5 Types of Data Rooms and How You Can Benefit From Them

Data rooms

Estimated reading time: 5 minutes

The inception of virtual data rooms can be credited to the financial industry, which started using this technology to handle complex deals like M&As about decades ago. Virtual data room software primarily facilitated the due diligence stage in mergers, acquisitions, and other forms of consolidations.

Fast forward to today, M&As remain the biggest consumer of online data room software. However, VDR technology has immensely penetrated many other industries globally. You will see data room software in government institutions, real estate, life sciences, oil and energy, legal industry, healthcare, education, investment banking, nonprofits, and other commercial businesses.

The growing demand in the corporate world has pushed virtual data room providers to go for industry-specific solutions. Modern-day data room services target the needs of a specific industry and provide solutions accordingly.

In this article, you will learn about five major types of electronic data room software and how to find the right data room for your project.

5 Major Types of Virtual Data Rooms

1. M&A Data Rooms

The M&A industry, as mentioned earlier, is the oldest and still the biggest consumer of data room technology. Furthermore, North America is a major contributor to the consumption of data room technology for M&As.

M&A is a general term for mergers, acquisitions, consolidations, and other forms of joint ventures. The process is not only time-consuming but also involves a large amount of sensitive data sharing. An M&A data room acts as a central meeting and data-sharing point for sellers and bidders.

Sellers can prepare pre-due diligence data rooms for potential bidders separately. VDRs allow the sellers to track bidders’ activities — whether they accessed pre-due diligence documents or not. Once the bidders show interest, sellers can turn that pre-due diligence data room into a due-diligence data room and add relevant documents.

Both parties can share documents and communicate in a secure and controlled environment. Many data room vendors provide due diligence checklists as well.

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2. Litigation Data Rooms

Lawyers or the legal industry also stand among the biggest consumers of online data room software technology. Although data rooms benefit lawyers in several ways, security is the biggest reason why lawyers prefer this technology.

Data management is not the same for law firms. They not only have to keep the data organized but make sure it is safe. Even an accidental data leak containing clients’ sensitive information can lead to a lawsuit against the lawyer.

To mitigate those risks, data rooms:

  • Create a safe environment for data sharing and communication between lawyers and clients.
  • Assist corporate lawyers in managing transactions and communication with companies
  • Act as a virtual collaboration tool when providing legal services during M&As
  • Provide a digital library of legal forms

3. Life Science Data Rooms

The life sciences/healthcare industry is benefitting from virtual data room technology in so many ways. Many healthcare institutions use data rooms as their databases to store sensitive customer data. Also, virtual data rooms help companies and institutions comply with regulatory requirements. For example, data rooms help health institutions with HIPAA compliance.

Here are some common uses of virtual data rooms in the life sciences industry:

  • Clinical trials
  • Biotech licensing and partnering
  • M&A due diligence
  • Biotech IPO (initial public offering)
  • IP (intellectual property) management
  • Biotech fundraising
  • IP licensing deals

4. Real Estate Data Rooms

The real estate sector stands in the list of top five virtual data room consumers. Realtors, real estate firms, and real estate builders use data rooms according to their needs. 

Here are some common uses of data rooms in the real estate industry:

  • Mode of communication between realtors and clients (sellers and buyers)
  • Asset portfolio management tool for real estate investors
  • Real estate asset management tool
  • Act as a due diligence room during real estate transactions
  • Realtors also use VDRs for live video tours of the properties

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5. Private Equity Data Rooms

Private equity firms use data room technology for:

  • Mergers and acquisitions
  • Joint ventures
  • Investment/asset portfolio management
  • Due diligence
  • Project management
  • Board communications
  • Prospecting

How to Find the Right Data Room for Your Project

Virtual data rooms are secure document repositories serving different industries and professionals. Common types of online data room software include: 

  1. M&A data rooms
  2. Real estate data rooms
  3. Legal and litigation data rooms
  4. Life science data rooms
  5. Private equity data rooms

To start your journey with a virtual data room, look for the best virtual data room providers offering industry-specific solutions. For instance, if you are a lawyer, you should consider using a data room as a robust security system and communication tool, providing an extensive library of digital legal forms. Still, not depending on the industry a vendor operates in, it is essential to compare virtual data rooms and do some research on their reputation in the market. User reviews, free demos and trials, and vendor expertise in your particular industry should guide you toward making the right choice!