Virtual data rooms have seen a surge in popularity over the past decade, and are now found in virtually every major global industry. 

For private equity firms, working with a data room is an essential way to streamline processes, increase transparency, and improve outcomes overall. Read on to find out what a private equity data room is and how it can help you.

Private equity definition

Before we get started, let’s briefly talk about what private equity is and how private equity firms work. In a few words, private equity deals follow an investment strategy that consists of acquiring companies, restructuring them, and eventually selling them at a profit.

As opposed to venture capital firms, which invest in promising startups with an eye to major future gains, private equity firms typically look to buy out well-established companies, taking control of their direction and improving operations for bigger gains.

Where venture capital investors can simply own a large portion of shares in a publicly-traded company, private equity firms look to be majority stakeholders of the companies acquired, taking them out of the public stock exchange. Because private equity firms usually work with long-term investments and little liquidity (i.e., it’s not easy to sell off assets at a moment’s notice), they are a type of investment reserved for very high-worth individuals.

What is a private equity data room

Among many other features, a private equity data room will allow you control the flow of large volumes of data, monitor user activity, and confidently share company documents with interested external parties while ensuring no leaks, breaches, or data hacks can take place.

Virtual data rooms play a key role in any kind of due diligence process, which makes them particularly useful for private equity firms. After all, a big part of private equity deals is the due diligence process — learning about a company’s financials, gaining key industry insights, and gaining a better understanding of how the company operates.

Virtual data room providers ensure your private equity firm has a secure place to store confidential information, limiting access to data room materials to authorized users and giving you control over the information exchange taking place in the data room.

How can private equity firms benefit from virtual data rooms

Let’s take a look at some of the ways virtual data rooms can help both sides of the deal process.

4 ways virtual data rooms help private equity firms

Working with a virtual data room provider helps promote transparency, attracting potential investors as well as improving collaboration with external parties. Here are four ways a private equity data room will help your firm with investment deals.

1. Transparency and security

A private equity deal typically involves a lengthy due diligence process with lots of back-and-forth. This is why it’s important to be able to monitor document activity while sharing data with prospective investors and deal makers. The security features a data room brings to the table help you do that and a lot more, ensuring a confidential information exchange.

2. Clarity and good decisions

Good investment decisions can only be made in light of the right information. By giving investors access to an overview of all the important information in a well-structured data room, virtual data room providers help all parties move forward with a well-thought out and well-understood transaction.

Data rooms will usually have a very clear interface, allowing you to create folders and organize them in granular user permissions, making sure everyone has access to the necessary data — and also that no one has access to something they shouldn’t.

3. Streamlined collaboration

Having a centralized platform makes it much easier to share documents such as financial statements, investor reporting, company policies, and legal documents such as NDAs. With the user friendly interface that most virtual data rooms work with, due diligence and sourcing deals becomes a whole lot simpler and straightforward.

Besides helping during private equity deals, a virtual data room will also help with investor reporting, building lists of prospective investors, and scanning and communicating with portfolio companies. Virtual data rooms inevitably help venture capital firms get better industry insights and communicate more effectively.

4. Smoother closure

Virtual data rooms help close more deals, giving all parties involved full control and oversight over the information being shared. Along with an unlimited number of gigabyte storage, most virtual data rooms bring the security and privacy features required to ensure a secure transaction. This includes a complete overview of your digital assets and advanced features such as an audit trail and activity history.

With a virtual data room, your private equity firm is able to conclude a secure investment transaction with any of its portfolio companies.

How virtual data rooms help investors

Since any investment is only as good as the information that goes into it, a virtual data room is one of the key tools for private equity investments. For your private equity due diligence, you need to establish a company’s track record, perspectives, and inner structure. This is serious work, requiring many hours of poring over documents pertaining to every aspect of your prospective investment. This is where a virtual data room solution comes into play.

As opposed to working across multiple platforms and having to request documents through unencrypted email, virtual data room solutions make sure you can scan all of the key company documents in a secure and intuitive way, with minimal hassle and less time spent communicating.

In the fast-paced world of modern deals, a virtual data room platform is a must for any serious investment firm looking to close successful private equity deals.

How to set up a virtual data room for private equity

Setting up a data room is no rocket science. Essentially, you want to create an organized and secure environment for key company data. That said, if you want to conduct effective private equity deals, it helps to have a few tenets in mind when setting up your virtual data room.

You want something that’s neatly organized, where information is easy to find and users can quickly access anything they may need to see. On the other hand, you should also take advantage of access control features to avoid inadvertently sharing content with someone who’s not supposed to see it.

To achieve all that, it pays to keep a number of things in mind.

Find a good virtual data room

It should go without saying that selecting a virtual data room demands some thought, but often people will just go with the first option that comes before their eyes or skimp on selecting a better provider. While this can get you quickly to the deal phase, it can also cause trouble further down the line. If you want the right tool for the job, it pays to do your homework.

To make sure you find a good VDR provider for your private equity deals, begin by determining clearly your needs in terms of:

  • Data storage. Is this a one-time deal or will you be using the same data room for other deals down the line?
  • Security grade. How damaging would it be if your information were to leak?
  • Number of users. How many people will be taking active part in the deal and will require access to the platform?
  • Data hosting. Do you need to host your data in a particular global region so as to confirm with any legal requirements?

These and other questions, once answered, will help steer your search for the best virtual data room for private equity.

Build your virtual data room with an eye to indexing

Private equity deals require easy access to company information, which in turn requires good indexing. This means the virtual data room folders should follow a logical structure that makes it easier for investors to get an overview of the whole company.

Because it’s much easier to upload your files directly into the right folders, rather than having to later sift through tons of documents and assign them to the right categories, start by making a list of all the relevant company sectors. An example would be:

  • Key company financials: cash flow statements, balance sheets, and so on
  • Marketing plans and spending
  • Key stakeholders
  • Company policies and guidelines
  • Worker contracts and other documentation
  • Information about partners, contractors, affiliated companies

Once you have all the relevant sections listed out, it’s time to create folders and subfolders for each, in preparation for uploading your files

Upload your documents in as organized a manner as possible

With your folder structure set up, you can begin uploading all of the relevant documentation for your deal. For this step, it can be a good idea to rename and number files for maximum visibility. Having easy-to-find names can go a long way towards speeding up and facilitating deals.

When naming files, remember to:

  • Keep titles descriptive
  • Use underscores (_), instead of spaces between words
  • When entering dates, use the YYYYMMDD format

Establish access permissions before inviting users

Before sending out invites to everyone who’ll be taking part in the deal, make sure you limit access to folders with information you really need to keep private. This way, when you invite a certain user, all you have to do is assign them the appropriate level of access and you won’t need to worry about your information being unduly accessed or edited.

Most VDRs nowadays feature granular access, which includes limiting users to viewing-only or giving access to editing, commenting, and the like.

Vital VDR features for private equity

We’ve talked about what a virtual data room is, why you need one for your private equity deals, and how to go about setting it up. It only remains to go through some of the features you should look for in your VDR to ensure a safe environment and maximum effectiveness.

Let’s look at them in terms of security, ease of use, and customer support.


Security means not only keeping your data away from peering eyes, but also having oversight over it. Full security should include:

  • Bank-grade encryption of files at rest and in transit
  • Granular user access permissions
  • Full audit trail of user activity
  • SSO, or single sign-on
  • Multiple-step verification for every account
  • Remote shredding of downloaded files

Other useful features include: fence-viewing, choosing your cloud according to global region, blocking users by IP, etc.

Ease of use

Different VDRs will have different levels of VDR customization and deployment options. And while not every company may require branding features for their data room, every VDR should have the following features:

  • Intuitive document management (including indexing, search box, etc.)
  • Compatibility with all major devices (iOS, Mac, Windows, Android)
  • A clean interface (good for non-tech savvy users)

Good customer support

Ideally, your support options should include:

  • 24/7/365 online help
  • Instant chat response
  • Onboarding assistance
  • Tutorials and other training material

Capping off

Virtual data rooms are an essential tool for private equity firms, ensuring control over the information shared and smoothing out the deal process. A good data room will help save time, effort, and money, keeping important documents safe and optimizing communication between all parties.