Several large virtual data room providers are focused on generating revenue by charging for every individual page used in M&A transaction. This per-page focus leaves little incentive to evolve their products to address the longstanding inefficiencies that plague the due diligence process – that is the copying, pasting and flipping between the data room, spreadsheet and email applications used in due diligence.
For years, this disconnect has resulted in low-value activities that are prone to human error, lengthening the due diligence timeline and contributing to deal fatigue.
The first fallback position these providers use to justify their high costs is to claim they provide superior security. However, Amazon Web Services (on which DealRoom is developed) has met the security standards of thousands of businesses, including two of the most security-conscious organizations in the world; the CIA and DoD.
The next fall-back position to justify these prices is often a superior feature set. But as we heard from one recent employee of these providers, “We are still stuck in the 90’s.”
In most industries, business application efficiency has been greatly improved by the rise of software as a service (SaaS) platforms. These applications combine the data and functionality of numerous business processes into a single platform, removing steps and enabling teams to do more in less time.
So, while SaaS solutions have fostered innovation and workflow efficiencies for most industries, M&A professionals still struggle with disconnected virtual data rooms, and spreadsheet and email applications. In failing to deliver a SaaS solution, the opportunity to leverage low-cost cloud storage is also lost.
Cloud storage is less than $.03 per gigabyte – enough space to hold more than 10,000 PDF pages. That means paying $0.70 for a single data room page (an average per-page price) costs 2000% more than storing 10,000 pages with Amazon. Regardless of the additional functionality over simple storage that these data rooms claim to provide, that is a staggering markup. Ultimately it's first-time sellers who pay the costs of virtual data rooms. The likelihood they will push back on a 5- or 6-figure VDR bill in an 8-or 10-figure deal is low. So, the pricing model receives little criticism from those who ultimately pay for it . . . but that does not make it right.
Per-page data room pricing is an unnecessary holdover from the days when providers would have to be onsite and make copies of physical documents. However, in an age where SaaS platforms have become the norm, it’s simply become a way these providers pay for big sales commissions and outdated hardware and software infrastructures.
In designing DealRoom, we made the data room component the center of the due diligence process, around which we integrated communication and project management tools. With all activity under a single application, valuable project data – not available when separate applications are used – is captured. The insights that result help project managers steer around roadblocks and prioritize their time on the issues that matter most. This design philosophy results in reduced project timelines and higher-quality diligence outcomes, but without the surprisingly expensive data room bills at the end of the transaction.