Due diligence is an in-depth examination of a target company’s financial, legal, and operational aspects.

It provides decision-makers with empirical insights to navigate through mergers and acquisitions (M&As) and other business transactions.

To keep all your assets safe and sound during due diligence, you need a robust solution for secure document management.

This is where virtual data rooms (VDRs) come in. These online platforms leverage robust encryption and access controls to safeguard intellectual property.

Let’s highlight how virtual data rooms can help you enhance the due diligence process by ensuring data security, streamlining workflows, and facilitating seamless collaboration.

Key takeaways

  • VDRs used for due diligence provide safe storage of private documentation and ensure secure data sharing between internal and external stakeholders.
  • Virtual data rooms deliver a general overview of access hierarchies to documents and folders, letting you know who accessed the document and when.
  • Administrators can use granular permissions to fine-tune user access levels, ensuring only authorized individuals handle sensitive information.
  • Regular security audits provide systematic evaluations, ensuring the ongoing robustness of the VDR’s infrastructure and due diligence procedures.

What is a due diligence data room?

A virtual data room used for due diligence is a secure online repository designed to conduct business transactions and audits.

Due diligence VDRs provide a centralized location for all relevant documents, allowing parties to share and review confidential documents and files in a controlled and organized manner. 

Key features include restricted access, document tracking, and audit trails, ensuring that sensitive information is protected and compliance is maintained.

What is the difference between using a physical data room and accessing a virtual data room to conduct due diligence?

A physical data room is a real-world location where confidential documents are stored and accessed during business transactions or audits.

People have to be there in person to interact with physical copies of documents.

In contrast, a due diligence VDR is an online space for digital documents.

It allows secure and remote access to confidential documents, eliminating the need for a physical space. 

This platform lets you unlock, share, and manage documents from anywhere with just a click.

It makes the process of checking documents faster and more flexible compared to a physical room.

How can a virtual data room help with due diligence?

VDR market size increase infographic

The global virtual data room market size reached $2.2 billion in 2022 and is forecast to reach $4.8 billion by 2028.

This growth represents a paradigm shift in how businesses handle confidential information.

Let’s see how due diligence data rooms help companies improve and secure document management.

Ultimate security

Reliable data room software meets strict security and compliance standards, including:

  • ISO 27001 SOC 2 Type II
  • AES-256

Adhering to ISO 27001 ensures a systematic approach to information security, covering risk management, and security controls.

VDRs for due diligence also employ a cryptographic shield using the Advanced Encryption Standard (AES-256).

To date, it’s the strongest, almost unbreakable security algorithm.

This level of encryption ensures that even if unauthorized access occurs, deciphering the encrypted data remains a significant challenge.

Easy document organization

As a cloud storage, a virtual data room comes equipped with intuitive document management instruments, simplifying due diligence processes.

  • VDRs offer advanced search functionalities, allowing users to locate specific documents through keyword searches or metadata filters.
  • You can create customized folders and apply tags to categorize documents systematically and intuitively, enhancing efficiency during due diligence examinations.
  • VDRs support bulk upload and download features, enabling users to transfer multiple documents simultaneously when dealing with large datasets.
  • They incorporate a user-friendly drag-and-drop tool, allowing seamless movement of files, making due diligence navigation hassle-free.

In the context of due diligence, where a comprehensive review of documents is paramount, the efficiency of document management is further complemented by document management software.

Key features of document management software:

Streamlined workflow

Compared to traditional due diligence with its paperwork and slow reviews, leveraging VDRs is like upgrading from a manual typewriter to a lightning-speed computer. 

Just like workflow management automation software helps you improve collaboration and automate tedious tasks, a virtual data room solution streamlines document handling. 

  • VDRs typically offer a unified dashboard allowing users to monitor progress, identify bottlenecks, and ensure the due diligence process remains on track.
  • As mentioned above, due diligence data rooms combine storing and collaborative tools, allowing multiple users to interact with documents simultaneously and reach conclusions faster.
  • With no need for physical document storage, printing, or other manual work, you can reduce the costs associated with document management.

Absolute transparency

Virtual data rooms offer a real-time panorama of due diligence operations.

This dynamic visibility can help you foster trust among stakeholders.

  • VDRs maintain detailed document versioning and history, making it easier to review the evolution of documents and decisions.
  • VDRs automate notifications for document updates, changes, or access requests, ensuring everyone is on the same page.
  • Administrators can track who accessed documents, when, and for how long, creating a transparent view of user interactions.
Security Robust encryption and compliance with industry standards (SOC 1, SOC 2, HIPAA/ITAR, ISO 27001) ensure data integrity and confidentiality.
Document management User-friendly interfaces, drag-and-drop functionality, and automatic folder structures simplify document organization.
Customization Rich customization options provide a personalized experience tailored to users’ specific needs.
Streamlined workflow Accelerates due diligence tasks, promoting efficiency and time savings. Combines storage and collaboration tools for enhanced teamwork.
Transparency Real-time visibility into due diligence operations fosters accountability and trust among stakeholders.

4 tips to consider when setting up a due diligence data room

In addition to the detailed step-by-step guide for setting up your VDR, consider these insights to help assemble a robust virtual data room and optimize its efficiency and security.

Leverage role-based permissions

VDRs for due diligence use granular roles using role-based access control (RBAC) for precise access management.

Put simply, it’s a permissions matrix detailing what each role can and cannot do.

In a due diligence scenario, different roles may include “read-only” for external consultants and “full access” for internal financial analysts. 

For example, a third-party auditor needs access to financial reports for analysis but shouldn’t be able to modify or delete any document.

RBAC ensures roles align with responsibilities, mitigating the risk of unauthorized data exposure.

role-based access control infographic
In the RBAC system, roles are associated with certain privileges or permissions. Instead of managing permissions for each user individually, they are assigned to roles, and users are assigned one or more roles.

Improve document traceability

Implementing robust document tracking capabilities allows for a meticulous examination of the document’s journey, ensuring comprehensive oversight during due diligence.

  • Document tracking software enables real-time monitoring of document interactions, providing insights into when one opens, reviews, and engages with legal documents.
  • Integration with e-signature tools boosts the signature process, reducing turnaround time.
  • Tracking tools create in-depth audit trails, offering a detailed history of document activities.

Streamline automation with contract tools

Contract management software helps quickly find and categorize important information like financial statements and legal contracts in the large pool of documents used for due diligence.

This allows users to minimize the time spent on manual work.

  • Contract management software offers a centralized repository for all legal documents, facilitating easy access and retrieval.
  • It simplifies and accelerates the contract creation process with easily customizable templates.
  • Contract tools ensure that all documents comply with legal standards, maintaining a high level of accuracy and compliance.
  • A contract management platform provides robust version control features, allowing legal professionals to monitor changes and maintain an organized record of document revisions.

Utilizing technologies like optical character recognition (OCR) for scanned documents also optimizes document organization and indexing.

Facilitate API integration for third-party systems

Let’s say there’s a deal maker who needs to swiftly gather financial insights.

API integration does the heavy lifting by pulling financial transaction details, balance sheets, and income statements directly from accounting software into the VDR. 

So there are no tech headaches or manual entries — just a direct, accurate pipeline of financial insights for sharp decision-making.

Technical aspects:

  • VDRs often utilize RESTful APIs, providing a standardized and scalable approach to data exchange between an online data room and external systems.
  • API integration maps data fields between the VDR and connected apps, ensuring accurate information transfer and reducing the risk of errors.
  • API integration employs authentication mechanisms like OAuth or API keys, ensuring that only authorized systems can access and exchange data with the VDR.

Simplify conducting due diligence with PandaDoc’s VDR

Due diligence data rooms have become a game-changer.

They simplify the workflow, ensure excellent security, and provide intuitive functionality for non-tech-savvy users. 

Do you struggle with the complexities, security concerns, and tech barriers impeding the ability to streamline conducting due diligence?

PandaDoc’s virtual data room provides a solution, offering you smooth operations, top-notch security, and user-friendly functionalities. 

Curious to experience the impact firsthand?

Unlock the potential of efficient and transparent due diligence by exploring our VDR demo in action.


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