Definition
A virtual data room is a secure online repository for storing, managing, and sharing sensitive data. It is common in legal proceedings, mergers and acquisitions, financial transactions, and other business transactions that involve the exchange of confidential information.
How Virtual Data Rooms Work
A virtual data room enables administrators (often the party facilitating the transaction) to control and manage who can view, edit, download, and print specific documents. All user interactions are logged to ensure compliance and accountability.
Moreover, the documents are encrypted (both at rest and in transit) to prevent unauthorized access. Most VDRs implement version control to ensure the user gets the latest version of each document. Usually, VDRs are indexed and include search features to help authorized users find what they want quickly.
Like their physical counterparts, virtual data rooms offer tools for hosting Q&A sessions, holding discussions, and sharing information. They also allow users to upload and download documents in bulk to streamline the document-sharing process.
Virtual Data Room Applications
- Virtual data rooms facilitate due diligence by allowing the parties to safely review sensitive aspects of a business or property without external interference.
- Legal teams can use VDRs to share sensitive documents involved in regulatory compliance, litigation, or other legal proceedings.
- Businesses and startups seeking investments use VDRs to share business plans with potential investors.