Due Diligence Data Rooms: What are they & How to Use Them

What is Due Diligence?

Before we dive deeper into what a virtual data room is and how it works, it’s important to understand what due diligence is. 

Due diligence is a comprehensive company review typically conducted before an investment or a merger/acquisition. The goal is to verify the company's health and identify any potential risks, ensuring all involved parties have a clear understanding of the transaction. For example, in M&A, due diligence involves reviewing financial statements, intellectual property & legal contracts.

Traditionally, this process has required the use of a physical room where confidential documents are reviewed, and was used to ensure that confidential information wasn’t leaked or stolen. Virtual Data Rooms have transformed this process by enabling a cheaper and easier way to share confidential documents. 

What is a Due Diligence Data Room?

A due diligence data room is a secure online space that helps facilitate the secure sharing of confidential documents like financial statements, contracts, customer information or even patents. These modern virtual data rooms are designed to replace the traditional methods of managing physical documents or unsecured digital files, providing a centralized space where stakeholders can access and review everything online. 

Who uses Due Diligence Data Rooms?

1. M&A: Buyers and sellers can use virtual data rooms to review financial, legal, and operational documents before finalizing a transaction.
2. Fundraising: Startups and companies use data rooms to securely share their business model, financials, and growth plans with potential investors.
3. IPOs: Companies that go public use data rooms to provide auditors and potential investors with access to relevant information.
4. Private Equity & Venture Capital: Private equity firms and venture capitalists typically use virtual data rooms to share details on their current funds to their investors.

Why should you use a Data Room for Due Diligence?

Security

Virtual data rooms are designed with state of the art security features, such as device level security which verifies the intended recipient before allowing access to the data room. This updates the old and unsafe methods of securing your files with passwords or relying on document watermarking.

Tracking and Analytics

One of the most powerful uses of a virtual data room is its ability to track whenever a document is accessed. This allows you to see who’s accessing what document, including the time they spent on each page, giving you a clear understanding of who’s most interested in your deal.

Team Permissions

Virtual data rooms allow their administrators to assign permissions to specific users, ensuring only the right people have access to particular documents. Creation of multiple data rooms for different groups of stakeholders is a great way to help keep your security model clean and easy to maintain. In addition, most data room providers let you assign multiple administrators to your data room, allowing you to have the entire team keep the data room up to date.

Viewing Documents Online

Some virtual data room providers, like Orangedox, also let your participants preview documents within the browser without having to download them. This feature not only saves your participants time but also minimizes the risk of files being shared with others, keeping you in control of your confidential material. 

When looking for a virtual data room provider during due diligence ensure it includes:

Robust Security 

Platforms like Orangedox employ powerful security measures that prevent your files from being forwarded & keep them in a read-only format. This way, the platform’s secure document sharing technology will always keep you in control of your documents, how they are shared, while ensuring that only the intended recipients can view the documents.

Straightforward and Easy File Management

It’s essential to ensure your virtual data room is both well-organized and consistently up-to-date. A well-organized data room streamlines collaboration, reduces confusion, and improves efficiency when sharing important documents. What’s equally important is keeping your data room synchronized with the latest versions of your files. Manually reuploading or resending files can cause unnecessary delays and errors.

For these reasons, it’s best to select a data room platform that integrates seamlessly with your existing document management system, such as Google Drive or Dropbox. For instance, Orangedox offers seamless integration with Google Drive, enabling users to create data rooms that are synced with their cloud storage folders. This ensures that your shared files are automatically updated and always up to date.

Tracking and Advanced Metrics

During any deal it’s always an advantage to know who’s most interested, preventing you from wasting your time with investors who aren’t very interested. Providers like Orangedox can provide detailed document metrics, including page view times, allowing you to know exactly who’s most interested in your deal.

Teams Management

Providing your team access to your data rooms will help close your deals faster, ensuring documents are always up to date and access is granted to the appropriate investors as soon as possible.

Orangedox supports teams of any size, allowing you to allocate access to your shared data rooms to multiple admins at once. 

Start your 14-day free trial of Orangedox Virtual Data Rooms and see what Orangedox can do for your business, or you can book a free 1-1 demo today.

Learn How To Create a Virtual Data Room.