Due diligence refers to reasonable steps that need to be taken to satisfy legal requirements or to hold up each end of a major business deal. The due diligence process is generally undergone by professionals like attorneys, accountants, financial advisors, and even investment bankers. A due diligence checklist generally includes the particulars of any business agreement, legal concerns, technology concerns, publicity, products and services, and customer information. Due diligence is important for procedures like mergers and acquisitions (M&A), initial public offerings (IPOs), and even fundraising efforts.
In years past, the documents needed for due diligence would have been kept in a physical data room—an actual room filled with file cabinets containing sensitive documents and confidential information. When the digital age started changing business processes, large enterprises started relying on data warehouses instead. These were still physical rooms, but they contained servers housing digital copies of an organization’s most important documents. These days, it’s becoming more common for organizations to rely on virtual data rooms (VDRs), also known as deal rooms, to securely store and share important information. Here’s everything you’ll need to know about such a virtual due diligence data room and how to use it.
Built-in DRM keeps files more secure than other options.
You likely know digital rights management (DRM) as a way for intellectual property owners and copyright holders to protect their digital assets from unauthorized use and replication, but it’s also become the standard for enterprise document security. When it comes to important deals like an M&A transaction, you can’t afford to rely on traditional file-sharing options like Dropbox or Google Drive. There’s no way to tell what users are doing with your files when you distribute them over such solutions, and you’ll be taking a gamble on the personal security of everyone who views your files.
With a secure due diligence room, you’ll be able to share the right information with the right people in your VDR dashboard. There’s no need for any other plugins or solutions that could create security risks. Simply upload your files to the dashboard, select the data room users you want to give access to, and click “enable DRM” to securely share your documents.
You’ll maintain complete access control over documents.
In addition to controlling which users can see your documents in the first place, you’ll be able to maintain access control throughout the entire due diligence process. You can change access settings at any time if you notice that a user seems to have access to documents they shouldn’t. For example, it’s likely that you’ll only want attorneys to be able to access legal documents to provide legal advice to business leaders and check for the accuracy of descriptions. Likewise, you probably won’t want anyone other than accountants and financial advisors looking at your financial information during a business transaction.
In addition to controlling access for group members, you can even set up your own security features, like multi-factor authentication, in your due diligence data room. You can even rescind access to documents at any time, such as when the financial statements have been checked, the legal forms have been approved, and the M&A is over. Rescinding access even works for documents that were previously downloaded, so you’re the only one who’s able to hang on to your confidential information.
You can track document activity during due diligence.
The best due diligence data room will also give you the ability to track each time an uploaded document is viewed, downloaded, edited, or shared (assuming you’ve granted the permissions). This makes it easy to tell which group members are actually interested in your business deal and helps you set the pace of the overall process. It will also clue you into situations where professionals are struggling with documents, so you can direct them on how to proceed.
All these advantages of a due diligence data room will help you complete the process in a reasonable amount of time while ensuring that none of your documents ever leave the secure environment.
