Virtual Data Room vs free tools for startups

The Blackroom Team
The Blackroom Team

If you're a startup founder, you know the importance of getting your business off the ground. Time is money, and there's no room for wasted time or lost opportunities. As such, maximizing efficiency becomes crucial. You might have heard about using virtual data rooms (VDRs) as a way to streamline communications with investors and other stakeholders in your company or when you need to prepare a due diligence for fundraising.

But before diving headfirst into using a VDR or other cloud file sharing tools like Dropbox or Google Drive, let's discuss some of their pros and cons and mostly demonstrate how they serve different purposes.

Regular file sharing tools (Drive, Dropbox…) are great for internal usage

The most obvious argument that comes to mind is that tools such as Google Drive, Microsoft OneDrive or even Dropbox (with limited features though) are free. Or at least they are already included in your IT costs.  

Those tools are also easy to use. You already have done your setup and several files and documents of your startups are already stored in one of those systems. Uploading new files is as simple as dragging them into an online folder on your computer or clicking "upload" when prompted by the tool's website interface.

Drive, OneDrive, Dropbox and others are also easy to share with others who have accounts at the same service provider (or who have been given access). You don't need any technical knowledge or advanced skills; all it takes is providing contact information like email addresses or usernames so that others can find each other within their accounts' networks of users' profiles. 

As repository tools for your startups, Google Drive or Microsoft OneDrive offer many advantages, but mostly as internal tools with your own team. 

When it comes to sharing confidential information with investors, free file sharing tools have a lot of drawbacks. The biggest drawback is security: free services don't offer the same level of security as paid ones and you can't be sure that your data will stay private or secure. Many other VDRs also offer more features than these free options, so if you're looking for something more robust, this type of tool might not be right for your business in the event of fundraising and due diligence.

Another problem with using these resources is their lack of organization. Your files will likely be scattered across multiple locations rather than all stored in one place that's easy to access from anywhere at any time (as they would be with an online data room). This makes it harder to find what you need when it matters most--for example if someone emails asking about something related to an old project or event when there's no one else around who knows about what went down back then!

Virtual Data Rooms are the right choice when higher security, collaboration and efficiency are required

When it comes to sharing confidential information about your company with potential investors or buyers, generic file sharing systems won’t be enough. A Virtual Data Room (VDR) is an online platform that has been specifically designed to store and share sensitive data with external parties. During a fundraising process for instance, you need to share with VCs financial statements, customers and providers contracts, business plan scenarii and more. To run a successful due diligence, several key features will be required so that you are the most efficient. 

Security: the data you share is highly confidential. It has to be encrypted and you need full control over user access. Only authorized parties should have access to the information so you want to be sure that user authentication is detailed enough (view only, comment, download, print) and that you can redact easily the data you do not want to share, such as key employees for instance.  

Organization: although this may vary, the amount of files shared can be quite huge. You want them to be organized and categorized in a logical and easy-to-navigate manner. This will make it easier for potential investors to find the information they need. Virtual Data Rooms allow to index folders much more accurately than generic file sharing systems. 

Collaboration: you will need authorized parties involved in the fundraising process to ask their questions in the document and control who can see those questions and who can answer them - timely. This level of access cannot be achieved in generic file sharing tools. Virtual Data Rooms on the other hand have been created for this type of use case. And the most efficient ones have designed collaboration well.

As a conclusion, both virtual data rooms and free file sharing tools have advantages and challenges, so it's important to weigh the tradeoffs in choosing which system is right for your business. Ultimately, you will probably require both tools, but for very different use cases.

For internal needs, sharing docs with your teams and so one, Google Drive and others are the perfect and obvious option.. But for your confidential projects, when sensitive documents are involved or confidential information is at stake (e.g., financial statements), then a virtual data room can help protect against unauthorized access by providing an extra layer of security and control.

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