A data room or virtual dataroom (VDR) is a secure storage space for sharing confidential information. Data rooms are the modern equivalent of physical rooms in which documents were kept in hard copies and stored for review during negotiations to buy or sell. They are commonly used as a tool to aid in the process of legal and economic due diligence.
Companies of all sizes use them, but SMEs with team members spread around the world find them particularly beneficial. In the past, larger corporations may have opted for costly internal solutions. However, as VDRs improve and become more accessible, SMEs are also adopting them.
When to use a data space
A data room is useful at any time in the business lifecycle. However it is often employed during M&A or other sensitive processes requiring confidentiality. For instance venture capitalists typically want to look over contracts and other documentation of a startup prior to closing an investment, which can be completed in an online data room that has access granted to lawyers and other parties.
A data room for preparation can also be used to aid an organization in preparing for a due diligence process by ensuring that documents are uploaded in time and ensuring it is available before third parties are invited in. Some data rooms include tools for redaction which can be used to quickly and reliably eliminate sensitive information prior to sharing documents. This lowers the possibility of making a mistake which could compromise any deal.
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