A Professional Guide to Using Data Rooms


A virtual data room (VDR) enables organizations to securely store and share confidential documents during due diligence. VDRs can help companies streamline and speed up the due diligence process, whether they are raising funds for a startup or looking into mergers and acquisitions (M&A) and other types of transactions. Financial statements, cap tables, shareholder lists, intellectual property (IP), workers, and management agreements are among the documents examined during the due diligence process. If these documents are shared with people who are not authorized to see them, they risk attracting unwanted attention from the media and jeopardize the entire deal-making process. Worse, if competitors obtain these documents, they may be able to use the data to gain an advantage. The following is a professional guide to using data rooms

Choose a Data Room That Fits the Needs of the Company

There is a wide range of data rooms with various features and functionality at every price point. Security is crucial when setting up a virtual data room for due diligence; companies like Firmex.com prioritize security when setting up the VDRs. One might be undermining security. To ascertain that the files are safeguarded during due diligence, the company should seek a data room software program that is purpose-built for security. This means that the VDR should be able to encrypt your files in the data room both in storage and in transit.

Follow the Due Diligence Checklist

The lead investor could provide a diligence checklist once the company is in the due diligence phase. This will give them an idea of all the documents that need to be prepared for due diligence, such as the assets of the company, liabilities, agreements, benefits, and potential problems. Ideally, the checklist should also include instructions on how to organize the virtual data room. Some companies use their due diligence worksheet to formulate fundraising projects, so they already have the information to help speed up the process. Some investors may prefer to use a data room that has already been prepared.

Create and Organize the Data Room With a File Structure

A file structure for organizing the data room can be created using the due diligence checklist. When sharing many files with multiple stakeholders, it is critical to make sure everybody can find the files they need. To maintain organization, one requires careful attention to file naming conventions, classifying, ordering, and indexing. This index should be used concurrently with the due diligence checklist.

Set the Access Levels, Permissions, and Security Settings

Determine which stakeholders should have access to what information. One should consider whether they want to make the files available to a small number of people or give investors more flexibility. Different data room companies offer different features for access control flexibility, such as locking access to a specific domain. Furthermore, recipients should be able to select whether or not they can download and print documents. Data rooms have no control over documents once they have been downloaded and printed.

Adding Watermarks and Access Agreements

The firm should see if they could append watermarks to the documents before uploading the more sensitive documents to the data room. This will make it more difficult for recipients to share these files after they have downloaded them. Some data room companies also can present recipients with terms of access agreements that they must accept before viewing documents. These safeguards are especially helpful during the due diligence stage to ensure intellectual property protection.