What is a Data Room?
A data room is a virtual storage solution that provides a secure place to store documents. It also comes with a range of additional features to assist in the due diligence process. These include annotation tools, granular permissions, watermarking and activity tracking.
The most common use of data rooms is to share security documents (SOC 2 docs or compliance certificates, for example) with clients to support the due diligence process. This is a great method to accelerate the process and reduce risk by sharing the information with third parties prior to the closing.
Email is employed by companies to share SOC 2 documents as well as other documents. Although this is a good idea, it’s inefficient and creates version control issues. It’s also vulnerable as email-related attacks are on the rise resulting in compromised inboxes and credentials being stolen, as well as phishing exploits.
Many secure storage and file sharing solutions such as Box and Dropbox provide access to documents on any device and any location. They provide a high degree of security, however most businesses and individuals need more. Documents that are sensitive and used for fundraising due diligence, negotiating deals need to be stored in software with higher levels of security.
The most important question to ask any’secure data room’ is: does it prevent authorized users from sharing documents with non-authorized users? Unfortunately, the answer is typically “no”. Most’secure data rooms’ do not restrict the number of times the same credentials can be used to access the system. Users can use logins on their personal devices or copy and paste a link into the browser of a computer friend’s.