Virtual Data Room: Everything you need to know

Virtual Data Room: Everything you need to know

The Virtual Data Room industry is currently one of the "hot industries that should be kept in mind", says Forbes reports. Experts predict that the VDR market will grow over the next 5 years and will achieve a value of $ 1.9 trillion by the end of 2022.

Data Room were initially used mainly in M&A transactions, but are now widely used by companies from various economic sectors. The popularity of VDR is growing because more and more companies are refraining from conventional (paper) office administration, which is accompanied by increasing threats to a violation of information. The main purpose of the data space is to offer the highest level of security for electronic information that is shared between organizations.

What is a virtual data room?

In the simplest sense, a Virtual Data Room is a web -based electronic document archive in which a company can safely keep confidential documents and give authorized people access to it. In fact, this environment is extremely safe and encrypted with algorithms that are similar to those in electronic banking (EV SSL). Access to information is limited and is strictly monitored by an administrator. The administrator decides who has access to information on which specific documents and to what extent (e.g. whether a user can save or print files, etc.). The administrator invites users to the VDR, but can also refuse or restrict access at any time. Thanks to this function, important business documents can safely be shared with external companies and constantly monitored.

The idea is that nobody receives access to confidential information, unless the corresponding permissions are granted, while everything that happens in the VDR is reported regularly. On the other hand, people who have been invited to the data room can conveniently work from their offices at anywhere in the world at any time and night. Since the data space is offered as a service (SaaS), you only need one computer and an internet connection to use it.

What kind of information are placed in a virtual data room?

In data rooms, private documents are usually stored, which are of great importance for the owner. In addition to the provision of typical information that should always be protected, such as financial, personnel, legal or strategic data, more and more companies are paying attention to security and protecting information from areas such as intellectual property or patents using VDR. This goes hand in hand with the need to meet the updated (and strict) GDPR requirements in EU law-the protection of personal data.

When should I use a virtual data room?

Data rooms are most often used to complete market transactions, including mergers and takeovers. The essential part of each transaction is to provide investors and their advisors access to the data of the company so that they can evaluate the profitability and the risk associated with the investment (). This process in its conventional form (a physical data space) is cumbersome and causes costs (every investor has to come to the company and analyze the documents in a dedicated space) is time -consuming (investors must not know anything about each other, so that they arrive at different times, "one after the other") and carries a high risk of an information violation (employees can be experienced from the transaction and cannot begin; Can take photos of the documents or take them with you).

Therefore, electronic data rooms have replaced traditional relatively quickly, and currently they are the standard for the Due Diligence (read more about this in the article Why VDR in the due diligence process use? ). Thanks to VDR, collecting information, reading and evaluation is more effective than ever. The main advantages for each participant in the transaction are comfort (all work from your offices) and transparency of the process. For the seller, it is the possibility to reach a larger group of investors from all over the world (investors work in a virtual data room at the same time, but do not know the existence of the other), safety of the information and control over the transaction (e.g. you can know exactly what information about whom, when, to what extent or how long a specific document has been viewed).

Traditional data space vs. Virtual Data Room

Traditional data space:

A physically secured and monitored room is usually shared in the premises of a company or its lawyers, in which confidential documents are shared by external units (consultants) to analyze the condition of the company. Access to the data space is often only possible to one consultant at the same time.

• time -consuming due diligence
• low work comfort
• high costs (travel, business trips)
• security risk

Virtual Data Room:

A website to which access is limited to invite external units (consultants) to get to know the corporate documents uploaded there. Since the documents are usually confidential, there are restrictions on the possibility of copying, sharing or printing the documents.

• around the clock access from every place in the world
• parallel negotiations
• Communication (questions & answers-forum)
• process efficiency
• Information security

In addition to the DUE diligence transactions, in which the advantages of using VDR are obvious, data spaces are increasingly used by companies to implement projects that do not have a Due diligence phase, but simply include the transfer of sensitive information to external partners (consultants, financial institutions, cooperating companies). Most of the time, these are investment projects, construction projects, project financing, joint ventures or advisory projects. The popularity of Virtual Data Rooms also grows in industries such as Life Sciences or Banking, where the protection of intellectual property, patents and the personal data mentioned above is of crucial importance.

you see how it works.

What makes Virtual Data Room differentiates from other file release systems?

They are definitely the high security standards that are described in more detail at the end of this article. Security is the heart of the Virtual Data Room system. There is also a second factor that is worth mentioning - in contrast to other file release systems, VDR offers support from the service provider. Support is offered around the clock and includes above all technical support for all users and customer support for system management (e.g. the data space provider can upload files or manage VDR for the customer).

Which are the most important functions of this type of applications?

A virtual data room is a solution for the controlled approval of confidential files outside the company, not for working on documents. That is why VDR is a only reading system. This means that it is not possible to edit documents in the VDR and even the option to select and copy text is not allowed. These are the most important functions of this type of applications. In addition, the system enables even more advanced restrictions, such as blocking the option to save documents on the hard disk, print them, block the screenshot option (print screen) or to place watermarks on the files that help to identify the person in the case of a screenshots that may have misuse.

In the case of the virtual data room provided by fordata our customers receive additional protection (this time not against misuse by the users, but against hacker attacks), since the application of documents are native applications that are from Fordata were created. They are not based on flash technology-in contrast to most competing VDR solutions-that is considered to be extremely susceptible to IT threats.

VDR is certain - what does that mean?

In terms of access rights to the system and the encryption of communication, VDRS have the same level of safety as banking services. This includes communication encryption with the secure EV SSL 256-bit protocol, registration with strong password and SMS codes, the regular password change or the automatic logging after a certain time of the inactivity of the user. Additional mechanisms that can be found in the data space, but not in banking systems, are the option of limiting the number of IP addresses from which users can log into VDR, or the blocking at the same time registration with the same login information.

The catalog is much more extensive and we could talk in detail about security. All in all, VDRS are the safest file release systems that are available on the market. Therefore, I will intentionally pause at this point and continue to treat the topic in the next articles. I hope that I have succeeded in familiarizing those of you who are beginners on this topic, but still have a business significance with VDR. We also encourage you to test our system and see if it is a good solution for your company.