What is a Data Room?
A data room is a digital storage solution that provides a secure place to store documents. It also provides a range of features that aid in the due diligence. These tools include annotations as well as granular access permissions watermarking, and activity tracking.
The most common use of the data room is to share security documents (SOC 2 docs or compliance certificates, for example) with clients to support the due diligence process. Sharing the information with other parties before the deal is closed is a great method to speed up the due diligence process and decrease the risk.
Email has been used by companies to share SOC 2 documents as well as other documents. While this is effective, it is inefficient and creates problems with controlling versions. It’s also unsecure, with attacks on email increasing, leading to compromised inboxes and credentials being stolen, as well as attacks on phishing.
Many secure file sharing and storage solutions, such as Box and Dropbox allow access to documents from any device and in any location. Although they offer a decent level of security, many businesses or individuals require more than this. Documents that are sensitive and used for due diligence, fundraising or negotiating deals should be stored and shared in software that has higher levels of security protection over these personal file sharing systems.
The most important question you should ask any’secure data room’ is: does it prevent authorized users from sharing documents with non-authorized users? Unfortunately, the answer is almost always not. Most’secure data rooms’ do not limit the number of times the same user’s credentials can be used to log into the system. Users can easily reuse login credentials on their devices or copy and paste links into the browser of a friend’s computer.