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Joanna Dmitruk

What is Virtual Data Room and what is it for?

Updated: Apr 19, 2021


Virtual Data Room, also known as VDR, is a system offered as a computing cloud service for confidential and secure communication and sharing of data and documents.


Virtual Data Room is a closed system, with above-average high security, to which only authorized and invited persons have access. VDR is most often offered as Software-as-a-service, i.e. as a system rental service, payable on a subscription basis. Fees are usually billed monthly, based on the used cloud space, number of users and available functionalities. VDR can also be offered as an on-premise system, then the valuation is based on the licensing model and it is most often an individual valuation, based on customer requirements.


What should Virtual Data Room provide?


1. Above average security


Virtual Data Room should offer above-average security related to access to the system, security and encryption of data and documents, as well as appropriate access control and a matrix of authorizations for individual users. System security should be ensured by encryption of communication with a secure EV SSL 256 bit protocol, logging in using secure passwords as well as additional VDR functionalities such as, for example, two-factor authentication (2FA), limiting the user's IP address, encryption of documents, magnifying glasses limiting document viewing and preventing taking pictures of documents or access restrictions to files that prevent downloading or printing.


2. Confidence and speed of action


A reliable Virtual Data Room provider should ensure the system operation in a 24/7 mode and availability at the level of over 99% of the time. Such parameters can be obtained, among others thanks to properly selected infrastructure (reliable and certified servers provided by a recognized data center), technologies used in which the system is written, as well as internal processes and procedures of the supplier.

The speed of VDR operation is, first of all, efficient project opening and inviting users to the system. It is also extremely important to efficiently upload documents to the system with the ability to load large files, entire folders or an index. From the user's point of view, it is also important that the VDR processes documents quickly and that it has a viewer that ensures fast opening and viewing of documents.


3. Functionalities specific to VDR - granting permissions, groups, collaborative work and Q&A


Projects carried out in Virtual Data Room are usually complicated processes or transactions that require the appropriate assignment of user groups, granting them authorizations to documents and enabling work in individual groups and communication with the owner / administrator of the project. Appropriate powers should be granted in a transparent and controlled manner. Typically, the system has a document authorization matrix that allows you to grant authorizations and assign individual groups or individual users.

User groups should often not see each other, e.g. individual buyers in the process of selling a company or individual bidders in a tender. VDR should, however, enable common work for users in assigned groups, along with the possibility of communicating or commenting on individual documents or index sections with each other and communication with the owner / administrator of the project. Such functionality is provided by Q&A and it is present in most VDR systems.


4. Intuitive user interface and support


The Virtual Data Room user interface should be prepared in such a way that users can easily and quickly start work and implement themselves in the system. Additionally, it may be important for the customer to personalize the system so that it corresponds to the color or style of a given company or institution.

It is extremely important to support the VDR supplier's team, both on the technical and functional level. The customer and all users should have the opportunity to train in the work with the system and ongoing support when using the system.



5. Activity monitoring and analyst


Virtual Data Room, apart from the safety of use, should ensure monitoring of all activities in the system during the project. The specificity of projects and transactions carried out in VDR often requires event analytics that allow you to check not only whether a given document was made available to designated users, but also whether a given user opened a given document and which page of the document was read.


An additional element, extremely important from the point of view of the projects being carried out, is a detailed and summary analysis of the project's activity. On its basis, the project administrator can check which documents are most read, which user group is the most active and other valuable, etc. Such data can be valuable information, e.g. in the M&A process, where you can easily check the interest of individual buyers based on their involvement in the due diligence process.


At the end of the project, most clients archive the documents that were available in the VDR. Advanced VDR systems enable the preparation of the so-called VDR White Book, which contains not only a list of documents, but also all users and activities that were carried out in the system during the project.


What can you use Virtual Data Room for?


Initially, Virtual Data Room systems were used mainly for the needs of processes and transactions in financial markets. VDR has been and is support in projects such as:


- transactions on the mergers and acquisitions (M&A) market;

- capital market transactions (IPO, SPO, bond issues);

- financial audits;

- due diligence processes;

- obtaining debt financing;

- acquiring an investor;

- financial restructuring;

- bankruptcy processes.


Currently, the possibilities of using Virtual Data Room have significantly increased. Increased awareness of cybersecurity and the digitization of processes have made VDR a tool for work in many industries and on various projects, including:


- real estate transactions and projects;

- research and development projects;

- projects in the pharmaceutical sector and clinical trials;

- communication between the management board and the supervisory board;

- sensitive data repository;

- secret registry and trade secrets;

- securing medical or personal data.

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