Safeguarding sensitive business information has never been so critical in today’s fast-paced business environment. In PwC’s October 2024 Pulse Survey, 75% of executives cited cyber threats as moderate-to-serious risks. To secure sensitive data, companies are increasingly using virtual data rooms (VDRs).

In contrast to traditional physical data rooms, these digital platforms offer a variety of features for secure file sharing and efficient collaboration. But how can businesses new to data rooms determine which VDR features they need? This time, we will find this out, addressing the following points:

  • An overview of data room features
  • A list of core and advanced & specialized data room features
  • Practical recommendations for choosing a good virtual data room for your business needs

What are virtual data room features?

A data room feature is a component of data room software designed to provide a specific capability. For example, document redaction obscures information within a document to protect confidentiality.

Data room features are built around the principles of secure collaboration in high-stakes transactions, such as mergers and acquisitions, capital raising, and initial public offerings.

While data room providers typically offer comparable features, certain capabilities are more effective for securing critical information and ensuring effective collaboration. Conversely, less effective features can put an organization at a greater risk of a data breach, potentially jeopardizing the transaction’s success.

That can be aggravated by cyber criminals often exploiting the complexity of mergers and acquisitions to access private business information. For example, around 4.6% of M&A deals in the healthcare industry suffer from ransomware attacks, where attackers demand payment in return for stolen business data.

Must-have data room features

Essential data room features that ensure bank-grade document security and smooth collaboration can be categorized as follows:

  1. Digital security measures
  2. Access control and user permissions
  3. Document management capabilities
  4. Detailed audit trails and reporting
  5. Q&A management

Digital security measures

In contrast to traditional data rooms which rely on physical security, digital security features form the foundation of a modern virtual data room’s protection. Here are the core safeguards ensuring platform security:

  • End-to-end data encryption keeps information secure during sharing, uploading, downloading, and cloud storage. Online data rooms typically use the Advanced Encryption Standard (AES) with 256-bit keys, which is even used to protect government-classified information.
  • Multi-factor authentication (MFA) requires two or more separate authentication factors, typically a password and a one-time authentication code. MFA drastically reduces the likelihood of account takeover.
  • IP address restrictions limit internet access to the data room to specific network addresses, such as those of known corporate devices. Login attempts from unapproved IP addresses are automatically blocked.
  • Multi-layer security architecture combines various network and hardware security measures, including firewalls, virus scanning, intrusion detection, and data centers situated in multiple locations.

These core defenses against data breaches and cyber-attacks are often required for regulatory compliance. For example, the International Standardization Organization (ISO) requires organizations to implement AES data encryption under the ISO 27001 certification.

Access control and user permissions

Access control permissions restrict the viewing, uploading, downloading, and editing of company’s data stored within the data room. This feature prevents sensitive corporate data from being accessed by unauthorized people.

Most virtual data rooms provide role-based access permissions, allowing customers to assign specific roles, such as administrators and collaborators, to VDR users. Permission systems often include multiple access levels, each offering a progressively higher degree of document control and access, for example:

  1. No access
  2. Restricted view
  3. View
  4. Encrypted download
  5. PDF download
  6. Original download
  7. Upload
  8. Manage

Precisely controlling how collaborators access business information minimizes the risk of confidential data being exposed to unauthorized individuals. This approach protects corporate information and shields organizations from an array of risks, including intellectual property theft, abuse of financial information, malicious insiders, or data breaches.

Document management capabilities

The following document management capabilities of data rooms typically ensure smooth user experience and efficient collaboration:

  • Unlimited uploads allow users to upload unlimited files without size restrictions. This streamlines the process of managing large volumes of data and is especially beneficial for tasks like populating data rooms in clinical research projects. 
  • Bulk actions enable users to manage multiple documents at once, such as removing, renaming, or relocating files across projects. This feature automates repetitive tasks and streamlines file management.
  • Full-text search allows searching for specific words and phrases across an entire repository of documents and within individual files. It is invaluable for quick navigation, particularly in large-scale projects.
  • Optical character recognition (OCR) transforms scanned images and PDF files into searchable and editable formats. OCR enhances search functionality and reduces time spent on preparing image-based documents.
  • Document translation leverages machine translation or artificial intelligence (AI) to translate documents within the data room. With AI advancements, automatic translation has become increasingly accurate making this feature ideal in cross-border projects.
  • Document redaction removes sensitive information from documents for privacy and security. This can be done in bulk, with AI algorithms helping to detect personally identifiable information (PII), speeding up the process.

These capabilities improve team productivity, allowing fewer people to do more work in a shorter time. It’s essential in M&A transactions, where the ability to process large amounts of information is critical for successful outcomes.

Detailed audit trails and reporting

An audit trail records all user activity inside the data room, including logins, file uploads, file shares, redactions, notes, messages, questions, and answers. The number of activity trackers can reach 70 in some data rooms, offering detailed records of project activity. This feature comes with several reporting functionalities:

  • Drill-down reports allow customers to explore more detailed information about data room activity, such as page views or file downloads.
  • Scheduled reports automate the delivery of reports to a preferred email address at a chosen frequency. 

A comprehensive audit trail is required for accurate, structured, and compliant record keeping. For example, The Sarbanes-Oxley Act (SOX) requires American public companies to maintain detailed records of financial transactions, such as mergers and acquisitions.

Q&A management

A questions and answers (Q&A) module enables structured communication between data room users. The Q&A feature allows data room customers to establish a controlled information flow. Here is how:

  • Role-based workflows. Specific roles, such as question drafter, submitter, and approver, ensure that each query is routed to the appropriate individuals.
  • Automation. Questions and answers are automatically forwarded through the role chain based on predefined workflows.
  • Attachment permissions. Q&A attachments have access permissions, allowing for controlled, secure sharing.

Unlike a generic messenger, the Q&A feature provides structure, security, privacy, and efficiency to communications. 

This feature is highly relevant when the precision of answers and accountability are critical, such as in investor relations, capital raising, and correspondence with regulators.

Advanced and specialized features

In addition to core features, virtual deal rooms offer advanced capabilities for enhancing user experience or catering to specific applications:

  1. AI-powered search
  2. Automated indexing
  3. Dynamic watermarking
  4. Document access expiry
  5. Integration with third-party tools 
  6. Multilingual support

AI-powered search

AI-powered search can be applied to individual documents, streamlining the document review process, particularly for lengthy and complex files. This feature enables users to interact with a chatbot that efficiently extracts insights from PDF-compatible files, enhancing review speed and accuracy.

Automated indexing

Automated indexing assigns sequential numbers to uploaded folders and files, improving navigation and retrieval. This feature is useful for referencing files in queries and group notes. The index is automatically updated when new items are uploaded to the data room, eliminating the need for manual effort.

Dynamic watermarking

Dynamic watermarks overlay user-specific information on sensitive documents, images, and videos. Unlike static watermarks, they generate unique identifiers, such as the viewer’s full name, time, date, project name, and company name. This feature improves accountability and security when distributing sensitive information.

Document access expiry

Document expiry automatically revokes access to information after a certain date. This applies to cloud-stored and locally saved documents by external parties (in data rooms that support encrypted downloads).

This feature ensures that confidential documents are no longer accessible once they are no longer needed, even if previously downloaded. This provides additional security to confidential information, preventing unauthorized sharing after the business transaction concludes.

Multilingual support

The multilingual interface accommodates different language preferences, with some virtual data rooms supporting as many as 15 interface languages. This ensures that collaborators in cross-border transactions can access the data room in their preferred language.

Integration with third-party tools

Integrations allow data room users to connect to third-party services seamlessly. Most data rooms support integrations that enhance the security and efficiency of document handling. Here are common integrations:

  • Single sign-on (SSO) enables users to log into multiple applications using one set of credentials from a trusted identity provider (such as Google or Microsoft). This simplifies the login process and solves the common problem of reused passwords (78% of people use the same password for more than one application, which can lead to security breaches).
  • Cloud data storage platforms allow direct content transfers between the data room and traditional cloud storage solutions, like OneDrive and Google Drive.
  • Due diligence checklist allows co-editing and maintaining version control of due diligence checklists in M&A transactions, eliminating redundant updates and version confusion.

How do you choose the right features for your needs?

Here are practical recommendations on choosing data room features for specific needs, including business size, industry specifics, and various applications.

Business size

Selecting data room features based on business size may be tricky. A common misconception is that small businesses don’t require advanced software capabilities (such as security features) and can do well with basic functionality.

However, reports show that small businesses are more vulnerable to digital threats than large enterprises. In 2024, nearly 43% of cyber attacks were directed at small businesses, 60% of business owners believed cybersecurity was a major concern, and only 23% of small enterprises said they were prepared to handle cyber attacks.

These alarming statistics suggest that selecting data room options solely based on business size, particularly security features, can be misleading. This approach often fails to consider the specific industry or application.

For example, a small M&A deal advisory firm or clinical research facility may require advanced security features just as much as a large enterprise, given the sensitive nature of the information involved. The data room features that can be generally chosen based on business size include storage capacity, number of user licenses, or workspace branding options.

Industry specifics

Industry specifics, particularly regulatory compliance, usually affect how businesses select data room features. It’s necessary for a data room to be certified to meet the regulatory requirements of the industry it serves.

For example, American healthcare businesses that routinely handle sensitive patient information must use data rooms that comply with the U.S. Health Insurance Portability and Accountability Act of 1996 (HIPAA).

Meanwhile, potential VDR customers who handle sensitive financial information must select data rooms that comply with the Payment Card Industry Data Security Standard (PCI DSS).

Various applications

Customers can choose virtual data room providers whose features best fit their applications, though it’s important to consider a few nuances. Security data room features are typically necessary for all business activities that involve sensitive information. However, certain data management and collaboration tools may be more suitable for certain applications.

For example, file redaction, Q&A module, and built-in due diligence checklists work well for mergers and acquisitions (M&A). They address the core aspects of the due diligence process — query management, record keeping, and sell-side document preparations. 

For clinical trials, however, optical character recognition (OCR), HIPAA-compliant audit trails, and document-sharing integrations may offer better use. Such features are useful for extensive file sharing, digitizing patient records, and ensuring compliance with stringent data privacy standards.

Using Ideals for feature-rich virtual data rooms

Ideals is one of the top-rated virtual data rooms and serves the needs of over two million diverse customers. It offers robust security and data management features for M&A deals, fundraising, M&A advisory, clinical trials, and clinical archiving. Here are key Ideals features that support these business applications:

  • Security
    • AES 256-bit encryption
    • Multi-factor authentication
    • IP address and time restrictions
    • Eight levels of access permissions
    • Document expiry
    • Geographically dispersed data centers (nine locations)
  • Document management
    • Unlimited uploading and bulk actions
    • Full-text search with OCR support
    • AI-powered document translation in 75 languages
    • AI-powered document redaction within 20 file formats
  • Q&A management
    • Automated role-based Q&A workflows
    • FAQ sections
    • Permission management
  • Audit trails & reporting
    • System-wide activity logs with 70+ action trackers
    • Drill-down, scheduled reports
    • Custom reports upon client request
  • Advanced features
    • Automatic index numbering
    • AI search within documents
    • Built-in due diligence checklist tool
    • Dynamic, user-specific watermarks
    • 15 interface and 13 customer support languages
    • SAML 2.0. SSO integration
    • Microsoft OneDrive & Microsoft SharePoint integration
  • Regulatory compliance
    • ISO 27001, SOC 1/2/3, HIPAA, PCI DSS, GDPR, CCPA, LGPD

The bottom line

  • Data rooms are used for complex financial transactions, such as mergers and acquisitions, with features enabling secure and efficient collaboration.
  • Selecting the right data room features requires careful consideration of your industry and particular use case. Security and compliance should remain a priority regardless of the industry, business size, or application.
  • Businesses can achieve a smoother user experience by aligning collaboration and data management features with their needs and requirements.

FAQ

What are the most important features of a virtual data room?

Granular access permissions, role-based Q&A workflows, document redaction, and audit trails are ‘iconic’ virtual data room features. Other data room features, such as full-text search, integrations, document expiry, and watermarking, are equally important for a balanced user experience in business transactions. 

How do security features in virtual data rooms protect sensitive information?

A virtual data room ensures robust data protection with granular access permissions, multi-factor authentication (MFA), IP address restrictions, encrypted downloads, and data encryption at rest and in transit. These features address various aspects of data security in today’s business environment.

What advanced features should I look for in a data room for M&A?

AI-powered search within documents, full-text search with optical character recognition (OCR), built-in file redaction, automated Q&A workflows, and due diligence checklist functionality can greatly improve the M&A process.

Can I customize the features in a virtual data room?

You can typically configure the data room to your preferences, including its access permission settings, Q&A workflows, or watermark display. Some modern virtual data rooms may offer custom functionalities upon client request, such as tailored audit logs, to meet unique customer needs.