Virtual data rooms are the heroes of modern-day deal-making. The way they have simplified complex business transactions has made them a primary choice for dealmakers, investment bankers, investors, buyers, and sellers all around the globe.
Whether you are planning a fundraising round, initial public offering, or building M&A pipeline, using virtual data rooms for due diligence in these complex transactions will make things smooth. In fact, modern-day virtual data room software are highly effective in pre-due diligence and post-merger stages.
However, it is important to understand that choosing from the best data room providers and setting up a VDR in the right manner is crucial to obtain maximum advantage of the technology.
Here is a brief introduction to the M&A data room and how to set up a VDR for the first time.
What is an M&A data room?
An M&A data room (often called a due diligence data room) is a cloud-based, certified document repository commonly used for initial public offerings, fundraising, and mergers and acquisitions. Modern-day virtual data room solutions offer a wide range of features for data protection, virtual collaboration, M&A pipeline management, data analytics, and whatnot.
M&A data rooms allow all stakeholders such as dealmakers, investors, investment bankers, shareholders, underwriters, legal advisors, and other parties to collaborate on a single platform and perform their duties with ease.
One of the most important features of a virtual data room is the type of security it provides for these complex financial transactions. Virtual data room providers like iDeals employ multiple security layers to safeguard sensitive information at all stages of the process and give you full control over your documents.
How to set up VDR due diligence for the first time
Did you know that almost 60% of the corporate data is now stored and managed on cloud storage platforms and this figure is increasing? It is necessary to ensure that your data is in the right hands. Following are some expert tips for setting up your dataroom software for the first time.
1. Select the right data room vendor
Well begun is half done and this could not be truer in this case. There are at least 100 virtual data room providers offering services around the globe and it can be daunting to choose the right one. No matter which data room vendor you choose, it is highly recommended to consider the following factors.
Security
Never compromise on your virtual data room security. Data breaches not only hurt your reputation but they lead to legal consequences. Look for an ISO 27001/27081 and SOC-compliant VDR. Companies operating in Europe should look for GDPR-compliant VDRs.
Feature set
Important features to look for in an M&A data room are third-party integrations, drag-n-drop file upload, customizable templates, bulk file upload, document classification, built-in due diligence checklists, and compliance tracking.
Price
How much does a virtual data room cost or how much should it cost? It depends on the complexity of the transaction. If the transaction is expected to go on for months, it is better to choose a flat monthly package. However, make sure the vendor doesn’t charge any hidden fee.
Other key features include ease of use, activity tracking/audit logs, and support for different operating systems.
2. Identify your VDR structure and upload documents
It is important to structure your VDR in a hierarchical manner. You can use folders and subfolders to group similar documents together. For example, you can create a folder of financial statements and then create subfolders for different financial statements. The other way is the use of the “indexing” feature. You can add tags, keywords, or metadata that will help users find the documents with ease.
One of the best ways to organize your data room is to use the due diligence checklist often provided by data room vendors. Also, look for a data room vendor that allows you to import files directly from your current repository without compromising its structure.
3. Create an NDA (non-disclosure agreement)
As you are going to allow multiple parties to your data room, it is necessary to create an NDA. Generally, all top virtual data room providers offer built-in, customizable templates for NDAs. Non-Disclosure Agreements are legally binding documents and breaching their clauses can lead to legal consequences.
4. Set user permissions and add users
There may be tens of users in your data room and not everyone is going to have access to every file. At this stage, you will set user permissions according to the roles and responsibilities of the users. It is recommended to recheck the user settings before inviting users to your VDR. Once you are done with the user permission settings, it is time to send invitations to the users and add them to your VDR.
Summing it up
After choosing a certified data room provider according to your needs, you can initiate the VDR setup process by creating a hierarchical data structure and uploading documents. The next step is to create NDAs and set user permissions before inviting users into your virtual data room.
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