Virtual Data Room

The best thing about the internet is how easily it lets people share information. That can be the worst thing about it, too.

A virtual data room (VDR) is a software-as-a-service (SaaS) that lets companies share sensitive information via the internet, while preserving full control and exclusive ownership of it. VDRs play an important role in supporting external-facing workflows in many fields, including finance—mergers and acquisitions and initial public offerings (IPOs) are two common use cases— law and scientific research.

In this buyer's guide, we answer and explain:

What Is Virtual Data Room Software?
Common Features of Virtual Data Room Software
What Type of Buyer Are you?

What Is Virtual Data Room Software?

A VDR's main function is to store and serve documents in a secure manner. You can think of a VDR as a highly secure alternative to using email to share documents.

 

Screenshot showing drag-and-drop file upload in Firmex's VDR

 

To understand why a VDR is more secure, first consider the many insecurities introduced when relying on email attachments. For example, let's say your company emails a contract as a .PDF or .DOC file to a customer for a signature. In theory, that customer could:

• Claim they never received it, couldn't open it or view it
• Print out or copy the contract and use it to solicit better bids from competitors
• Download the contract to an insecure workstation where it gets leaked
• Use software to surreptitiously change parts of the contract and claim it as the original

Now imagine that instead of a contract, you need to share confidential information that has regulatory or legal protections, like a client's investment or health records. Sharing sensitive documents via email opens up a host of legal liabilities.

It's important to remember that other file sharing tools, such as Dropbox and Sharepoint, can also introduce the same vulnerabilities as sharing files via email. While convenient, file sharing services like these are not a viable alternative to a VDR.

Keep in mind that a company can be on the right side of the law, but still lose money proving it in court. VDRs are designed to prevent these scenarios from happening in the first place. They do this by adding a variety of features and protections that email services lack.

Common Features of Virtual Data Room Software

Because of the unique role they play, VDRs can seem like an amalgam of several different genres of software. They typically provide applications in four main areas: Security, Document Management, Communication and Collaboration and Integrations. These are discussed individually below.

Stronger Security is the primary motivation for purchasing VDR software. VDR software helps a company securely share information by means of the following applications:

Access control	Limit who can view, edit and share stored documents, including internal and external access
Encryption	Encrypt data (either at rest, in transit or both) to prevent unauthorized access
Digital Rights management	Prevent unauthorized downloading, copying and printing of stored documents
Secure browsing	Allow users to view and browse documents while online, but prevents saving or printing them

Document Management applications help control and monitor who can access and edit documents stored in the VDR with applications such as:

Check-in/Check-out	Control the chain of custody for digital documents, preventing version and ownership conflicts
Version control	Add versioning functionality to individual documents, providing reversion options and maintaining a record of changes

Communication and Collaboration tools help communicate with clients about documents and information stored within the VDR. They handle:

Alerts and notifications	Send alerts to clients (via standard email) to notify them when actions are required (to, for example, view and sign a document)
Q & A	Add simple communication functionality so clients can ask questions within the VDR environment
Collaboration	Tools for working collaboratively (adding comments and making suggestions to documents) within the VDR environment

Integrations applications help connect the VDR to existing content management systems. They assist with:

Integration with CMS	Link VDR to an existing content management system for more seamless sharing and publishing workflows
Branding and customization	Add design layout options to help match the VDR interface to your company brand

What Type of Buyer Are You?

Many VDR vendors tailor the applications and functionality of their products to use cases within specific industry verticals. Others offer more general purpose VDRs that can be customized to various use cases by means of workflow templates.

VDRs commonly support workflows in three general areas:

Financial: Mergers and acquisitions (M&As) are the most common scenario requiring use of a VDR. With M&As, the number of parties needing to access the information changes over time as a deal is considered, analyzed, discussed and agreed to or rejected. VDRs also provide records of access, which can be very useful for settling disputes and proving that the necessary disclosures were made. Initial public offerings (IPOs) are another common activity for which VDRs are employed.

Scientific: VDRs play an important role in scientific industries, allowing for the secure sharing of data between research institutions, manufacturers, trial partners, healthcare providers and regulatory agencies. VDR collaboration tools are particularly important for many scientific processes and workflows.

Legal: Some VDR vendors specialize in tools designed to support legal litigation. Lawsuits can involve massive quantities of documentation which needs to be shared, selectively, with one or more outside parties. VDRs play an important role in not only making certain information available, but also in preventing accidental disclosure.

If you require a VDR for a use case not listed above, you're not out of luck. VDR vendors offer a fairly wide range of both industry specific and general purpose functionality. As with any software purchase, your job as the buyer is to find the product that will best support your company's existing workflows and overall strategy.