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:
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.