What Is a Data Room?

A data room is a safe, online repository that allows sharing of confidential business documents and other information with the stakeholders. The data is organized into folders, and documents are tagged with standard metadata for each document. This makes it simple for users to locate what they need and reduces the chance of misinterpretation or mistaken perception.

A data room could be used in M&A due-diligence however, they also help with legal proceedings, fundraising and other business transactions. The term « due diligence » has been in use since the mid-fifteenth century and is a legal term which translates to « taking the right, well-informed and prudent steps, » or in other words, taking reasonable care to avoid a bad outcome.

When used correctly When used properly, an investor dataroom could facilitate the process of making a deal and make it easier for both sides. A tech company looking for investment could upload its projected revenue and financial projections as well as IP ownership documents to an online dataroom which investors with the right permissions can access. This will help investors conduct thorough due diligence and feel confident when making a funding decision.

However, some founders are concerned that a data room may create too much friction the process, which could lead to delays and unnecessary stress. To lessen this worry companies set up multiple investor-only data rooms during various stages of their business. This can limit the amount of information that they provide to potential shareholders at each stage. This will reduce the time required to close a deal and let investors review important information more in depth without feeling overwhelmed.