I was invited last week to share with a group of MBA students our perspectives on the history of Virtual Data Rooms. This is a brief compilation of what I shared with them on my experience in this business line. Experience, you see, is a precious commodity because someone was present, involved and personally learned from an event – and hence can share their story first hand to let people relate to it in much better way.
Starting from the humble beginnings when the world’s first VDR was created and used for Debt Underwriting, the industry has grown significantly. VDRs have become the norm in almost all transactions that are in the due diligence phase substituing Physical Data Rooms. But back then, it was a whole different story as the people were reluctant to shift from traditional Datarooms to a Online one. Lets have a look at some of the challeneges that the industry faced when it was nascent .
With roots set in the financial services, the VDR industry also provides a platform for multiple corporate uses. It wasn’t always that way, however; in its initial stages the industry experienced significant challenges:
Educating clients such as bankers, lawyers and corporate execs on the value offered by virtual data rooms
Reluctance to move to a whole new concept of file storage
Resistance to handing over control of sensitive data to a vendor
Obtaining legal status for digitized documents
Labour-intensive document digitization/scanning operations
Achieving a stable environment for the growing quantities of documentation
While these were legitimate challenges in the early days, they nevertheless beat out the inconvenience of the procedures required for physical data rooms in the past.
Making Progress Locally
Overcoming these challenges was especially difficult across global spaces, because clients weren’t yet attuned to the possibilities of the cyber world. Being Local was the key in our experience, which helped us understand..communicate and connect well with Corporates/bankers/lawyers who steer the transaction industry. They were more inclined to deal with a service provider whom they could meet with face-to-face. Our Early efforts has led us to where we are now . We are very much happy that we had a substantial role to play in emerging markets like India,China etc along with a strong base in the developed countries.
Enjoying the Benefits
As the use of early virtual data rooms grew, clients began to appreciate the benefits that they now enjoy to the fullest, including:
Cost savings: By storing documentation online and offsite, companies discovered that they could achieve substantial cost savings. Simply by cutting out the majority of the travel and accommodation costs, they could reduce their expenditure dramatically. Additional savings were later found in the complete elimination of brick-and-mortar locations, as well as the reduced number of staff needed to protect the data. Nowadays it’s a given that virtual data rooms are more cost effective than any physical location could ever be.
Better security and disaster recovery protocols. While offline security was in some respects easier to implement than online security, documents stored in a physical location have always had the disadvantage of being vulnerable to theft or destruction. The use of a virtual data room enabled the client to have backup copies that could be accessed if necessary. Offsite backup storage is now a standard feature of most data rooms.
Audit trail and reporting features. The creation of individual logins for accessing the documentation in a virtual storage facility made it possible for clients to track the viewing of their documents. Companies could pull reports that told them who viewed, downloaded, copied, printed or edited each and every document, based on login credentials. This also helps to optimize the value of the transaction, because the client can gauge the interest level of the buyer by analyzing the documents accessed and the frequency.
Virtual data rooms have evolved tremendously since the early days of online storage, when they were little more than document repositories. Ongoing industry growth has resulted in an economy-wide shift toward providing document storage services online, and VDR vendors are now far more efficient and better equipped to offer a comprehensive service to their clients.