Data Backup Digest

A virtual data room, or VDR for short, serves as a centralized, online library of data. Primarily used in the long-term storage and sharing of digital documentation, VDRs also play a key role in securing company acquisitions, finalizing capital transactions and performing due diligence throughout all business transactions. While all of these elements can be fulfilled by physical data rooms of the past, VDRs provide a number of day-to-day benefits when compared to maintaining a traditional PDR.

Furthermore, VDRs are used to ensure due diligence during enterprise acquisitions, organizational mergers, loan syndications and capital transactions. Because it offers a single repository for all of a company's documents, which potential buyers can view online, interested parties can make bids that are more education and accurate than before. Conversely, organizations who are trying to attract attention can do so more effectively through the use of a VDR as opposed to more traditional means.

History of Virtual Data Rooms

The concept behind the virtual data room is not a new concept by any means. In fact, tech-savvy enterprises have been using VDRs successfully since the 1980s. While they do present a number of proven benefits over physical data rooms, some enterprises still rely on the traditional means of preserving and managing their digital documentation.

Benefits

For starters, a VDR has a much lower startup cost than that of a traditional PDR. Because VDRs eliminate costs associated with photocopying documents, manual indexing and shipping, enterprises are able to reallocate these funds to an area that needs more attention.

Ease of installation and setup is another benefit of VDRs when compared to PDRs. Different forms of media, including scanned documents and electronic records, can all be centralized in mere moments. Additional information can be added as needed in the future, and all data is protected from users who don't have the correct authorization.

Virtual data rooms also have numerous benefits over traditional file sharing programs, which are sometimes used in place of a PDR or VDR. Modern file sharing applications are subject to a number of risks and hazards that simply aren't an issue when using a VDR, including system limitations, file monitoring and various security concerns.

Finally, VDRs feature enhanced benefits for system control and document management. Today's VDRs allow IT leaders to ensure full compliance, configure access; including permissions or restrictions for multiple users and guarantee that sensitive or confidential information is never leaked.

Drawbacks

While the concept of the VDR is a novel idea, it is not without its flaws. In fact, as Mark Greene, a partner with Cravath, Swaine & Moore, points out, misinformation, human error or otherwise erroneous data is still an issue with VDRs. "It is virtually certain that in the course of their visual review on the screen, young attorneys will miss things unless they take the time to print and review. The costs associated with errors could greatly outweigh the upfront cost savings of VDRs." According to Greene, this is exactly why "physical data rooms are not yet extinct."