What Are Data Rooms?

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A data room, or virtual data room (VDR), is a secure place for sharing confidential information. Data rooms are the modern equivalent of physical rooms in which documents were physically stored for review during negotiations to buy or sell. They are typically employed to aid in economic and legal due diligence.

They are used by businesses of all sizes, and are especially helpful for SMEs who may have team members scattered across the globe. In the past, larger corporations might have gone with expensive in-house solutions. However as VDRs improve and become more accessible, SMEs are also adopting these devices.

When to make use of a room for data

A data room is useful at any point of the business lifecycle. However it is often used in M&A or other sensitive processes that require confidentiality. Venture capital firms, for example, will often want to review contracts and other documentation prior to closing an investment. This can be done in a virtual dataroom with access granted to attorneys and other parties.

A preparation dataroom can also aid a company in preparing for a due-diligence process by uploading documentation early and making it available prior to when third parties are invited to join. Some data rooms offer tools for redaction that are able to effectively and quickly remove sensitive information from documents prior to sharing them. This decreases the chance of making a costly error that could ruin the integrity of a deal.

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