Step-by-step Guide to Choosing a Virtual Data Room in 2024

Undoubtedly, you have heard of virtual data rooms (VDRs), and perhaps you have even used one.

However, identifying the virtual data room that is the best fit for your business and documents is not as simple as doing a Google search and scanning through a few reviews.

The legwork behind VDR shopping is of the utmost importance, and while it takes a bit of time, it does not have to be complicated and will surely yield positive outcomes for your business and its stakeholders.

At FirmRoom we help companies utilizing data rooms and make this process as easy as possible, and in this article we simplify and fortify the process of selecting a virtual data room.

The article below will go into detail on each step so you can confidently navigate the VDR waters. So, let's start!

1. Define your needs and abilities

Before you can begin talking to colleagues and going down the rabbit hole of VDR reviews, you must hone in on what you will use the data room for and how it will enhance your current practices.

Additionally, you need to honestly analyze your (and your peers’) abilities related to technology. 

As you take stock of the potential users’ capabilities, you will be able to continue to refine your VDR criteria. If not everyone on your team is technologically savvy, you will want a VDR that is known for being intuitive.

Additionally, customer service and support might become more of a priority for you vs. a company of employees that are very technologically astute.

The following are basic questions to begin with as you work to define your needs:

1. How much storage do you need?
2. What kind of files and documents will you be storing?
3. What is your budget?
4. Which team members will be using the data room?
5. Will the entire company be using the data room?
6. Will the VDR simply be used to store documents or will it serve other purposes?
7. Will the use of the data room affect your workstreams at all?
   

2. Identify desired features

Step one should organically help you create a set of criteria for your optimal VDR.

With these criteria in mind, you now need to determine the features that will best address your business’ unique goals.

Some VDRs are simply just VDRs - a secure place to store documents, while others contain features that promote collaboration, due diligence, and still others go further with project management features.

Features commonly fall into the following categories:

Security

‍Security is obviously of the utmost importance when selecting a VDR. Compromised documents not only hurt deals, but can also destroy companies and their reputations, putting thousands, or even millions, of individuals' information at risk. As you shop for a VDR, eliminate any one that is not ISO 27081 compliant. Similarly, eliminate options that do not have two-factor authentication to reduce password theft, strong encryption methods to keep documents safe, and digital watermarking abilities to prevent illegal copying. Additional details about security features can be found in this guide to virtual data room security.

Document management features

Some VDR like FirmRoom allows teams to not only store documents and files, but also includes in-text search, built-in document and excel viewer, various filters and more.

Permission settings

‍On a related note, permission settings are critical to explore when shopping for a VDR. More specificity, does the VDR have “view only” options? Will it allow you to share a document with a peer, but also restrict part of that document from your peers? The specifificty of permission settings varies from VDR to VDR and can impact your collaboration and document safety. 

QA feature

The QA feature goes by many different names but it is essentially a way to request diligence or additional documents and files within the platform. It is outdated feature as there are more convenient ways to manage diligence process. Consider investigating DealRoom's diligence management capabilities if you really need to streamline your diligence process.

Analytics (also known as “audit logs”)

‍You will want to look for a VDR that provides data on all users, activity, files, and documents within the room. This is not only useful from a security point of view, but also from a project management perspective as it allows you to identify potential roadblocks, gauge users’ levels of interaction, and avoid redundant work. 

Customer Support

‍Finally, be sure customer support is on your shopping checklist. Perhaps even chat online with customer service or call the customer service line to gauge how responsive the VDRs customer support is. Also, if you are using the data room across different time zones, you’ll want to look for 24/7 customer support. 

You can find a complete list of features for each category by reading the article “Advanced VDR Features that Data Rooms Should Have”

3. Consider your budget

VDRs can be very cost-effective, but their pricing models do vary. Before you begin your hunt, be sure to set a ballpark budget as this will help narrow your search.

Additionally, you will want to consider the length of your project (or if the time frame is unknown, this should also be noted) and the number of users your data room will have.

Generally, VDR pricing is based on either:

• Number of users - some providers only allow for an administrator and a few users, and each additional user can cost upwards of $100. As you shop, you will want to consider the number of users you will have (administrators and quests) as well as the number of users allowed in each VDR with additional charges. 
• Storage size - storage size pricing is not ideal for most users as this means the room charges based on the number of gigabytes (GBs) purchased. The overage charges for these rooms are historically high; however, if you have a small project with a limited number of text documents, this might work for you. 
• Number of documents (also known as “per-page pricing”) - although becoming a bit outdated, a per-page pricing method is still used by many VDRs. This means they charge about 40-85 cents per page. Again, if you have a very small, well-defined project, this might work for you, but if you have a larger project or a project with unknown variables, per page pricing can often lead to additional charges and difficult, even compromised, decision making when it comes to what will go into the room. 
• Available features - different plans provide different features which can affect cost.
• A flat rate - larger projects with many variables usually fit well with flat-rate pricing. Oftentimes, this means the VDR provider will charge a monthly fee that includes unlimited pages, users, and some amount of storage. This type of pricing can help with financial planning for your project, as well as help your company avoid surprise or overage chargers. The current trend seems to be toward more VDR providers moving to a flat rate pricing model, but be sure to fully investigate what the flat monthly fee covers for each VDR you consider. 

Good VDR should:

• not limit you on the number of users
• have flat rate pricing structure
• have transparent pricing options without any hidden fees
• provide minimum of 10GB of storage included in price

Here is an example of pricing options of a data room provider with such characteristics.

To learn more about how virtual data room pricing, check out our blog “How much should a virtual data room cost.”

4. Compare virtual data rooms 

Compare which data rooms meet your needs and criteria. There are useful comparison charts out there to help you such as:

• Virtual Data Room Comparison Table 
• Capterra Comparison Feature 

5. Read the reviews

When purchasing almost any new service, reading online reviews is a step we all take; however, the review waters of virtual data room reviews can get a bit murky.

While you still need to read reviews, you must be aware that some reviews and review sites are fake and companies can now buy reviews. 

5.1 Read reviews about virtual data room software

A simple place to start is searching “Provider name + Reviews” on Google.

As you read reviews, be aware of red flags such as 5-star reviews (these are very rare unless the company has purchased a review) and poor spelling and grammar.

The following sites have also proven to be trustworthy (while we cannot guarantee every review is accurate, these sites have actual customer reviews and fewer red flags than many review sites): 

• Capterra
• SoftwareAdvice
• Trustradius

As you comb through the reviews be sure to pay special attention to what reviewers have to say about the features that correspond to your specific needs.

5.2 Read reviews about virtual data room provider or company

You can also research the company itself on websites such as Glassdoor and Indeed.

These types of websites give potential users a better idea of what the company culture and opinions from current and past employees.

6. Select several providers, check their sites and talk to support

With a few well-reviewed VDRs that fit your specific needs in your sights, begin to contact the providers.

As you review their websites pay attention to the following:

1. Are they visually pleasing?
2. Do they have a modern interface?
3. Are they intuitive?
4. Do they provide solutions for your industry’s specific needs?
5. Are any free materials offered that might be useful to you such as templates and free webinars?

While it is important to spend time on their sites (are they intuitive? visually pleasing?), you must go beyond this step and speak with representatives; this can be done via online chats or over the phone.

Now you will have a true sense of how any future problems will be handled. 

• Are you able to connect in a timely manner? 
• Are the representatives knowledgeable and helpful?

Additionally, you will want to ask some specific questions, beginning with confirming the price(s) and the features you have deemed necessary for your business.

Most importantly, you should ask if other companies in your sector are also using this VDR - this will give you a sense of how useful the VDR can potentially be for your industry. 

7. Test the software yourself by asking for a free trial 

Finally, do not select a VDR without testing it out yourself via a free trial.

Most VDR providers (the good ones at least) will allow you to test their software. As you work through the trial, pay attention to interface, ease of use, and efficiency.

Also, consider not only your experience, but also that of the other potential users on your team based on their technological skills.

When You Should NOT Use A Virtual Data Room

The traditional virtual data room can make a valuable contribution to anywhere that data is being shared, stored, or analyzed by multiple parties.

However, the complexity of some tasks calls for something more.

M&A and more specifically, the mergers and acquisitions due diligence process, is a case in point. With so many moving parts to most deals, it is simply not enough to rely on an enhanced version of Google Drive.

Instead, you should use a lifecycle management solution such as those provided by DealRoom and a select group of others.

This allows users to track the progress of various components of deals, create workflows where tasks are contingent to other tasks being completed, create requests for documents, and more.

Thus, while the traditional virtual data room would play a valuable but passive role in the M&A process, it makes far more sense to turn to a solution that plays the role of catalyst for your transaction.

Conclusion

Confidently selecting the VDR that complements your business needs can be simplified by following the above process.

Securing and sharing documents virtually has become the new norm and will only increase in popularity within the next few years; therefore, in order to grow your business, increase your collaboration, boost efficiency, and possibly reduce redundant tasks, this VDR selection process should be at the top of your to-do list.