16, August 2021

How to Structure a Virtual Data Room for M&A Transactions

Considering that the volume of data generated worldwide grows with each day, keeping files and records in a well-organized manner becomes more essential than ever.

This relates to data rooms as well. Your VDR probably includes a vast variety of files, so keeping them structured is necessary for user-friendly file sharing. Everything you need to know about structuring a data room is described below.

How to structure a digital data room

The structure of your virtual data room represents the way all documentation is organized. Your goal is to make the navigation within your VDR simple and natural for all users.

This can only be done with a decent understanding of the company’s business models, internal structure, and other peculiarities. However, the tips below provide a general guide that’s suitable for most virtual data room solutions.

1. Use a document naming system

The first step to proper document management is to apply a unified naming system. This will help your organization set the primary structure. When all employees follow a single guideline, it is possible to find any document in a matter of clicks.

For better understanding, imagine that your company signs multiple contracts on financial transactions and signs them as “Contract 1” or “Contract 2”. Finding specific contracts by name becomes challenging, and employees waste a ton of time searching for the right papers.

Thus, instead of using “Contract 1” or “Contract 2”, you can set a rule to save contracts in the following format:

  • “Vendor A: Supply contract for microchips | 03.20.2022”
  • “Vendor B: Supply contract for steel | 01.06.2021”

Although there are no universal naming systems, you can use general information to focus on brevity & clarity. It is a good idea to use metadata like names, dates, and versions. Everything depends on your business’s peculiarities.

2. Create top-level folders and subfolders

The most reliable way to build a great data room structure is to apply top-level folders and subfolders. This feature helps you keep files organized in certain sections, simplifying the search process.

You can have several top-level folders for the following topics:

  • Accounting
  • Finances
  • Legal
  • HR, and others

Each top-level folder can contain an unlimited number of subfolders related to a single topic. Thus, a folder named “finances” would generally include contracts, receipts, business transactions, and other similar documents.

Having a proper data room folder structure significantly facilitates the due diligence process. Simultaneously, all team members get to easily find whatever they need on the platform. It is also relevant when speaking of traditional data rooms which are a bit less popular right now.

3. Set the right access control features

It is likely that your online data room stores multiple files, including sensitive corporate information. That’s why it is necessary to apply certain access control measures to prevent unwanted situations.

For example, most virtual data rooms offer the following features:

  • Dynamic watermarking that includes the user’s IP address and email
  • View-only access without the possibility to download a file
  • Access to certain files

Additionally, administrators can apply different access levels based on the user’s needs. This approach lets you restrict access to sensitive documents and protect corporate data from accounts that aren’t trustworthy.

With these settings, virtual data rooms simplify file sharing and turn into a completely secure online repository. There are many security layers both internally and externally, so it is very unlikely for any information to be leaked.

4. Prepare and upload your files

Before uploading documents to the data room, ensure that all of them are relevant and up-to-date. This may require some additional time, but only relevant information must be used during the M&A due diligence process. 

Outdated documentation is useless and may even bring your business extra costs. Unlike in physical data rooms, many online data room providers charge companies for the storage used. That’s why it’s necessary to keep everything relevant.

Once all files are up-to-date, you can upload all documents to the VDR. Some old papers like financial statements or legal agreements may be saved, but it depends on your company’s individual situation. Remember to keep everything structured in relevant folders!

5. Add administrators and users

A virtual deal room must have at least one administrator to monitor the platform. This person gains full access to the VDRs features and tunes the collaboration tools applied. Simultaneously, the administrator can view all sensitive corporate information.

Usually, the best choice is to set your company’s decision-makers as administrators. They understand the business inside-out and already have access to sensitive information, so it is the most reasonable option for data management.

Most virtual data room providers require users to be signed in to view the uploaded documents. That’s why you should add people by using their email addresses. This approach will help you control access and ensure data security.

To further enhance document security, you can apply such features as dynamic watermarking and download restrictions. Almost every provider in the data room industry includes features for protecting confidential data, so you must apply them at all times.

6. Maintain your virtual data rooms

Most organizations work with hundreds of documents, so it is necessary to update them regularly and save only relevant information. Online data rooms are usually used to provide remote access to valuable data, so storing up-to-date info is beneficial for both parties.

Some virtual data room vendors support synchronization features that allow documents from your PC to be uploaded to the VDR automatically. This is a good option when you have to exchange confidential documents frequently and want to save time by automating the data sharing process.

Project indexing in your virtual data room software

A project index represents the table of contents in your secure virtual data room. It is represented in a form of a list, helping users to locate any information they need.

Why use indexing for due diligence?

Typically, companies fill their secure cloud storage with a lot of confidential documents and files. This is all required for fast data exchange in a protected environment with maximum speed and efficiency.

Although virtual data rooms simplify the process significantly, the benefits aren’t that noticeable without proper indexing. That’s why indexing is a must. It helps both parties find and share sensitive data in a matter of several clicks.

How to index a folder in your data room?

We have already discussed top-tier folders and subfolders. These are essential components of the document management and indexation process within your data room software.

Primarily, you should create several top-tier folders. There should be a limited number of these to improve searchability inside your data room. A lot depends on your business’s situation, but the optimal number is usually up to 10 folders.

The next step is creating sub-folders within the top-tier folders. For example, the “Finances” folders can include the following subfolders:

  • Contracts
  • Salaries
  • Donations, and others

A lot depends on the way your business is set. Having a comprehensible folder structure takes data sharing in your data room software to the next level.

What should you include in the data room index?

You can include various folders in the data room index to make navigation easier. Generally, the most common examples included are:

  • HR
  • Legal
  • Intellectual property
  • Marketing
  • Regulations, and others

Each index folder can be assigned multiple subfolders, helping you create the most user-friendly data room for due diligence.

How to check the size of your data room?

Checking the size of your virtual data room is possible by downloading the project index. You have to follow the same steps described in the previous section. After opening the downloaded file, you will see the:

  • Document types
  • Document sizes
  • Overall size of the data room, and more

Other providers can depict the information in a different way. Your virtual data room provider must have a knowledge base and technical support service – check them out to get a solution.

Collaborate with the best virtual data room providers!

If you are looking for the best data room providers for data hosting and secure file sharing, you must do a thorough data room review and comparison. Look for a secure data room with a user friendly interface and a ton of features to store documents safely.

Be sure to try out the virtual data room services now with a free trial!

Top Articles