What is a data room?
A data room is a private place online where one side of a deal shares its documents with the other: in a numbered index, open to the groups it chooses, with a record of every page anyone read.
The short answer
A virtual data room, and where the name comes from
A virtual data room, or VDR, is a secure website for sharing confidential documents with people outside your company, usually during a transaction. The name comes from the rooms of paper a seller's lawyers once filled with binders, where buyers came to read under supervision. The virtual room does the same job without the travel: the documents are organized, the reader is known, and what they read is recorded.
What separates a data room from a shared folder is control and evidence: who may see which files, whether they may download them, whether they agreed to keep them confidential first, and a record, page by page, of what each person opened.
What a data room is used for
Selling a business, where buyers and their advisers do due diligence; raising investment, where investors read the company's corporate, financial and commercial documents; raising a fund, where investors read the fund's documents; selling or leasing property; board packs; and any audit, dispute or partnership where one side must show the other a set of documents and prove what it showed.
What goes in one
A data room for the sale of a business is usually organized like this, each folder numbered so that 2.4 means the same file in every email and every question.
- 1. Corporate
- Certificate of incorporation, bylaws, board and shareholder minutes, the cap table, and subsidiaries.
- 2. Financial
- Three years of financial statements, tax returns, the current year's management accounts, debt, and projections.
- 3. Commercial
- Top customer and supplier contracts, pricing, and anything that changes on a change of control.
- 4. People
- An organization chart, key employment agreements, benefit plans, and contractor agreements.
- 5. Property and assets
- Leases, owned property, equipment, and intellectual property registrations and licenses.
- 6. Legal and compliance
- Litigation, permits and licenses, insurance, and regulatory correspondence.
What to look for in a data room
- An index whose numbers never change
- Numbered folders and files, so a question about 3.2 means the same file weeks later.
- Access by group
- Each group sees the whole room, a folder, or one file, to view or to download, and you can see the room as they see it.
- An NDA at the door
- Guests sign a confidentiality agreement before they see anything, and are let in as they sign.
- Reading, not taking
- Files shown as pages, each marked with the reader's address and the time, so a leaked page says whose it was.
- Who read what
- Each person's files, pages, and downloads, and how far into each file they got.
- Questions and requests
- Questions asked about the room or one file, answered to one group or all, and a list of what is still wanted.
- A sealed record at the end
- One archive when the room closes: every file, its fingerprint, and the whole record, checkable by anyone.
- A price you can see
- Many rooms are sold through a quote. A published price tells you what a deal will cost before it starts.
How to set up a data room in an afternoon
01
Start from a list that fits the deal
A sale of a business, a fundraise, a property, a fund, or a board pack, each as numbered folders you can rename, reorder, or ignore.
02
Drop a folder of files in
Folders arrive as folders, in order, numbered. PDFs, Word files, spreadsheets, and photos are read as pages.
03
Say who sees what
Make a group for each side, and give each the folders it needs, to view or to download.
04
Ask for an NDA at the door
Choose your confidentiality agreement, and each guest signs it before they see a file.
05
Invite by email
Each guest opens their own link with a code sent to their address. A forwarded link opens nothing.
06
Close it, sealed
When the deal is done, one archive holds every file and the whole record.
See Data Rooms