“Higher the risk, higher the reward” is a common notion in the financial industry. However, modern-day investors minimize the risk factor with the help of data. They assess the market history, potential threats, and project outputs (returns) based on the information they have. It is also important for investors and private equity firms to have timely access to the data; otherwise, the competitors will steal the show.
Virtual data rooms have provided private equities (PE) the luxury to collect, store, manage, distribute, and access their important documents with ease. Whether it is fundraising, M&As, due diligence, or joint ventures, private equity firms use dataroom software as a focal point to manage their transactions.
Here is a guide to how private equity firms can use virtual data room software effectively.
What is online data room software?
Online data room software is a digital document repository backed by cloud technology. Businesses use virtual data rooms primarily for data management. It may include data collection, storage, organization, distribution, and data sharing.
An electronic data room has built-in tools for document previewing, editing, and sharing. Most of the VDRs, like iDeals, convert documents into PDFs for easy viewing. Communication tools are an additional benefit of data room software that you usually don’t find in other data management tools. A standard VDR has audio and video conferencing tools, meeting minutes and agenda builder, voting tools, Q&A modules, and chat messengers.
Due to the evolving market demands, VDR consumers now prefer customized or industry-specific data room services. That is why virtual data room providers are coming up with different types of data room software, such as M&A data room, due diligence data room, real estate data room, private equity data rooms, etc.
How do private equity data rooms benefit PE firms?
1. Easy access to business documents
As mentioned earlier, easy and fast access to data is important for private equity firms. Private equities usually make transactions after approval from their investors, stakeholders, board members, etc.
It is simply impossible for the investors or stakeholders to contribute to decision-making unless they have enough data to analyze and they can easily access it.
Virtual data rooms, being cloud-based platforms, make it possible for PE firms to keep their documents in one place. Centralized data repositories ensure that everyone knows where to find a document.
2. Easy control over data
Easy access is a great advantage of a VDR, but it is also equally important for firms to have complete control over their business documents. Not everyone in the data room should have access to all the files in it.
Data room software helps firms control the data flow in their VDR. The virtual data room management can:
- Define permission settings of all the data room users.
- Restrict anyone from printing, downloading, saving, or changing the state of a document.
- Revoke document access at any time.
- Add digital watermarks to stamp their copyrights on the document.
- Use advanced features like Fence View for extreme-level document protection, limiting anyone from taking a photo, screenshot, or scanning the document.
3. Faster due diligence
When involved in an M&A transaction, private equities can use virtual data rooms as a central point during due diligence. A due diligence data room will help in different ways:
- Everyone interested in or attached to the transaction can share documents in the VDR.
- All parties involved in the deal can communicate on a single platform. They can arrange meetings online, create chat groups, sign contracts and agreements, annotate documents, etc.
- Decision makers will have access to the updated versions of the document, and new information can be easily incorporated into the files.
- The administration can generate data room audit reports and share them with all concerned users. Audit reports are a perfect way to update everyone on what has happened or what is happening in the VDR.
Easy access to documents and real-time communication speed up the due diligence phase.
4. Hard-to-beat data security
Security is as important as easy document access and fast communication. There is no point in having a centralized platform if it is not secure. Virtual data rooms, with banking-grade security, make sure that confidential data remains safe from data thefts or unintentional leaks.
Security features like two-factor authorization, document access control, digital watermarks, remote device purging, and file access revocation ensure almost 100% data safety.
5. Expense reduction
An electronic data room reduces administrative expenses in different ways. First, private equities don’t have to spend thousands of dollars yearly on their paper documents (paper, printing, and courier expenses).
Second, VDRs also eliminate or minimize the need for physical business meetings. As a result, the company can save on the traveling and residence expenses of its directors, investors, and stakeholders.
Online data room software assists private equity firms in creating a centralized, remotely accessible data management system. It ensures easy and safe document access, real-time communication, and faster dealmaking.