Data rooms are spaces where businesses store and manage their private and regularly used documents. Traditionally, businesses used paper documentation and stored it in dedicated buildings.
However, times have changed, and digital transformation brought new decisions to the market. The biggest advancement in data management practices is the introduction of cloud technology, which allows businesses to store data virtually and access it from anywhere. Virtual data room (VDR) is one of the best and the latest products ofcloud technology. The global VDR market was valued at 1.49 billion in 2019 and is expected to grow at a compound annual growth rate (CAGR) of 14.7% to 2027.
Read the article below to learn how virtual data rooms differ from physical data rooms and what are the main VDR’s benefits.
What Is A Physical Data Room?
A physical data room (PDR) is simply a physical space, generally in the form of a room or hall, where businesses physically store their corporate data in paper form. Businesses use physical data rooms when conducting such financial transactions as M&A, fundraising, or IPOs, where they set up a PDR for potential buyers or investors.
What Is A Virtual Data Room?
A virtual or online data room, as the name implies, is a secure, cloud-based document repository that businesses and dealmakers use to store, share, exchange, or distribute information for dealmaking or regular use. It’s mostly used during mergers and acquisitions and other complex financial transactions.
“Virtual data room technology is simply unprecedented. The data sharing is superfast and unbelievably secure. The information is protected at every single step, and you can control it the way you want. Most importantly, the benefits simply outweigh the cost of VDRs, which is still less than traditional data preservation methods,” says, Angleo Dean, the CEO at datarooms.org — a platform that overviews and ranks the top virtual data room providers. Thanks to the detailed reviews provided by DataRooms, finding the best VDR vendor is easy.
Physical Data Rooms VS Virtual Data Rooms
From the definitions above, it is clear that physical data rooms and virtual data rooms serve the same purpose. Then, what is the difference between these two?
Let’s compare them in the table below:
|Physical Data Rooms||Virtual Data Rooms|
|PDRs are physical spaces to store documents.||VDRs are online, cloud-based document repositories.|
|PDRs are not remotely accessible. You can only access documents by physically visiting the data room.||VDRs are remotely accessible from anywhere, anytime. You can access them via desktops, tablets, or laptops.|
|Data sharing is only possible through printing more copies of documents and sending them via courier, which can take days or sometimes a week.||You can share hundreds or thousands of files in a matter of seconds, and that too with multiple users at once.|
|It is not possible to rectify a mistake in shared paper documents. Also, once you share documents, you have no control over them.||VDRs allow you to edit, remove, alter, or change anything in a document in real time. Also, you can revoke document access anytime you want.|
|PDRs allow sequential user access. That said, only one person can access or check a document at a time. In the case of M&A due diligence, buyers can access documents one-by-one.||Using virtual data rooms, hundreds of users can access a single file simultaneously. Similarly, sellers can create multiple data rooms at a time to give access to numerous sellers simultaneously. It ultimately increases the chances of scoring the best possible deal quickly.|
|PDRs’ security is limited — you can only protect them via physical means such as security guards, lockers, etc. The damage cannot be undone once the confidential documents are stolen.||VDRs are certified, secure data rooms, and it is almost impossible to steal data from VDRs. What’s more, you can immediately delete any document if there are chances of data leaks.|
It is evident from the comparison above that virtual data rooms are way ahead in terms of efficiency and data security. What’s more, managing data through virtual data rooms is highly cost-effective.
The average cost of paper, printer, toner, and related supplies in an average US company is $400,000 a year. According to another research, companies spend up to 3% of their total revenue on paper and printing costs.
On the other hand, a virtual data room can simply eliminate or minimize these costs to a great extent. Many data room providers nowadays give unlimited storage capacity, which means you can store thousands of documents without paying extra.
Benefits of Virtual Data Rooms
The biggest attraction in using a virtual data room is the level of security it provides to your business data. Virtual data room providers strictly comply with all the security standards set by renowned bodies like ISO, FINRA, GDPR, SOC, SSAE, FISMA, and HIPAA. Apart from that, VDRs:
- Employ AI and machine learning for better data analysis, management, and organization.
- Provide a wide range of communication tools for business meetings and Q&As.
- Facilitate different types of complex financial transactions. Businesses use the data room for private equity transactions, M&As, real estate trades, biotech licensing, due diligence, fundraising, litigation, etc.
Virtual data rooms are not ordinary document repositories. The introduction of artificial intelligence in virtual data rooms makes data analysis simple. You can see the patterns in which the data is opened, reviewed, and shared. Data rooms also provide project management features that businesses use for dealmaking.
What’s more, common risks associated with VDRs are data loss and data breaches. It usually happens when businesses go for low-grade or uncertified data room vendors. Every high-end data room provider creates multiple backups of the data you store in a VDR. Thus, there are minimal to no chances of accidental data loss.