What is a Data Room?

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A data room is a digital storage service that provides an secure storage space for documents. It also comes with a variety of features that assist with the due diligence. These tools include annotation tools with granular permissions and access, watermarking and activity tracking.

A typical use of the data room is to share security documents (SOC 2 docs or compliance certificates, for example) with clients in order to facilitate the due diligence process. This is a great way to accelerate the process and decrease risk by sharing this information with other parties prior to the closing.

Traditionally, companies have used email to share SOC 2 documents and other documents. While this is effective, it is inefficient and can lead to problems with controlling versions. It is also insecure due to the rise in attacks on email, which can result in compromised mailboxes, stolen credentials and phishing exploits.

Many secure storage and file sharing services like Box and Dropbox allow access to documents on any device or any location. They offer a high degree of security, but most businesses and individuals need more. Documents that are sensitive and are used to raise funds, due diligence or negotiating deals must be stored in software with higher levels of protection.

The most important question to ask about any «secure data room» is whether it prohibits authorized users from sharing files with non-authorized users. Unfortunately the answer is usually «no». The majority of «secure data rooms» do not limit the number of times same user credentials may be used to access the system. Users can use logins on their own devices, or copy and paste URLs into the browser on a friend’s PC.

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