Virtual Data Room For Private Equity: Benefits, Uses, Features

What Is Private Equity?

Private equity (PE) is a type of asset class used to invest in businesses that show significant potential for future growth. PE firms collect money from investors and other firms to buy, sell, and develop companies that aren’t available on the stock market (this is in contrast to public equity, which consists of buying shares in publicly traded companies).

Typically, private equity investors and firms buy stakes in companies in exchange for a percentage of ownership. These investments are then developed into mature businesses that enable investors to create a positive return on their investments, usually within seven years or fewer.

Private equity appears in multiple forms — from complex leveraged buyouts to venture capital investments. A common way for investors to keep track of all the important documentation in PE processes is to use dedicated VDR software for private equity (more on that later).

Key insights:

  • PE is considered a subset of the private markets.
  • Profits are gained by charging fees for management and performance.
  • PE is often defined as an alternative asset like venture capital or real estate.
  • PE investments are not as frequently accessed in public markets in the form of stocks and bonds.
  • PE provides easy access to alternative forms of investments.

What Is A Private Equity Data Room?

A private equity data room is a virtual platform for storing and managing all the information involved in private equity business transactions. The platform acts as a secure location to review documentation and manage all kinds of PE-related assets in an organized and efficient way.

Prior to the invention of the virtual data room (VDR), data rooms were physical locations where important documentation was stored. This required all stakeholders involved in the PE process to travel to physical data rooms, which proved to be a costly and inefficient way to conduct business.

Thankfully, such information is now stored using cloud technology which greatly improves the entire process, saves countless hours and enables PE-related transactions to be conducted in a much safer, more efficient and cost-effective way.

Virtual data room software can now be used to create a single platform from which all the information related to entire projects can be accessed from around the world. This technology can also take the form of investment banking data rooms or as a data room for due diligence processes.

How Virtual Data Rooms Benefit Private Equity Deals

For Potential Partners And Investors

Ensuring Information Remains Private And Secure

Using a VDR for private equity gives you full control over your important documentation.

As an admin, you can grant different levels of access to individual stakeholders by using the document permission and restriction settings. This allows you to limit who accesses certain information as well as who can download potentially sensitive data. Admins can also track the IP addresses and device types of those interacting with the VDR.

Two-factor authentication helps to protect your data room from being accessed by any unauthorized third parties. This involves entering a password along with another code or some factual information.

Allowing Deals To Be Closed Faster And More Efficiently

Using a private equity data room lets you organize all your information in one central location. This makes workflow much faster and more efficient and provides a great framework to evaluate data and make better decisions faster.

Increasing Bottom Line

Using a private data room will increase your bottom line by saving time and money. It also helps to source more deals, streamline workflow and facilitate more effective collaboration.

‍Monitoring Investments

Monitoring your investments is a great way of keeping your projects running smoothly while helping to avoid any potential pitfalls. Using a virtual data room for private equity also allows management from both sides of the negotiation to collaborate in a transparent and effective way.

For Private Equity Firms

Enables Better Decision Making

Information that’s clearly organized and easily accessed by the right stakeholders helps managers make better decisions as they have a clear understanding of the important elements and the ability to instantly communicate with the appropriate stakeholders.

Facilitates Collaboration

VDRs encourage more effective collaboration by giving teams a clear structure to work from and a platform through which to communicate by sharing information instantly. Organizing all the relevant information into easily understood categories saves time and allows people to focus more on their most important work rather than wasting time on more arduous tasks like trying to track down a lost file.

Streamlines Deals

VDRs are an invaluable resource for firms or individuals involved in private equity deals. VDRs facilitate the collecting and evaluation of all kinds of information relating to potentially lucrative opportunities. They’re able to store information like financial statements and other information to do with leadership and future business goals.

Having quick and easy access to such information helps identify new opportunities while helping to evaluate current deals in a much faster way which ultimately results in sourcing a greater number of deals overall.

How Does Using VDR Improve The Private Equity Process?

Sourcing Process

Sourcing refers to discovering and assessing a multitude of potential investment opportunities. Virtual data room software enables users to collect and evaluate important information like financial statements or contracts by having them stored and organized in a central location.

NDA Signature

Virtual data room software provides a secure location to store and process confidential information such as Non-Disclosure Agreements (NDAs) and contracts. This allows progress to be made rapidly with all stakeholders having access to the appropriate information and the ability to sign legally binding documentation.

Initial Due Diligence

The purpose of undertaking initial due diligence is to gain a deeper understanding of the target company. This is done by conducting research and collecting information about the company, all which can be organized and accessed through VDR software.

Investment Proposals

Effective investment proposals require careful planning and research. VDR software makes this process much more streamlined by providing a secure location to store and organize data relating to the proposal. Besides, the investment team can easily access it.

The First Round Bid

A non-binding letter of intent (LOI) is used by negotiating parties as a form of protection against collapsing deals during negotiation. Non-binding means that the letter is not legally binding and either side of the negotiation may withdraw before signing a legally binding letter/offer. 

VDRs facilitate the negotiation process by providing an impartial intermediary for both sides. They provide a platform for the secure storage of non-binding LOIs as well as any forms of legally binding contracts and other important documents.

Further Due Diligence

Further due diligence involves the sharing of confidential information between several parties. Virtual data rooms provide a platform from which to assign tasks, while also improving collaboration and enabling secure exchange of information.

Internal Operating Models

Creating an internal operating model is often a long and arduous process. It can include all manner of factors related to revenue and cost breakdown. Investors can use VDRs to help streamline this process. Data rooms provide managers with a central location to collect and present information which gives them a clearer understanding of the key factors at play within a given project.

Preliminary Investment Memorandum

PIMs usually consist of a 40-page document that summarizes the important details of an investment opportunity. As these documents often contain sensitive information, it’s important to store and access them through a safe platform. Virtual data rooms are great resources for storing and accessing sensitive data and also provide a means of sharing these documents with the appropriate stakeholders.

Final Due Diligence

The final due diligence stage involves the daily interaction between the investment bank and the decision-makers of the target company. Virtual data rooms act as a central location to enable effective communication between stakeholders while also allowing investment teams to efficiently manage multiple streams of the due diligence process simultaneously.

Final Investment Committee Approvals

A final investment committee approval is undertaken after the previous steps have all been finalized and the investment team intends to move forward with the deal. Virtual data room software makes it easier to create a Final Investment Memorandum that addresses the main issues raised by the investment committee as well as considering any further due diligence. At this stage, the investment team will present a valuation to the investment committee which can be stored and finalized within the virtual data room platform.

Final Binding Bids

The final binding bid (FBB) contains some of the most crucial information relating to the private equity deal like merger agreements and the financing documentation from investment banks. VDRs act as a secure platform to send the FBB to the target company, while also facilitating the storage of potentially sensitive data.

Deal Signature

Virtual data rooms are ideal for summarizing and sharing contracts between different stakeholders and providing a means to finalize the negotiation process by signing the necessary documentation.

Important Data Room Features For Private Equity

Customization And Branding

The best virtual data room providers allow their clients to customize software to match the aesthetic of their brand in many ways including the following:

  • the addition of brand colors and logos
  • the ability to match other branded software
  • better security via the ability to create customized watermark locations
  • the ability to brand policies and procedures
  • URL customisation
  • branded emails

This has several important benefits such as:

  • boosting brand recognition
  • increasing revenue
  • decreasing time spent on training staff
  • ensuring better user experience
  • streamlining the transaction process
  • increasing brand visibility

Carefully structured branding of VDR platforms also helps to expand a company’s digital identity while also projecting values like trustworthiness and authority.

Document Management

One of the main reasons people use virtual data rooms is to securely manage their sensitive documents. The most reputable VDR providers support essential documents in multiple formats and organize them in a searchable repository. This allows teams around the world to gain access to the information they need.

Key capabilities:

  • link large volumes of documents directly with projects
  • store files in secure file vaults
  • global access to individual documents and projects
  • easily customize access settings

Accessibility And Deployment

Most virtual data rooms allow access and permission settings to be customized by clients This enables them to control who exactly has access to which files and for how long. This control not only means protecting important documents but can also be set up to grant access to individual paragraphs within required documents if need be.

The Features Of The Best Data Rooms For Private Equity

VDR Provider
Best for
Access Security
Customization
Deployment
Document Management
iDeals
  • Small business, Mid-size business, Large enterprises
  • Access control and expiration
  • Time and IP access restriction
  • Granular user permissions
  • User security impersonation
  • Two-factor authentication
  • Mobile device management
  • Customize logo, color and invitation email
  • Customizable header and footer
  • Language settings
  • Web
  • Linux
  • Android
  • Windows
  • iOS
  • Optimization for mobile devices and tablets
  • Automatic indexing
  • Drag and drop
  • Bulk upload
  • Full-text search engine
  • Windows Explorer integration
Intralinks
  • Large enterprises
  • Granular user permissions
  • User security impersonation

  • Web
  • Linux
  • Windows
  • Optimization for mobile devices and tablets
  • Auto-indexing
  • Document version control
  • Digital rights for easy file management
Datasite
  • Large enterprises
  • Granular user permissions
  • Two-factor authentication
  • User security impersonation

  • Web
  • Drag and drop
  • Search in 16 languages
  • Document classification
CapLinked
  • Small business
  • Mid-size business
  • Large enterprises
  • Group user permissions

  • Web
  • Document access expiry
  • Remote shredding
  • Fence view
OneHub
  • Small business Mid-size business
  • Granular user permissions
  • Access control and expiration
  • Two-factor authentication
  • Customize logo, color and invitation email
  • Web
  • Mac
  • Windows
  • Linux
  • Optimization for mobile devices and tablets
  • Drag and drop
  • Automatic versioning
  • Sharing through links
Firmex
  • Small business
  • Mid-size business
  • Large enterprises
  • Access control and expiration
  • Granular user permissions
  • User security impersonation
  • IP access restriction
  • Two-factor authentication
  • Custom interface
  • Web
  • Optimization for mobile devices iPhone and iPad
  • Auto-indexing
  • Drag and drop up to 10GB
  • Secure file viewer
SmartRoom
  • Mid-size business
  • Large enterprises
  • Access control and expiration
  • Granular user permissions

  • iOS
  • Windows
  • Optimization for mobile devices
  • Zip upload
  • Document redaction
  • Sharing through links
Ansarada
  • Small business
  • Mid-size business
  • Large enterprises
  • Access control and expiration
  • Granular user permissions

  • Web
  • Automatic numerical indexing
  • File tagging
  • View-only access
SecureDocs
  • Small business
  • Mid-size business
  • Large enterprises
  • Granular user permissions
  • Two-factor authentication

  • Web
  • Full-text search
  • Bulk upload
  • Built-in e-signature
DealRoom
  • Mid-size business
  • Large enterprises
  • Granular user permissions
  • Two-factor authentication

  • Web
  • Document access expiry
  • Granular document permissions
  • Remote shredding
ShareVault
  • Short term projects
  • Access control and expiration
  • Granular user permissions
  • Two-factor authentication
  • Customize logo and URL
  • Web
  • Windows
  • Mac
  • iOS
  • Android
  • Optimization for mobile devices and tablets
  • Remote shredding
  • Date and time expiration
Citrix Sharefile
  • Mid-size business
  • Large enterprises
  • Access control and expiration
  • Granular user permissions
  • Two-factor authentication
  • Customize logo and color
  • Web
  • Windows
  • Mac
  • iOS
  • Android
  • On-premise Windows and Linux
  • Optimization for mobile devices and tablets
  • View-only access
  • Data backup
  • Document expiry
Digify
  • Small business
  • Mid-size business
  • Access control and expiration
  • Granular user permissions
  • Customize logo, color and URL
  • Web
  • Windows
  • Mac
  • iOS
  • Android
  • Optimization for mobile devices and tablets
  • Restricted forwarding
  • Granular permissions and expiry
  • File index
Donnelley Venue
  • Mid-size business
  • Large enterprises
  • Two-factor authentication

  • On-premise
  • Automatic electronic archiving
  • Bulk upload
  • AI contract analysis
  • 4-levels permissions

How To Structure A Virtual Data Room For Private Equity?

Now that you’ve chosen a VDR provider for your organization, you need to structure your virtual data room for effective usage. See a step-by-step guide on how to do it below.

  1. Gather essential documents. Get together all the documents that can be requested early on. It goes without saying that you need to digitize any paper-only documents to have them in VDR. You can create a checklist of what you need in order not to forget anything.
  2. Rename files. As your documents will be used by different people, file names must make good sense to them. External parties shouldn’t feel outsiders when accessing your information. So rename files properly and make sure their titles are search friendly.
  3. Check versions. If there’s a significant difference between various versions of key documents, uploading outdated files could undermine the workflow. Check each file and add the very latest version of it. Also, make sure to upload any new updates to existing documents without delay.
  4. Pick categories. Once you’ve selected and prepared your confidential documents for a secure environment, it’s time to organize them into categories. Remember that you are categorizing your documents for the convenience of other people. Therefore, your VDR’s structure shouldn’t reflect your favorite arrangement, but be convenient for employees. Take some time to consider how your colleagues would like to navigate your VDR’s library. To arrange your folders according to a precise sequence and reorder them when needed, make sure your VDR has a robust file index feature.

How can data rooms increase your revenue?

One of the major benefits of VDRs is that they help organizations increase their profits. In what ways does it work? Keep reading to find out.

Sourcing Deals

To make the best deals, a private equity firm must collect a lot of data for a review. With a VDR, sourcing and evaluating deals can be more efficient. Hence, you can close deals faster than your competitors.

Overseeing Important Transactions

Virtual data rooms are essential for private equity firms in terms of overseeing transactions and facilitating them. They can increase the chances the deal closes by speeding up information transfer between the different parties.

Deal Monitoring

VDRs can provide clients a snapshot of their deal pipeline. You can also monitor your potential deals in a secure way at the click of a button. What’s more, communicating and sharing important data through a VDR can be very advantageous in terms of saving money.

Q&A

Do All VDRs Offer Customization?

No. It’s important to know that not all virtual data room software allows customisation. This is an important factor to consider by a company when looking for a VDR.

Which Industries Use VDRs?

VDRs are used across a multitude of industries for many different purposes. Some of the most common would be when a business is undergoing a merger, collaborating on a project or any scenario that calls for access to shared information on a secure platform.

Should I Be Using Data Room Software For Banking?

Yes, VDRs are especially useful when conducting financial transactions. Investment bankers, for example, require a VDR to give them control over all the documentation involved in an investment process. They can track important metrics like who is working on certain projects and for how long, while also acting as a safe storage facility for sensitive data.

Final Thoughts

Data rooms are known as the best way of information exchange and storage in today’s digital era. With their help, you can seamlessly organize, evaluate and refer back to important documents. VDRs are a secure place, where authorized users can access necessary data and work with it more efficiently. Before you purchase a VDR for your organization, make sure to check the features of all virtual data room providers available on the market.