valuable company information does not leak or fall into the wrong hands. Another reason VDRs are used in fundraising, is because these platforms can track and monitor all activity in the room. The ability to know which potential investors are looking at what documents can give companies valuable insight for negotiations during a round of fundraising.
* Learn how the company Vaccitech used a virtual data room to secure $27.1m in a successful series A financing here.