A data room, also known as a virtual dataroom (VDR) is a secure storage space for sharing confidential information. The modern equivalent of physical rooms where documents can be kept for a review during selling or buying negotiations, data rooms are often utilized to aid in legal and financial due diligence.

They are virtual data room used by companies of all sizes, and are especially beneficial for SMEs who may have team members scattered across the globe. In the past, larger companies might have gone with expensive internal solutions. However, as VDRs improve and become more accessible, SMEs are also adopting these devices.

The use of a data room

A data room is useful at any point of the business cycle, but it is typically utilized during M&A activities or other processes that require confidentiality. For example venture capitalists will often want to review the contracts and other documentation of a startup before closing an investment, which can be completed in a virtual data room with access granted to lawyers and other parties.

A data room that is prepared can also be used to aid an organization to prepare for due diligence by ensuring that documents are uploaded in time and having it accessible before third parties are invited to join. Certain data rooms are equipped with redaction tools that allow you to swiftly and effectively remove sensitive information prior to sharing documents. This reduces the risk of making a glaring error which could affect any deal.