Why Successful Entrepreneurs Prefer Virtual Data Rooms for Secure File Sharing

Successful business leaders know the consequences of data theft, and they know how to avoid those situations whenever they need to share files with external contracts for due diligence purposes.

You might have experienced a breach or paid a fine to regulators, having learned your lesson the hard way. You may have become aware of cybersecurity vulnerabilities or compliance shortcomings in your past document sharing solution and are reading up on the significance of data protection for business success.

Stolen product or project plans adversely affect competitiveness. Ideas born out of years of research and development are not cheap. Losing them can result in the failure of a planned commercial venture. Indeed, your intellectual property is a key business asset, but even more dangerous is the potential for reputation damage in situations where sensitive details regarding your alliances or transaction details leak.

It only makes sense to prioritize data protection, especially when the need arises to help another organization do their due diligence and evaluate your company’s adherence to best practices. That’s why businesses need to invest in understanding what a virtual data room (VDR) is and how to make the most of it.

Sharing documents in a convenient manner without compromising security is a must when presenting data to prospective investors, clients, auditors, allies, board members, financiers, and partners who may need to access corporate data for justifiable reasons.

There are many ways to store and share company documents, but virtual data rooms appear to be the best when it comes to critical business tasks. They are particularly useful when undertaking due diligence for mergers and acquisitions, investment solicitation or fundraising, IPOs, negotiations in forming strategic partnerships, audits, and IP management.

To truly wrap your head around what makes VDRs so effective for secure file sharing, let’s compare them to other methods of sharing sensitive and confidential business documents.

VDR vs Traditional Data Rooms

For the uninitiated, virtual data rooms are based on physical data rooms, which are secure spaces used by companies to house critical and confidential data. These rooms are off-limits to most employees and are only accessible to a select few with high-level clearance. The problem is that they store physical documents, which means that accessing the files entails the entry of the requesting party into the room. In some cases, the required document may be taken out of the room and securely sent to the intended recipient.

Who uses physical documents in the age of ubiquitous connectivity? If you’re facing a merger or acquisition and need to allow someone from the outside to review your documents for due diligence purposes, it simply isn’t practical to expect that person to travel to a physical data room. It’s likewise inconvenient having to transport physical documents, especially when the recipients are in far locations.

Additionally, access to physical documents cannot be done by multiple parties simultaneously. Photocopying them or sending them via fax defeats the purpose of securing them in a data room. Moreover, maintaining a physical room entails costs.

The traditional data room setup is simply costly and impractical. A VDR is indubitably superior, as it creates a platform through which files can be securely accessed (even at the same time and remotely) but not reproduced.

VDR vs Collaboration Platforms

Some would argue that virtual data rooms are unnecessary since there are already collaboration platforms that come with features like in-app messaging, desktop sharing, simultaneous file access, and annotation. If the goal is only to enable file sharing, many collaboration platforms can get the job done easily, but the many other functions are unnecessary.

And security-wise, many team members have grown accustomed to sharing files on these platforms with “anyone with the link” settings, which is too great a risk in sensitive due diligence situations.

Collaboration platforms are designed for full-blown collaborative projects, so they provide more features and may have a slightly complex interface. As such, they cost more. VDRs may no longer be necessary for companies that have invested in collaboration platforms that are particularly secure, and some do come with built-in VDR functionalities. For those that don’t, though, it’s not sensible to pay for a collaboration software or service only to use the secure file sharing feature.

Additionally, collaboration platforms generally don’t come with the same security features and compliance standards. They may be secured with SSL encryption and other basic security protocols, but they may not comply with other vital security standards such as the CIS benchmark, CSA-STAR certification, ISO 22301, ISO 9001, SOC, CNSSI 1253, CDSA, CFTC 1.31, DFARS, and NIST 800-171.

VDR vs Individual File Encryption and Self-Destruction

For small and midsize businesses, data rooms may be deemed unnecessary. Resourceful business owners or managers may resort to creative methods such as the encryption of files sent to the intended recipients through email or flash drives. They may also compile data in a secured tablet that can then be presented to potential investors, auditors, legal counsel, or other interested parties whenever requested. Additionally, it’s also possible to encrypt and send files online but configured with timed self-destruction.

These cost-efficient ideas may work, but they don’t compare to the security and convenience afforded by virtual data rooms. Encryption takes time, especially when dealing with large files. The process can become unnecessarily tedious. Also, encrypted files may be secure, but once decrypted, the files become open to duplication or unauthorized access. Setting your files to self-destruct can be helpful, but it does not guarantee that confidential information can’t be shared with unauthorized viewers.

Add to all these drawbacks the need to produce multiple copies and perform several encryptions when sharing the sensitive documents to multiple requesting parties. Individual file encryption and self-destruction are only practical on small scales. When you are dealing with a high volume of files and requests for access, this idea becomes highly cumbersome.

Many SMBs will realize that it’s more cost-efficient to spend on VDRs, which are largely SaaS solutions that can be sourced as needed, instead of manually encrypting and setting self-destruction for individual files. According to experts, document management and sharing are areas that greatly benefit from SaaS. The amount you invest in a VDR will most likely be offset by the increased efficiency.

Making Due Diligence More Efficient

Virtual data rooms are considerably more convenient to use compared to the other confidential file sharing methods discussed above. Notably, they boost the efficiency of due diligence activities concerning delicate documents and information.

From mergers and acquisitions to fundraising, IP management, IPOs, and even partnerships and audits, the due diligence process improves considerably with virtual data rooms in the picture. It becomes straightforward and faster to accumulate, store, and share information when everything is kept in a unified virtual data room that is easily monitored and regulated.

It’s unnecessary to maintain physical copies of business documents and have them take up space in a dedicated room. It’s also a waste of time to individually encrypt and duplicate files to be sent to multiple government regulators/auditors, potential partners or investors, company officials, and stakeholders.

One of the key ingredients for entrepreneurial success in a highly competitive field is efficiency. It’s not enough to do something and achieve passable results. It’s imperative to do it right with minimal resources used. Successful entrepreneurs understand the merits of using virtual data rooms, so they tend to prefer using them instead of doing the traditional data room arrangement or using other alternative methods.

VDRs generally offer a better way, in almost all aspects, to share critical and confidential information. You can consult the efficiency and effectiveness matrix to evaluate the use of VDRs if you are not convinced by the points raised here.