Virtual Data Rooms (VDRs) began replacing Physical Data Rooms around the year 2000. Prior to VDRs, companies were required to print out and physically present all documentation for their due diligence exercise. The exercise would commonly be conducted in secure conference rooms that external parties would enter and exit under strict supervision. The 60’s to the 80’s saw CD-ROMs and floppy discs come and go. The next innovation was external hard drives and memory sticks, however none of the above really improved the due diligence process.
The introduction of VDRs dramatically sped up this process. Multiple parties could now view data in its entirety, at the same time, without the need for travel or physical presence. A wider audience meant a drive up in valuations. It also made it possible to track what external parties spent their time reviewing. Communication became efficient and timelines grew shorter.
VDR providers initially stemmed from connections to Financial Printing companies. Intralinks partnered with RR Donnelly, Merrills brought out Datasite, Imprima with iRooms and Sterling released Sterling Data Rooms. Financial Printing refers to the preparation of prospectuses for shareholders and investors in the event of IPOs, Rights Issues, Bonds or takeovers. Being in use by legal and financial networks, Financial Printing supplied the ideal audience for VDRs. Both services operate 24/7 customer support and handle highly sensitive data for high profile deals.
Despite the high barriers to entry, more and more tech companies are taking on the VDR market. Over the last few years, we have seen iDeals, Firmex, Ansarada, Drooms, Multipartner, AdminControl and Virtual Vaults gather some traction in their local market. At the same time, more established firms continue to dominate the picture.
The successful track record of supporting clients through a project, rather than the SaaS ‘do it yourself’ model, has shown that good service and reliable communication remain the primary concern for clients.
After ten years of relatively slow progression, the last three years has seen technology boom in the VDR industry. People rely on good, reputable technology to do their work and in the name of efficiency, there is a demand to merge the platforms we use every day. VDRs are at the centre of a deal, but there are many other complementary processes that go on around the data room.
Legal Artificial Intelligence (AI), an industry closely aligned with the VDR sector, is being taken on by law firms in a quest to save time on due diligence amidst squeezed margins. Kira and Lumiance are two prominent players in this industry. Some VDR providers are beginning to develop their own competing projects, with the ambition to deliver a one-stop shop for all client needs. Other providers, such as Sterling, have integrated with these firms to be able to provide clients a ‘best in practice’ approach for choice and flexibility. Further integrations will follow, such as document management systems for secure payments and seamless data synchronisation, which will lead to a more consolidated platform for clients. As the speed of technological change continues to increase, gaps will widen between VDR providers and what they are able to offer.
If you would like more general information on data rooms, including some advice on how to pick a provider that works for you, here’s our list of FAQs.
