As a large chunk of data exchange takes place over the internet, cybersecurity is an issue that cannot be overlooked. A study by IBM states that around 2.5 quintillion bytes of data are generated each day. Most of this data generated globally is for transactional purposes. With such humongous amounts of transactions taking place online, it becomes essential to develop systems which ensure that efficiency and transparency are maintained throughout these processes.
Virtual data rooms have emerged as one such solution to tackle these problems, facilitating a secure exchange of data. Keeping abreast of the latest technological advancements, companies today have started to increasingly adopt these systems. All types of businesses, ranging from IT consulting to retail to healthcare, have embraced this technology.
So what exactly is a Virtual Data Room?
In a nutshell, a virtual data room (or a VDR) is a secure online space used for storing and exchanging confidential data needed during important financial transactions. VDRs are generally used by large-scale organizations during important business deals that require utmost security. These are not merely digital archives created by companies to back up their documents; they are, instead, an important interface between the two parties involved in the transaction.
Consider organizations functioning in the finance sector or corporate lawyers who mediate crucial business deals. In these cases, the opposite party’s prudence towards securing their data could be a factor that can make or break the deal. Businesses thereby follow a due diligence procedure before entering into a contract with authorities from the other side.
What is Due Diligence?
Due diligence is the investigative procedure that should be performed by companies as a precautionary measure before joining hands with the concerned opposite business. Some important questions, such as whether the business has a healthy cash flow, where does it stand in comparison with its competitors, whether it has a significant online presence, or whether it is up-to-date when it comes to taxes, need to be considered in this process. Companies conduct due diligence procedures when engaging in M&A activities or listing IPOs.
In the past, physical data rooms were widely used by companies during business dealings. These were physical rooms that were situated either on the company’s premises or at places where they had to pay to use these rooms, such as their lawyers’ offices. It was necessary to keep logs of who accessed the room or who saw which version of each document. Having to visit a physical location to view information was a cumbersome and costly process. This scenario changed with the advent of virtual data rooms, that simplified the entire data storage process by storing documents digitally.
In recent years, various file-sharing solutions like Dropbox, which store documents on the cloud, have become popular. A file-sharing service allows its users to upload files from any device onto the system, which it automatically syncs across all of their devices. However, the question that arises is, “how are these VDRs better than the Dropbox?” Well, there are certain features that create a striking contrast between the two.
Let us have a look at some of the most distinguishing factors between Virtual Data Rooms and Dropbox:
- Top-notch Security:
A number of security breaches that took place in the past few years have dented Dropbox’s image as a secure medium for data sharing. With highly-sensitive information being shared among companies, ensuring the highest level of security is paramount to gaining users’ trust. VDRs were primarily developed with the objective of providing companies the ease to conduct their businesses efficiently. Virtual data rooms come with international third-party security certifications such as ISO 27001:2013. A two-factor authentication process, including PIN and SMS, ensures that users are provided with a heightened level of security.
- Better Organization:
Since virtual data rooms store documents containing large amounts of data, it becomes essential to duly segregate it into various categories. A VDR numbers and indexes the documents after they are uploaded, thereby easing the navigation process. Besides, it provides advanced search functions, so that users can quickly find the desired information. VDRs also make bulk file uploading possible, and are compatible with over 25 types of file formats. A well-organized document is more user-friendly, and also helps users save time.
- 24*7 Assistance to Clients:
Another area where VDRs stands apart from Dropbox is customer service. Dropbox provides assistance to its users in a way that may not be satisfactory for each of them, sometimes even making them wait for days before responding. On the other hand, data room providers assign each client with a dedicated project manager, who assists them throughout the due diligence process. The service representatives doing most of the tasks for clients frees them time to focus on more important aspects of the transaction. Besides, VDR providers offer this service round-the-clock, so that if the clients encounter any issue while accessing documents, it can be dealt with at the earliest.
- Additional Features:
Unlike Dropbox and other file-sharing services, which were designed as a typical, one-size-fits-all kind of solution, virtual data rooms are very dynamic in nature. These systems come with several additional features, such as customizable NDAs and watermarking. VDRs render all the control to the system administrator, who is then able to perform various tasks, such as recording who creates the document or remotely deleting the file even after it has been downloaded and even controlling printing & destruction. Besides, the system administrator in a VDR can assign different roles to different users and document the same. In Dropbox, only a few user activities can be monitored, such as the total number of devices that are logged in or the amount of storage space being used up. Whereas, in a virtual data room, the admin can audit the activity, such as the time at which the files were viewed or what changes were made in the document. They are notified about changes via custom email alerts, which can not only benefit the company by alerting them of wrongdoings but would also help it in gauging investor interests.
These advantages associated with virtual data rooms will promote their enhanced adoption among industries that are yet to reap the benefits of this technology. This would help in consolidating the market for virtual data rooms, which, as per Inkwood Research, is set to grow with 14.93% of CAGR in the forecast period, generating $3445.92 million by 2027. If companies have done adequate spadework, the usage of VDRs ensures smooth workflow, facilitating easy file management, without them having to worry about security. Simply put, Dropbox is suitable when one wants to share personal, non-sensitive information. Whereas, for companies wanting to access and store confidential data, for purposes, such as mergers & acquisitions or capital raising, virtual data rooms are the go-to option.