As the name suggests, a virtual data room, or as it is more frequently called, a “VDR,” is an online database in which companies can store and share confidential information, usually used during a financial transaction. It may also be described as a type of electronic repository or document filing system. With the ubiquitous reliance on computers and specialized software to keep a business running smoothly, coupled with the fact that more and more companies are making the transition to a completely paperless office, many of the previously document-heavy operational practices have been shifted to the virtual realm.
VDRs are used by companies to securely store and share critical and sensitive corporate data and are most commonly used during deals. The information stored in a data room is generally private documentation that is typically considered to be of high value to the company or owner of the data room. Of course, in addition to traditional record keeping that is required for many financial, legal, and tax matters, a lot of companies have other important documents and information that they need to retain and would like to store safely to ensure that it remains confidential. For example, items relating to intellectual property, such as trade secrets and copyrighted works must be convenient to access but also stored in a highly secure location. Because of the growing importance of data and the ensuing increased demand to ensure that such data is adequately safeguarded, the virtual data room was born, and over the years, it has evolved into the kind of solution that it is today.
For financial transactions, virtual data room software has become the norm, replacing the once-ubiquitous physical data rooms. Physical data rooms had their limitations and were time consuming and inconvenient for the parties involved. With the advancement of online security (which is of paramount importance to virtual data rooms), the physical data room became an outdated concept, being replace with a virtual deal room, where companies could share due diligence information securely and from anywhere in the world. The most common uses of VDRs are listed below: