A data room is an electronic storage system that lets documents be stored in a secure environment. It also provides a number of additional features that assist with the due diligence process. These tools include annotation tools, granular permissions, watermarking and activity tracking.
A typical use for the data room is to share security documents (SOC 2 docs, compliance certifications, etc) with clients in order to facilitate the due diligence process. This is a great way to speed up the process and decrease risk by sharing the information with third parties prior to the closing.
Email has been used by companies to share SOC 2 documents as well as other documents. Although this is a good idea, it’s inefficient and creates version control issues. It’s also vulnerable with email attacks increasing, which can lead to compromised inboxes, stolen credentials and attacks on phishing.
Many secure file sharing and storage solutions like Box and Dropbox allow access to documents on any device and any location. They provide a high level of security, but most companies and individuals require more. sensitive documents that are used to conduct due diligence and fundraising, or for negotiating deals should be saved and shared in software that has greater levels of security than the personal file-sharing software.
The most important thing to ask about any “secure data room” is whether it prevents authorized users from sharing data with non-authorized persons. Unfortunately the answer is almost always “no”. The majority of secure data rooms do not restrict the number of times the same user’s credentials can be used to login to the system. Users can easily reuse login credentials on their devices, or copy and paste a link into the browser of a computer friend’s.
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