A data room is a virtual storage solution that gives you a secure place to store documents. It also offers a number of features that assist with due diligence. These features include annotation tools that allow for granular permissions, watermarking and activity tracking.
A typical use of the data room is to share security documents (SOC 2 documents and compliance certificates, etc.) with clients to assist in the due diligence process. This is a great method to accelerate the process and decrease risk by sharing this information with other parties prior to the closing.
Many secure storage and file sharing services such as Box and Dropbox, offer document accessibility from any device and in any location. Although they offer a decent level of security most companies or individuals need more than this. Documents that are sensitive and used to raise funds or due diligence contracts should be stored in software that has more protection.
The most important thing to inquire about any “secure data room” is whether it restricts authorized users from sharing files with non-authorized persons. Unfortunately, the answer is almost always “no”. The majority of “secure data rooms” do not restrict the number of times that the same user credentials may be used to log into the system. It is simple for users to reuse logins from their own devices or simply copy and paste the URL into the browser on a friend’s computer.
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