Virtual data rooms and due diligence go hand-in-hand in the modern-day corporate world. This is because virtual data rooms assist dealmakers in conducting due diligence securely and effectively. And this is especially important, considering the results of the Bain & Company executives survey — 60% of executives say poor due diligence is the reason for deal failure.
Be it M&A, IPO, fundraising, asset trading, or real estate due diligence, dealmakers primarily turn to virtual data room software for more efficient and safer data exchange.
However, setting up a due diligence virtual data room in the right manner is necessary to get the best out of VDR technology. Here is a detailed guide on how to set up a due diligence data room and how it simplifies the due diligence process.
What is a due diligence data room?
A due diligence virtual data room is an online data management solution used to share or exchange financial statements, company records, and other due diligence documents during IPO, fundraising, or M&A due diligence.
Due diligence, in simple words, is a process in which one party (mostly the buyers and investors) examines or analyzes the financial and corporate documents of another party (the target company) to make a purchase or investment decision.
Due diligence data room software works as a digital connecting point between concerned parties. It allows them to share or exchange information and communicate in a fully controlled environment. Some of the best data rooms for due diligence include DealRoom, Ansarada, iDeals, Intralinks, and Datasite. Read more about data rooms for due diligence at https://data-room-software.org/data-room-for-due-diligence/.
How to set up a due diligence data room?
The process starts with subscribing to a virtual data room that has everything needed for due diligence. For this, you should conduct a detailed data room comparison. For example, you can start by looking for security features (critical for the selling side), collaboration tools, audit logs, Q&As, electronic signatures, and meeting management tools. Also, do extensive research on the data room vendor you are choosing — you can get honest users’ data room review on trusted websites like G2 or Capterra.
When these steps are completed, you start the process of setting up the data room.
1. Create data rooms for different stages
Many companies prefer setting data rooms for different stages of the process. For example, all the buyers don’t have the same level of interest in the transaction. You can start with setting up pre-due diligence data rooms and uploading preliminary information. Observe every potential buyer’s activities and decide who is really interested in the transaction.
2. Create folders and upload files
Most of the time, investors or interested buyers give a due diligence checklist, and sellers upload documents according to that. On the other hand, many data room vendors provide built-in due diligence checklists for different transactions — sellers can use that to save time. It is highly important to follow the checklist when categorizing due diligence documents.
3. Set permissions, security settings, and user access levels
Everyone in your data room shouldn’t have the same document access permissions. Also, you don’t want your highly sensitive documents to be printable or downloadable. Thus, define the access level for every single user in the VDR. What’s more, you can add digital watermarks to protect more sensitive files and use fence-view mode to prevent unsolicited viewing of confidential files.
4. Invite users to the data room
Once you have set and rechecked permission settings, send invitations to investors and other users associated with the transaction. At this stage, the bulk invitation feature will be helpful.
Benefits of using a due diligence data room
Following are some key benefits of due diligence data room services.
The first and most important benefit of using online data room software is the level of security it provides to your confidential due diligence documents. VDRs security features like two-factor authorization, document access controls, remote shred, and 256-bit data encryption prevent unauthorized access, data breaches, and data thefts.
An electronic data room keeps all the dealings and activities transparent through activity logs or audit trails. That said, it records all the details pertaining to every single action performed in the VDR. Dealmakers, investors, arbitrators, sellers, board members, and stakeholders can access activity logs and see what’s happening in the VDR. Thus, no one can hide anything from anyone, which makes the transaction fully transparent.
Virtual data rooms provide more flexibility to dealmakers, buyers, and sellers during due diligence. That said, they can easily access the documents at their ease. All they need is an electronic device, an internet connection, and the correct credentials to access their data rooms. Thanks to modern-day data room providers, users can access their VDRs through mobile apps.
Any standard due diligence data room possesses all the necessary communication tools which allow smooth collaboration between buyers and sellers. Common examples include chat messengers, meeting management tools, and Q&A modules.
Virtual data rooms can significantly minimize traveling expenses, paper costs, printing costs, meeting expenses, and distribution costs during due diligence. Why would you spend hundreds and thousands on traveling when you can conduct complete due diligence on a VDR?
A due diligence data room essentially boosts online data security, connects buyers and sellers on a single platform, increases deal transparency, improves efficiency, and reduces the costs attached to the transaction.
Setting up a due diligence data room is easy and straightforward. You just need to choose a provider that fits your needs, create data rooms for different due diligence stages, create folders and upload files, set up permissions, and invite users.
Some globally recognized due diligence data room vendors include Intralinks, Ansarada, iDeals, DealRoom, Datasite, and Caplinked.