What is a Data Room?
A data room is an electronic storage solution that lets documents be stored in a safe environment. It also provides a number of other features that aid in the due diligence process. These include annotation tools and granular permissions, as well as watermarking and activity tracking.
Data rooms are commonly used to provide security documents to clients (SOC 2 documents or compliance certifications) to aid due diligence. This is a great way to speed up the process and decrease risk by sharing this information with other parties before the transaction is completed.
Traditionally, businesses have used email to share SOC 2 documents as well as other documentation. While this works it is inefficient and causes issues with version control. It’s also unsecure, with attacks on email increasing, resulting in compromised inboxes, stolen credentials and phishing exploits.
Many secure storage and file sharing options like Box and Dropbox provide access to documents from any device and in any location. Although they offer a decent level of security most companies or individuals need more than this. Sensitive documents used for due diligence, fundraising or negotiations must be stored and shared with software that offers greater levels of security than the personal file-sharing software.
The most important thing to inquire about a “secure data room” is whether it blocks authorized users from sharing files with non-authorized persons. Unfortunately the answer to this is almost always no. The majority of “secure data rooms” do not limit the number of times same user credentials may be used to login to the system. Users are able to reuse logins on their personal devices, or copy and paste links into the browser of a computer friend’s.