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Data Room Definition: Use of Virtual Data Rooms in M&A

Kison Patel
Kison Patel

Kison Patel is the Founder and CEO of DealRoom, a Chicago-based diligence management software that uses Agile principles to innovate and modernize the finance industry. As a former M&A advisor with over a decade of experience, Kison developed DealRoom after seeing first hand a number of deep-seated, industry-wide structural issues and inefficiencies.

CEO and Founder of M&A Science and FirmRoom

FirmRoom is the leading innovative M&A virtual data room in the industry. The platform is the top-rated VDR trusted by thousands of companies due to its value, speed, ease of use, and security.

What is a Data Room?

The meaning of a data room is a secure, cloud-based storage center that acts as a repository for sensitive documentation. Data rooms allow users to share business information with clients, investors, and company leadership in a controlled environment. Virtual data rooms improve collaboration and allow secure contribution with easy remote access to data and data sharing on a real-time basis.

Difference between Physical and Virtual Data Rooms

A physical data room is a physical location to store important documents that are required during a merger and acquisition. This is a secured, monitored central location with restricted access. Documents are stored on paper, and user access is sequential, resulting in a more drawn-out process.  

Difference between Physical and Virtual Data Rooms

A virtual data room exists digitally via the internet or a standalone application, with data stored in an electronic format on a central server allowing for simultaneous access.

Pros of using virtual data rooms over physical data rooms:

  • On-demand access. Documents and information can be viewed anytime from any location, without physically traveling to the site.
  • Security. The encryptions and heightened security features of VDRs ensure that confidential data is secure.
  • Restricted Access. Access can be granted to certain users on a document-by-document basis, with more specificity than allowed by a physical data room.
  • Cost-efficiency. Travel costs, printing costs, and other costs needed to maintain and allow access to paper documents are reduced with the use of a virtual data room.
  • Scalability. In a physical data room, there is a set limitation on the amount of documentation that can be stored due to physical space. In a virtual data room, unlimited data can be shared.

In the 21st century, with the majority of documentation, business deals, and correspondence existing electronically, physical storage of documentation has become almost obsolete. Physical data rooms are more time consuming and cost-ineffective, and are not equipped to handle transactions in the large amounts that they take place today.

Where are Data Rooms Used?

AtFirmRoom, here are some typical examples of use cases for virtual data rooms.

Pipeline document management

Virtual data rooms can be used to organize the files needed for each stage of the deal pipeline to provide fast and effective access to the most up-to-date data available. VDRs help ensure uninterrupted distribution of information and eliminate any potential loss of information. Data rooms can be used to assist in folder preparation, managing user access, uploading updated documents, exchanging information, sharing notes from prospects, compiling sources of information, and controlling data distribution.

Due diligence

With the use of a data room in due diligence, it is possible to synchronize all processes involved with due diligence, including diligence requests, communication, and document management, in one place. This eliminates any issues around sharing confidential information. Many data rooms, likeFirmRoom, have pre-made due diligence folder structure templates built into theM&A data room structure that outline all of the information required. Teams can upload the template and the room will be structured accordingly.

Conducting Audits

Virtual data rooms can make the process of being audited a bit less painful; all company policies, procedures, accounts, and other documentation can be shared with external auditors on a view-only basis through a data room with specific permissions.

Raising Capital

Virtual data rooms are used during fundraising to facilitate sharing of company information with stakeholders and prospects.


Virtual data rooms allow for management of the IPO documentation process while sharing company information securely with shareholders, underwriters, and all third parties involved.

Data Rooms by Use Cases

VDRs are utilized in a variety of industries, but these are some of the major use cases.


Virtual data rooms are frequently used in M&A to facilitate the due diligence process typically undertaken by buyers. VDRs allow the selling company to provide valuable information in a controlled manner and in a way to help preserve confidentiality. A data room for mergers can be established to allow specific access, and review an audit log of who has been accessing the data which is extremely important for mergers and acquisitions

Data rooms for acquisitions provide the benefit of cost savings, easy access to documents when needed, a search function, easy updating and adding of new documents, and security of sensitive information. The M&A data room structure allows for access to some areas but not all, and allows for straightforward organization of sensitive information.


Virtual data rooms allow tech firms to share information among teams spread across the globe to facilitate the spread of ideas within the companies.

Corporate Development

With the use of a virtual data room, corporations can identify trends in data that they otherwise may have missed to determine strategy.


Confidentiality and privacy are top priorities of consultancy businesses that require a controlled environment, which a VDR provides.


Manufacturing industries use VDRs to share new designs or project data.

Private Equity & Venture Capital

PrivateEquity and venture capital firms usually analyze several deals at once, and depend on virtual data rooms to securely organize all of this data to ensure that every deal in their pipeline is managed efficiently.

Legal Industry

Virtual data rooms can eliminate the typical mountains of paperwork by introducing electronic document sharing. This streamlines the process for every manner of legal proceedings.

Life Sciences

Life science firms use virtual data rooms for everything from clinical trial results and HIPAA compliance to licensing IP and storages of patient files.


When startups are talking with prospective investors, data rooms help them analyze interest. Virtual data rooms allow startups to see which investors are spending the most time reviewing specific company documents and how much time they spent in a room to get a better idea of their engagement level.

Business agents

A virtual data room provides an accessible means to share information on deals and closures, no matter what industry or how much paperwork may be involved.

Fastest Data Room Built to Streamline Due Diligence

FirmRoom was specifically designed with the complexities of M&A security in mind, created by industry experts specifically for the process of streamlining due diligence.

Not only does FirmRoom have all of the previously mentioned security features, its enhanced collaboration and focused analytics help to close deals up to 40% faster. With the inclusion of data encryption, inclusive reporting, and accident redemption, FirmRoom meets FINRA compliance and exceeds industry standards.

Frequently Asked Questions (FAQs)

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Key takeaways

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