Decorative pattern

Data Room Best Practice

January 2023


data room best practice blog


A Virtual Data Room is used by companies to store, manage and share confidential and valuable information with external parties such as investors, partners, customers and other stakeholders. Companies also use a Data Room for complex fundraising and M&A activity because its high-level security and controlled access capabilities are perfect for the due diligence process. A Data Room can provide the positive user experience that is often critical to the successful completion of a transaction and protects the company’s sensitive information in all circumstances.

There are many reasons companies use a Data Room and, in every case, efficient set-up and management optimise their experience. Here we consider some of the best practices for companies to get the most from their Data Rooms.


Getting Ready

If a company is not already using a Data Room, it should select one that is intuitive and has all the necessary security and management functionality. An intuitive Data Room, with a user-friendly interface, is quick to set up and easy to use. The Data Room should comply with international standards such as ISO27001 guaranteeing protection from cybercrime, including hacking, viruses and third-party malevolence.

An important aspect of getting ready is to organise the administrative team so everyone understands their roles and responsibilities. This includes training the team how to use the Data Room and efficiently manage its features and capabilities. The best Data Room providers will include set-up, configuration, training and ongoing support as standard in their package.

It is also essential to thoroughly review the documents that will be included in the Data Room to ensure they are accurate, relevant and up to date. The time required for review and approval needs to be factored in.


Customising the Data Room

A Data Room’s features can be customised to a company’s specific requirements. The most important functionalities the company should focus on concern the security of documents to ensure they are protected at all times; managing access so authorised users can review information at the right times and unauthorised access is prevented; and monitoring and analysing user behaviour including tracking what users are reviewing.

Data Room technology automatically indexes documents when they are uploaded, which can be rearranged if required. There is no definitive way to organise a Data Room, but keeping it simple and clean, with clear and logical folder and document naming, indexing, and filing, makes it easier to navigate and search for documents. Being able to easily locate information is a huge benefit in due diligence.


Preparing the Data Room for due diligence

Due diligence is the time-consuming and complex process of verifying a company’s financial, operational, commercial, and legal information before committing to an investment. Making this a smooth, user-friendly experience can be hugely advantageous to a company. Companies should only upload documents that are accurate and up-to-date into the Data Room. If they aren’t, deals can be jeopardised and relationships with investors and buyers can be damaged. Documents, therefore, need to be periodically reviewed and, when necessary, updated, amended, and replaced in the Data Room. Users need to be alerted when new documents are added and existing documents are changed.

An important consideration is which documents to include in the Data Room. Relevancy and transparency are key criteria: irrelevant information will slow down the due diligence process and make the company look unprofessional; and withholding some information can have an adverse effect on a transaction and on investor relationships.

In practice, some investors will want to inspect all relevant documents, and some will only want to see a subset. The company can provide a comprehensive index of documents and agree which should be made available to whom. The company may want some parties to see only specific documents; Data Room user permission protocols will restrict users’ access to those documents the company permits them to view.

Companies should allow sufficient time for users to review documents and for answering questions that arise, which can prevent misunderstandings later on.  Data Room task management functionality can be utilised to respond to questions quickly and a Q&A section can be set up for commonly asked questions. Private chat rooms can be created for answering in-depth questions, negotiations, and feedback discussions.


Don’t relax on Security

Protecting sensitive and valuable information is of paramount importance. Companies need to be fully cognisant of the security capabilities of their Data Room and utilise them effectively. Of particular importance are permission protocols which give the company full control over who can enter the Data Room, what they are allowed to see, and prevents unauthorised copying and downloading. Access permission is supported by two-factor authentication and the requirement for strong passwords. It is recommended that user permissions are periodically checked, and that user activity is constantly monitored within the Data Room.


Monitor and analyse user behaviour

Monitoring and analysing user activity within the Data Room helps the company ensure all users comply with its security policies. From a deal management perspective, Data Room analytics provide valuable insights into how users interact with the company’s information. The company can track which documents users are reviewing and for how long, and the questions they ask. This can point to areas of potential interest for further discussion and nuanced negotiations. It can also highlight areas of concern and potential stumbling blocks. Tracking questions can be used to create FAQs and other resources to answer questions more quickly.

If some documents aren’t being inspected or downloaded there may be a need to reorganise or rename documents or improve search terms to make them easier to find.


Post-deal management and future planning

It is often necessary for information to be exchanged after the due diligence process is completed, to answer questions and resolve remaining issues. The expiry date for the Data Room should take this into account, and protocols for enabling and controlling access to the Data Room need to be maintained. The Data Room can be archived so that information and documents can be accessed after the expiry date.

Some companies keep their Data Room open indefinitely for their document management processes. It is very useful for fund raising companies to update and add documents to their Data Room between funding rounds as they build evidence of their development and prospects. This helps them to be properly prepared for investor scrutiny when seeking funds in the future.

Whether a Data Room is used for a specific transaction or on-going document management, applying best practice in preparation and usage optimises the benefits a Data Room provides.


If you would like to see how Perivan’s market-leading Data Room Engage can solve your Data Room needs, contact the Perivan team to arrange a demo and answer your questions.










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