A Guide to Choosing an Investment Banking Data Room

Aug 16, 2021

6 min

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Virtual data rooms come in handy in many industries. Investment banks, in particular, find a very distinct set of advantages that comes with ultra-secure data storage and remote governance. But how do you choose the right banking data room?

What is a banking data room?

An investment banking data room is a digital platform that elevates the transactional experience through sets of technical instruments.

Most investment banking transactions translate into large volumes of data. Considering the industry’s size and the confidential nature of deals, the data room banking market has to offer unprecedented advanced solutions.

  • Note: The investment banking market for 2021 is valued at $313.3 billion, according to IBISWorld.

When chosen correctly, data rooms become a base for productive deal flow and help to streamline the decision-making process via sophisticated and simple-to-use tools. Investment bankers can collect, manage, and share documents during M&A and other complex financial operations.

There are several reasons why banks choose virtual data rooms over other options.

The benefits of a data room for investment banking

Traditionally, investor bankers’ deal processing involved handling physical documents. This meant traveling to storage locations and spending a good deal of time navigating loads of data to spot the necessary pieces.

The introduction of virtual data rooms made procedures and processes much more convenient. Since data room software for investment banking is fully digital, transactions happen much quicker. Plus, using virtual data rooms for banking is more budget-friendly, which is a tremendous advantage for regional boutique institutions, for example.

  • Note: Employing a virtual data room for investment banking can reduce the time spent on due diligence by 40% and be up to 85% less expensive than a traditional data room solution.

Apart from increase convenience and reduced costs, investment banks turn to virtual data rooms for:

  • Accountability tracking. Detailed, activity-reporting VDR features help investment bankers oversee and regulate workflow.
  • Multi-level security. Established banking data room providers guarantee impeccable hardware and software security.
  • Improved communication. Interactive tools, such as built-in Q&A and integrations with popular collaboration tools, make using virtual data rooms for finance the most practical solution in modern dealmaking.

Choosing data room software for investment banking

We have discussed what is a data room in investment banking and why modern banking leans towards digitized solutions. Now, let’s zoom in on how to select the most suitable tool for every particular cause. There are six critical areas to examine:

1. Compliance

An average banking data room user might not be familiar with the technical side of the data storage process. However, there are international standards that regulate the VDR sector via audits and certification levels.

Several principle certificates and compliances indicate great attention to detail when it comes to hardware maintenance and industry-aware expertise.

  • Key features: ISO/IEC 27001:2013 certificate, GDPR and HIPAA compliances, and SOC 1, 2, or 3 certificates.

2. Customization

Investment banking deals are highly versatile and require different approaches. Adjusting and rearranging the data room banking features helps bankers understand the platform better and work more effectively.

The data room for investment banking should also offer flexible solutions for managing users within the platform. This includes creating several levels of access privileges, grouping visitors and experts by role or deal stage, and sending out custom notifications.

  • Key features: A custom feature set with tailored pricing, adjustable user permissions, granular notifications, visual modifications to match the corporate branding, and a multilingual interface for international transactions.

3. Access security

Data room software for investment banking has to be designed with the number of potential users in mind. Not every transaction participant will have the same rights when entering the platform or viewing particular segments of data.

  • Key features: Access expiration, two-factor authentication, device management, and time or IP limitations.

4. Document security

On top of the customizable user rights and access controls, the investment banking data room needs to provide solutions for protecting each document. Even the most privileged users must acknowledge the confidentiality levels and refrain from mishandling data, whether on purpose or unintentionally. 

  • Key features: Document-specific NDAs, fence view, dynamic watermarking, custom restrictions to print, download, or screenshot the files, remote shred.

5. VDR provider’s expertise

Although the provider’s team might not always play an active role in the transaction, the software company must have substantial experience facilitating similar deals. Additionally, knowledge of the market will affirm if a  banking data room offers the right features and instruments.

Competent providers also know that the deal process isn’t linked to a single transaction. A data room for investment banking can be more than storage space and enable various processes for every deal phase.

  • Key features: industry-specific focus, years of experience on the market, and user-oriented solutions.

6. Interface

Like any other modern tool, data room software for investment banking has to be intuitive for all users — regardless of their technical skills. Most banking transactions are complex, and the main task of virtual data rooms is to simplify those processes, not slow them down.

  • Key features: functional mobile device deployment, web-based access, single sign-on for multiple projects, and logical navigation across different segments and documents.

How investment banks use virtual data rooms

A data room for investment banking is a multi-functional tool that can serve several purposes. Depending on the project, bankers can restructure and adjust the data room to fit their requirements and help streamline the process.

Investment banks often take an active position in the transactional process, especially when acquiring companies or exploring strategic collaborations. This means that there are virtually limitless ways to use a banking data room: from estimating the deal timeframe to overseeing the integration stage.

Yet, the most common reasons behind using virtual data rooms for finance are:

  • M&A due diligence
  • IPO filing
  • Capital raising
  • Sell-side and buy-side collaboration management
  • Corporate restructuring

Set up a banking data room in 5 steps

The final task in transitioning to digital dealmaking is to set up virtual data room. The good news is that the familiarization should be relatively straightforward, as long as the provider has experience dealing with similar projects.

Plus, investment bankers can always take advantage of the training services offered by the provider. Such training can be helpful for both internal users and external expert visitors who will need to work inside the banking data room.

Essentially, the data room setup comes down to five steps:

  1. Pick a suitable fixed-fee plan or request a customized quote for your project.
  2. Decide on which documents will be presented inside the banking data room and in what format.
  3. Structure a clear layout using folders, subfolders, and specific file names. Then, upload the documents accordingly.
  4. Assign correct user permissions and document access conditions.
  5. Invite users to the platform and proceed to the deal.

It’s important to keep in mind that any investment banking data room has to be regularly maintained to remain relevant and effective. As long as all the documents are up-to-date, the deal will progress faster with fewer technical challenges.

Bottom line

Data room software for investment banking enables dealmakers to estimate the transaction processing stages and time limits, target companies and projects, perform due diligence, and facilitate integration. While the modern banking data room market has plenty to offer, it might still be challenging to spot a suitable tool.
Understanding the mechanics of using virtual data rooms for banking and focusing on the key feature categories can help investment bankers make faster, more effective decisions and lead to deal success.