What Are Data Rooms?

A data room is an electronic repository that allows secure sharing of sensitive business documents in high-risk transactions. They are used in mergers and acquisitions (M&A), initial public offerings (IPOs) as well as fundraising, legal proceedings and other business transactions that require a strict record of the transaction and confidentiality.

A virtual dataroom allows you to consolidate important legal, financial and operational data to be quickly and easily accessible to prospective investors and stakeholders. This makes the due diligence process much faster and more effective.

The most popular use-case for the data room is M&A. Companies seeking to sell could upload confidential revenue projections, IP ownership documentation, and other important information into the data room, which then can be shared with interested parties. This reduces the amount of paperwork and travel time. It also ensures the right people have access to the correct information.

There are many different ways to structure a data room, but the key is to be organized data rooms and include all the documents that are needed in the transaction. For example, when raising capital, a startup could include a pitch deck and investment summary in the data room, which will help make the due diligence process as efficient as it can be. Most data rooms offer granular access permissions including two-factor authentication, as well as reporting tools for administrators to monitor user activity and avoid the inappropriate distribution of sensitive documents. The majority of data rooms allow users to collaborate and share documents with other team members.