Decorative pattern

How to choose and use a data room for due diligence

November 2023

Data Room blog


The practice of due diligence can be applied to a variety of business transactions and can take a predominately quantitative or qualitative approach. In each context, the purpose is to reduce risk and enhance decision-making by thorough research, interrogation, evaluation and verification of available information.

Due diligence forms the basis for negotiations in transactions such as mergers and acquisitions, joint ventures, partnerships, IPOs and other fundraising activities by establishing realistic expectations and identifying liabilities and ‘deal-breakers.’ Financial, legal, regulatory and reputational risks can be significantly reduced by comprehensive investigation into a company’s products and services, vision, operations, financials, legal issues, markets and competition, assets, intellectual property, research and development and human resources.


The central role of virtual data rooms in due diligence

Virtual data rooms are an integral part of the due diligence process. They are designed to facilitate the scrutiny of large numbers of documents by participants representing and advising the main parties, who need access to some or, perhaps, all, of the documents. Making them readily available can prevent potentially deal-ending problems caused by lack of transparency and delays.

Data room technology enhances due diligence in several other ways too. The ability to quickly upload, update and replace documents ensures they are relevant and always up to date. Collaboration and communication between participants are simplified and aided by Q&A functionality. Monitoring tools provide insight into how engaged users are with the due diligence process and where possible issues may arise.

Most importantly, data rooms are uniquely equipped with multiple security capabilities to keep highly confidential and sensitive information safe. They control what participants can view and prevent unauthorised access to information.

Choosing a data room for due diligence is an important decision. Below we look at some of the key considerations in selecting a data room and how to use one efficiently.


How to choose a data room

There are several factors in selecting a data room. These include:


Understanding due diligence requirements
Understanding the specific due diligence requirements of a transaction is essential. M&A deals or a fundraising round will involve significant numbers of documents across a range of subjects. Participants will need confidential collaboration channels and have their questions answered quickly. Being clear about which documents to include, how they should be organised for user convenience, who to invite and what they should have access to, are important considerations.

Prioritising functionality
A data room must have the functionality to meet the due diligence needs of a transaction. Securely storing and sharing information is vital. Essential security features include data encryption at rest and in transit, two-factor authentication, and mechanisms that prevent unpermitted access and sharing of information and protection from cybercrime. An intuitive interface and efficient document organisation and management tools are essential, as is the ability to monitor and report on user activity and processes for secure communication between parties.

Research the provider
Ideally, the provider should understand the requirements and challenges of due diligence and have experience in delivering secure online document management solutions. A provider that appreciates the importance of regulatory compliance concerning confidential data in some industries is more likely to build this knowledge into the data room. These include features such as audit trails, version control and the ability to demonstrate that risk warnings and policy documents have been accessed and read by participants.

Customer support
Users, especially those unfamiliar with data rooms, will benefit from an offering that includes set-up, configuration, training and ongoing support as a standard part of the provider’s package.

There are several data room pricing models. It is important to understand how they differ according to storage capacity, number of users, types of documents that can be managed and the functionality included. A key consideration is transparency about how, or if, changes from initial requirements might affect costs.

How to use a data room

For a due diligence project, it is essential to have a well-prepared data room populated with the relevant information. Below we look at how to use data room functionality to achieve this.

Ensure system compatibility
The host company should ensure compatibility with the software requirements provided by the data room provider, e.g., that up-to-date browsers are installed.

Set up the data room
Give the data room a project name, customise the interface with the company’s logo, upload the NDA and administrators’ contact details, enable two-factor authentication (if applicable) and set notification preferences.

Upload and organise folders and files
All necessary documents should be collated and ready to upload. A good data room allows for bulk uploading and the ability to apply permissions during the upload journey. Tailoring the folder structure to specific needs will help users to navigate and find files easily. File-naming conventions, categorising, ordering and indexing require proper attention.  A good data room will enable easy updating and replacement of documents when the due diligence process gets underway.

Set up user management protocols
This involves setting individual and group access levels and permissions. Each user can be set a profile with permissions that determines how they can interact with files. Administrators can authorise users to see all, or a specific set, of documents and folders.

Set up security protocols
Security tools prevent unauthorised copying, printing and downloading of files. PDFs can be encrypted, and customised watermarks added to further deter the wrong usage of documents.

Invite new users
New users can be invited into the data room by email at different stages of the due diligence project. User access can be revoked at any time to restrict access beyond a certain date.

Create a Q&A Section
A Q&A section that answers commonly asked users’ questions can save the host team significant time and administration. This enables them to focus on more complex and specific questions and requests for information.  Private questions can be answered individually and conversations that will benefit a wider audience can be made available on an ad-hoc basis.

Set up tracking and configure reporting
Tracking tools monitor user access to the data room, which documents they viewed and for how long, and their Q&A activity. Reports can be configured to provide valuable insight into participants’ engagement, signifying those who are genuinely interested in the deal, their key areas of interest, and areas of potential disagreement.

Assign tasks and priorities
Users can be assigned tasks and date-sensitive priorities to ensure that critical deadlines are met. This serves to maintain team alignment and accountability and fosters productivity.


Once the data room functionality has been set up and populated with relevant documents, the project can begin with the knowledge that everything has been done to facilitate efficient and effective due diligence.


Perivan has vast experience in working with confidential data and in developing and deploying document management solutions. Perivan has used this experience and expertise in developing the Engage data room.

If you would like to see how Engage can provide the solution to your due diligence needs, please contact the Perivan team to arrange a demo and answer your questions.

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Decorative pattern