How to Set Up a Data Room


Virtual data rooms (VDRs) have become an essential tool for secure document sharing and streamlined due diligence processes. Virtually all businesses, startups to venture capitalists, need a well-structured, user-friendly and secure data room. 

Whether you’re preparing for a round of fundraising, exploring mergers and acquisitions, or simply looking to streamline your project management, this guide is your roadmap to a successful virtual data room setup.


What is a Virtual Data Room?

A virtual data room, often abbreviated as VDR, is a secure online workspace designed to facilitate data-intensive business activities. It’s a digital platform that provides extensive security features and collaboration tools, making it an essential tool for businesses dealing with large volumes of sensitive data. This digital platform, often referred to as data room software, offers features such as security, workflow optimization, ease of use, and competitive pricing.

VDRs are primarily used for business transactions, due diligence, and data management. In business transactions, a VDR connects multiple parties in a secure environment, simplifying contract management, document reviews, negotiations, and communications.

In the context of due diligence, VDRs provide a secure platform for teams to view files, manage sensitive documents, exchange checklists, and track issues. They offer custom agreements, built-in file redaction, version control, task workflows, and granular access control.

For data management, VDRs offer bulk file and user management tools to support online collaboration, project management, licensing, and other data-intensive tasks. The goal is to provide a secure, efficient, and user-friendly environment for storing, organizing, and sharing documents.


Why Businesses Need Virtual Data Rooms

Businesses today are increasingly recognizing the importance of virtual data rooms for a variety of reasons:

  • Efficient Data Management: Virtual data rooms provide a centralized platform for storing, organizing, and managing large volumes of data. This makes it easier for businesses to keep track of their documents and ensure that they are easily accessible when needed.
  • Enhanced Security: One of the key features of a virtual data room is its robust security measures. These rooms are designed to protect sensitive information, including confidential documents such as financial statements, case files, and depositions, from unauthorized access, ensuring that your business’s confidential data remains safe.
  • Streamlined Due Diligence: Virtual data rooms facilitate the due diligence process by providing a secure environment where all necessary documents can be shared and reviewed. This not only speeds up the process but also reduces the risk of important information being overlooked.
  • Improved Collaboration: With a virtual data room, businesses can easily collaborate with third parties such as investors, clients, and partners. The ability to share documents and communicate in real-time enhances project management and decision-making processes.

Steps to Setting Up a Virtual Data Room

Setting up a virtual data room is a multi-step process that requires careful planning and execution. Ensuring you set up your data room properly can significantly enhance the user experience, making it easier for potential investors and team members to navigate and access the necessary files and folders. Whether you’re preparing for a due diligence process or looking to streamline your startup data management, these steps will help you get the most out of your virtual data room.

Choose the Virtual Data Room Type

Choosing the right type of virtual data room is the first step. There are a few to choose from, each with its own pros and cons: 

Physical Data Rooms: These are traditional, physical spaces filled with hard-copy documents. They were once the norm for storing sensitive company information. Security was maintained through physical guards, padlocks, and strict access protocols. They lacked the convenience and advanced security features of today’s virtual data rooms, however, and have mostly fallen out of use. 

Virtual Data Rooms (VDRs): VDRs are online repositories where documents are stored, organized, and shared in a cloud environment. They offer cutting-edge security features like multi-factor authentication, read-only permissions, and digital watermarks. VDRs are not just secure but also convenient, allowing for easy access and collaboration from anywhere in the world.

Hybrid Data Rooms: Some businesses opt for a hybrid approach, combining the physical security of a traditional data room with the convenience and advanced features of a virtual data room. This approach can be beneficial for businesses dealing with a mix of digital and hard-copy documents.

Cloud Storage Apps: While not technically data rooms, cloud storage apps like Google Drive and Dropbox are often used for document storage and sharing. However, they lack the advanced security features and user role management capabilities of a dedicated virtual data room.

Choosing the Right Virtual Data Room Provider

Choosing the right Virtual Data Room (VDR) provider is a crucial step in setting up your VDR. It’s not just about picking the one with the most features or the lowest price. You need to consider your specific needs and how each data room provider can meet them.

Start by identifying the key features you need. This could include advanced security measures, ease of use, and specific tools for managing large volumes of data. Look for providers that offer these features and compare their offerings. Don’t forget to consider the provider’s reputation and customer reviews as well.

Some regulations may require data to be stored within a specific geographical location. For example, a company in Europe might need a VDR that stores data within the European Union (EU) to comply with data privacy regulations like GDPR.

VDR providers often offer data centers in various locations around the world. You can choose a provider that offers data residency options that meet your compliance needs, like bestCoffer.

Next, consider your budget. While it’s important to have a VDR with all the necessary features, you don’t want to break the bank. Look for providers that offer a good balance of cost and functionality. Some providers offer tiered pricing plans, which can be a good option if you have varying needs. Comparing the offerings of most data room providers can help you find the best fit for your requirements and budget.

Preparing and Organizing Documents for Upload

When setting up a virtual data room, the preparation and organization of all the documents for upload is a crucial step. Here’s how:

  • Digitize Physical Documents: If you have any physical documents that need to be in the data room, ensure they are digitized and clearly visible. This is especially important for startups dealing with sensitive information.
  • Create a Logical Structure: Organize your files and documents into folders that reflect their purpose and content. For instance, you could have separate folders for financial statements, legal documents, contracts, and due diligence materials.
  • Name Your Workspaces Clearly: If your data room provider allows for multiple workspaces, ensure each one has a distinct name to avoid confusion. This is particularly important if you’re using the data room for internal document maintenance as well as for potential investors.

You can also review some of our other guides for additional best practices.

Customizing the Interface and Setting User Permissions

Setting up a virtual data room involves more than just uploading documents. It’s crucial to customize the interface and set user permissions to ensure the right people have access to the right information. Here’s how you can do it:

  • Group Permissions: Start by navigating to the “Groups” tab. Here, you’ll find various permissions like file or folder, admin, membership, and group. Remember, all file permissions are set at the group level.
  • File Permissions: There are four options for file permissions – view, download, download original, and edit. Choose the one that suits your needs. You can adjust these permissions at any time.
  • Admin Permissions: Administrators have the power to set permissions for group members, parent folders, and more. They can grant admin access to a specific group, hide members from each other, or allow regular users to invite new users. Additionally, using access logs can help verify that users have the appropriate level of access and ensure sensitive documents do not fall into the wrong hands.

The goal is to create a secure environment where potential investors can access the necessary documents for the due diligence process.

Inviting Users and Managing Access

Managing access to your virtual data room is a crucial step in the setup process. This involves inviting users and assigning them appropriate permissions based on their roles and responsibilities. It’s not just about granting access, but also about ensuring the right people have the right level of access to sensitive information.

Inviting users to your data room is typically a straightforward process. Most providers allow you to simply enter the user’s name and email address. Once invited, users can set up their profiles and begin accessing the data room. Remember, the level of access granted can greatly influence the due diligence process, especially when dealing with potential investors.

Setting permissions is a delicate task. Administrators usually have full access, including the ability to add and remove users, set permissions, and manage room settings. Other users, like potential investors, may only need access to specific documents such as financial statements or business plans. It’s essential to consider the tasks each user will perform and the level of access they require to do so effectively.

Regularly reviewing and updating user permissions is also important. As your startup data evolves and roles change, access levels may need to be adjusted. This ensures that sensitive information remains secure and that users always have the appropriate level of access. 

Best Practices for Managing a Virtual Data Room

Managing a virtual data room (VDR) involves more than just setting up the room; it requires ongoing maintenance and management to ensure data integrity and security. A well-defined data room structure is crucial for organizing and categorizing documents effectively. This includes assigning document labels for better categorization, identifying the structure of the data room using folders and indexing, and emphasizing the importance of version control for collaborative work.

Identifying and Prioritizing Data

When setting up a virtual data room (VDR), the first step is to identify and prioritize the data that will be included. Not every document or piece of data is relevant to potential investors during the due diligence process. Therefore, it’s crucial to sift through your business’s operations and select only the most pertinent information.

This process involves a careful assessment of your data, ensuring that sensitive information is excluded from the VDR. This not only safeguards your business’s interests but also prevents potential investors from being overwhelmed by irrelevant data.

Structuring and Organizing Data

Structuring and organizing data in a virtual data room is a critical step in ensuring efficient data management. The first step is to create a hierarchical structure using folders and subfolders. This structure should reflect the purpose and content of the documents. For instance, you could have separate folders for financial statements, legal documents, contracts, and due diligence materials.

Another effective method for structuring data is indexing. This involves tagging documents with specific keywords or metadata, making it easier for users to locate files. A good VDR will offer a file indexing feature, which automatically assigns an index number to each file, making it readily accessible. This number is automatically renumbered if you rearrange the files, saving you time and effort.

It’s also important to pay attention to file-naming conventions. Instead of using generic names like “contract” or “amendment,” develop a specific document naming scheme. This will make it easier for users to find the documents they need.

Cleaning and Validating Data

Cleaning and validating data is a crucial step in managing a virtual data room. It’s not just about removing duplicates or correcting typos. It’s about ensuring the integrity of the data you’re presenting to potential investors and partners.

One way to do this is by implementing version control. This ensures that everyone is working with the most updated version of a document. It also allows you to keep track of changes made by team members and revert to earlier versions if necessary.

Another important aspect is to regularly review your data room’s activity log. This helps maintain security and monitor usage. It’s also a good practice to update your data room periodically or following any significant event.

Revoking Access for Unnecessary Users

This is a key step in maintaining the security and integrity of your startup data room.

As your business evolves, so do the roles and responsibilities of your team members. Some may move on, while others may shift to different areas within the organization. In such cases, it’s essential to reassess their access to the data room.

The right management of user access is not a one-time task but an ongoing process. Regularly reviewing and updating user permissions should be a part of your data room management routine.

The Importance of Properly Setting Up a Virtual Data Room

Setting up a virtual data room (VDR) is a crucial step in ensuring the security and efficiency of your due diligence process. It’s not just about storing and sharing sensitive information, but also about managing access, organizing documents, and facilitating collaboration.

Choosing the right virtual data room software, understanding the security features, and properly managing user roles and permissions can make a significant difference in your project management. Remember, a well-structured VDR can save time, streamline the due diligence process, and protect your intellectual property.

If you need advice about setting up a VDR that is easy-to-use and compliant with local legislation and company policy, get in touch with bestCoffer. Our multilingual team is standing by to offer advice and support.