Different Types of Virtual Data Rooms

The financial industry was the first ever use case of virtual data rooms that used this evolving technology for highly complex M&A transactions. Interestingly, even after a decade, mergers and acquisitions still stand at the top of the list of biggest data room use cases. It also shows that virtual data room providers have maintained a high level of consistency throughout these years, as providing data security during M&A due diligence is not an easy job by any means.

It is not just M&As where online data room software impresses financial institutions. Lawyers, bankers, corporations, government agencies, enterprises, and service providers have also integrated virtual data rooms into their operations. Due to high demand in different sectors, data room vendors have started offering specialized data room services.

In simple words, virtual data rooms are categorized into further types based on their features for specific use cases. Let’s have a look at some very common types of virtual data room software.

What is virtual data room software?

In simple words, virtual or electronic data room software is essentially a digital data storage and online communication tool for professionals and businesses. In broader terms, data room software is a resourceful combination of multiple technologies that help businesses with three important things:

  • Centralized data storage and management

  • Secure online business communication

  • Deal-making or project management

Data rooms are cloud-based solutions used by businesses to manage their data storage and sharing needs. In addition to that, any basic or advanced virtual data room possesses multiple communication tools for group or individual communication. Lastly, data room software is very commonly used as a virtual deal room for unusual business transactions, including initial public offerings, capital/fundraising, corporate mergers and acquisitions, asset acquisition, and real estate transactions.

If interested, you can read more about virtual data room features at: https://www.idealsvdr.com/virtual-data-room-features/.

Common use cases of virtual data rooms

1. M&A virtual data rooms

M&A virtual data room rooms or commonly known as M&A due diligence data rooms, are specifically developed data repositories with advanced project management tools for M&As.

Mergers and acquisitions are long, complex business transactions in which one business entity acquires another or merges with it. Such transactions require a rigorous evaluation and verification of all types of business documents from one or both sides.

The challenge businesses (especially sellers or target companies) face at this stage is how to secure confidential business documents during business or financial due diligence. Ensuring consistent and safe communication between concerned parties is also a herculean task.

How does an M&A data room help?

Data room software facilitates M&A deals in the following ways:

  • Provides a centralized data storage place that is remotely accessible for anyone involved in the transaction.

  • Allows sellers to control the document access and data flow in the VDR.

  • Ensures safe, timely, and real-time communication between buyers, sellers, and third parties.

  • Provides AI-backed data analysis to help buyers make better decisions.

  • Allows sellers to monitor the activities of buyers and third parties.

2. Due diligence data rooms

Due diligence is usually a legal procedure in transactions like capital raising, initial public offerings, and real estate deals. Technically, due diligence is a process in which one party evaluates or verifies the business and financial documents of another business, depending on the scope of the transaction.

One party is required to present its corporate documents to other parties such as investors, fundraisers, financial advisors, and legal advisors in case of IPOs and fundraising. Here is how virtual data rooms help in due diligence:

  • Controlled 24/7 document access to external parties

  • Real-time, two-way communication

  • AI-backed insights to investors/buyers

  • Audit reports of data room activities

3. Real estate data rooms

The real estate industry is among the top five use cases of electronic data room software. Virtual data rooms help real estate firms, investors, and private equity firms in different ways.

For example, the basic data storage service allows the firms to manage their portfolio, clients’ details, structural designs, investors’ details, and other legal documents. Apart from that, here is how a virtual data room facilitates real estate deals:

  • Centralized communication platform for buyers, sellers, real estate firms, and investors

  • Easy to access documents for due diligence

  • Digital document signing (electronic signature feature) within the data room

  • Ability to arrange live video tours of concerned properties

4. Litigation data rooms

The legal industry is arguably the second biggest consumer of virtual data room technologies, and that is for an obvious reason — unbeatable data security.

For lawyers, data protection is a legal obligation, and online data room software helps them achieve that. In addition to that, data rooms:

  • Ensure easy, 24/7 communication between lawyers and clients

  • Make data sharing ridiculously easy

  • Provide commonly used legal forms to lawyers

  • Offer case management tools

  • Get documents signed electronically

Summing it up

Although the basic features are the same in most of the data rooms, they are further classified based on their specialized solutions for different transactions like due diligence, litigation, M&As, and real estate transactions. The above mentioned are some common types of virtual data rooms.


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By Susan Barlow

Dr. Susan Barlow is retired from academia after teaching business administration, project management, and business writing courses for over 20 years.

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