How does a private equity data room improve deals?

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How does a private equity data room improve deals?

By Daniel Mather
September 25, 2022
11 min read

Private equity deals are a very risky yet extremely rewarding global business. Private equity generates about 11% of annual returns based on the 21-year performance period analyzed by the CAIA Association. As of the first quarter of 2023, the estimated value of all private equity deals announced was $92 billion, according to EY Global

Private equity involves investing directly in a private company that is not listed on a public stock exchange, and then, hopefully, reaping the rewards of this investment. It is crucial for organizations working in private equity to be able to source possible investments and grow their company, as this is the best way to ensure a good return. 

While maintaining the company you will invest in, using the correct tools is essential. This is where a virtual data room (VDR) is beneficial. Let’s discuss how using a VDR benefits your private equity deals. 

Key takeaways: 

  • A private equity data room is a virtual data room solution used specifically for private equity deal-making.
  • A data room for private equity is helpful when sourcing, overseeing, and closing deals.
  • A VDR for private equity helps to control the deal, ensure the high-end security of confidential information required for due diligence, and establish an effective collaboration between all parties. 
  • Among the top VDR features that are essential for private equity are granular access permissions, watermarking, Q&A modules, document labeling, and more.

What is a private equity data room?

First things first, let’s define what a private equity data room is.

The definition is as simple as that. A private equity data room is basically a virtual data room solution used specifically for conducting private equity deals. A virtual data room platform provides a tool for secure data storage and distribution, as well as effective collaboration between all the parties involved in a deal process. 

Many modern virtual data room providers specialize in certain use cases and industries — from M&A to clinical trials in healthcare. The same corresponds to private equity data rooms. Such virtual data room solutions have all the services and features aimed to accelerate private equity due diligence and make the collaboration between all parties effective and smooth.

Advantages of virtual data rooms for private equity

We’re going to look at some advantages of using virtual data rooms for private equity and venture capital firms. 

Easily control private equity deals to make correct business decisions

First, you have to search out and recognize the value of an investment. If your firm is seeking investment opportunities, you will need a secure place to store documentation.  A virtual data room provider allows you to control and organize all of your files.

Staying organized is important. The last thing you want is to make a poor investment decision because you haven’t reviewed a file because it was misplaced. 

Having all the information in one place is invaluable in a private-equity deal. You can efficiently review a company’s financial statements and other admin-related information. Doing so will aid you in making the correct decision for your business’s prospects.

Ensure bank-grade security for your private equity deals

Businesses use virtual data rooms to protect confidential documents and other sensitive information and minimize data leaks. Virtual data rooms are purpose-built to keep your corporate data safe and accessible in a secure environment.

You will never have to worry about your data’s security because you have full control over information exchange in your data room using robust security technology. For example:

  • Granular access controls. For each data room user or user group, you can set unique granular user permissions. For example, some people can only view certain documents, while other authorized users can print or download them.
  • Internal document security. Eliminate data abuse risks by selectively enabling or disabling document-level permissions, like viewing, editing, printing, and downloading. You can set up dynamic watermarks and receive notifications on document activity, ensuring the transaction runs smoothly.
  • Remote control of data room materials. A data room keeps your documents encrypted, giving you full control over digital assets from any device. You can revoke access rights for a particular asset or delete it on a stolen, lost, or unauthorized device thanks to such features as remote wipe.

As a result, virtual data rooms ensure the data’s security and integrity in each deal to make your confidential information protected against misuse.

Smoothly run private equity deals with a virtual data room

Once you have decided to invest in a company, you will have to move forward with closing the deal. Your data room will prove to be a vital tool during this process thanks to the following features:

  • Seamless file storage. A virtual data room is a perfect online document storage provider. You can keep your data room materials well organized and secure. A VDR allows you to collect, allocate, store, and share industry insights and other findings to identify profitable deals quickly. What’s more, uploading all the data is easy thanks to drag-and-drop capabilities.
  • Data room organization tools. When you upload all essential documents relating to the deal into your data room, they are automatically numbered and indexed. So you can easily find any of them. Furthermore, you have control over how users file them.
  • Powerful content structuring features. You can create folders and sub-folders to manage your data more efficiently. That means that you can store each party’s information separately. Therefore, it won’t get misplaced or sent to the wrong recipients.

You and external parties can make decisions quickly and accurately. Consequently, the VDR data management tools provide you with the control you need in your private equity deals. This is even more important when conducting multiple deals at once. 

Using these tools helps to close more deals more efficiently, avoid failed investments, and increase overall higher investment value for your firm. 

Boost company profits by using a VDR for private equity deals

Using a virtual data room to manage your business investments is beneficial. For many of the same reasons, you can improve those businesses’ profits. In turn, their increased profits mean greater investment returns.

Sourcing deals

Since private equity and venture capital firms aim to maximize profits, they develop an investment strategy and research prospective businesses, so-called portfolio companies. 

Investment firms review hundreds of opportunities before they weed out potentially profitable targets. Once prospective investors determine a good fit, they begin the due diligence process of its track record.

At this point, a private equity firm needs the correct tools to conduct due diligence and proceed to acquisition. This is when a virtual data room comes into play. 

A VDR streamlines the following deal-sourcing tasks:

  • Investment opportunity review. A data room helps an investment managing team gather and analyze market positions, growth opportunities, cash flows, and track records of prospective companies. Thanks to VDR content organization tools, investors finish the initial stages of due diligence much quicker.
  • Deal attribution analysis. Data rooms provide a seamless environment to manage investor reporting, document approvals, financial statements, etc. It allows private equity funds to maximize profits by evaluating investment distributions and identifying deals as profitable — or fruitless. 
  • Portfolio construction. Virtual data rooms allow companies to approve profitable deals with a bird’s eye view of their portfolios, identifying more potential investment sectors and regions. 

As a result, a virtual data room is a valuable tool for assessing potentially profitable private equity deals in the shortest possible time while reducing transaction costs. 

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Overseeing transactions

Private equity transactions may take months and accumulate massive amounts of data collected during the due diligence process. There may be a ton of documents from which you need to exact value to see how the transaction performs. 

A data room can help you do that much faster with industry-leading analytical tools, including:

  • AI-driven document analysis. Artificial intelligence and machine learning allow private equity firms to gather insight on transaction progress faster. You can pull data on downloaded documents, logins, invitations, and more.
  • Reporting capabilities. A virtual data room records user activity in real time and provides admins with color-coded reports on Q&A engagement, a list of most viewed folders, and edited, downloaded, and printed documents. It helps investors identify points of struggle on the way to closing a deal.

Closing important transactions

Data rooms help private equity firms close deals faster by providing investors and target companies with:

  • Faster onboarding. You can onboard partners to the data room much faster with built-in NDAs and terms of use. Also, your employees will be more comfortable with the familiar workflow setting thanks to custom branding options.
  • Simplified collaboration. Dealmakers can exchange an unlimited number of files through a secure channel, updating collaborators on agendas. Beyond that, you can send target companies due diligence questionnaires to shorten the deal investigation period.
  • Better portfolio company support. Private equity firms can build more trustful relationships with portfolio companies by consulting them on transaction specifics using Q&A workflows. 

What virtual data room features benefit private equity deals

Virtual data rooms are so helpful during the private equity deal-making process thanks to dedicated features that aim to make that process smooth, straightforward, and safe. The most important features can be divided into four main categories:

  • Document management
  • Document security
  • Access security
  • Collaboration

Now, let’s shortly review what you should look for in a virtual data room when searching for one for your private equity deal.  

Document management 

Every private equity deal involves large piles of documents that are subject to the due diligence review. Thus, it’s important to be able to manage them quickly and effortlessly. This is how data rooms solve it:

  • Drag-n-drop upload. This feature allows uploading all files to a data room at once and with a single click.
  • Full-text search. Thanks to optical character recognition (OCR) technology, you can find any file or part of the document by only entering a keyword in the search bar.
  • Labeling. You can set certain labels to each file so that it’s easier to navigate all the data then. For example, you can create separate labels for financial documents, legal files, and general information about the company.

Document security 

High-end security is what deal-makers appreciate the most when implementing a data room private equity solution into their deal-making process. And no wonder, considering the average data breach cost. According to the IBM Cost of a Data Breach 2022 Report, the average cost of a data breach has increased by 2.6% from $4.24 million in 2021 to $4.35 million in 2022

So, this is how a data room can keep your sensitive documents private and secure:

  • Watermarking. This feature enables a watermark to appear on top of every document when it’s viewed, downloaded, or printed. A watermark can be customized and usually include a user’s name, company, position, or IP address.
  • Redaction. It basically blackens out certain parts of the document which are personally identifiable and highly confidential. This way, such information stays secure and hidden from unauthorized views.
  • Remote shred. This feature allows revoking document access rights even after the document has been downloaded.

Access security

For deal makers, it’s crucial to be able to control who can access what documents. This is not only a question of security, but also a question of convenience when working on a few deals at once. These are some of the access features that are helpful during private equity transactions:

  • Granular document permissions. Virtual data room administrators can set certain access permissions for each document or user. This way, they can control who can view, download, print, or upload files.
  • IP address restriction. It’s also possible to restrict access from certain IP addresses. This way, you, for example, can restrict investors’ access to documents that are not for their eyes.
  • Two-factor authentication. Every user who enters the virtual data room will have to verify their personality by entering an SMS code.


Collaboration tools are of utmost importance for the deal-making process. When all the parties involved in the deal can quickly and effectively communicate and resolve all the arising issues, the deal closure accelerates significantly. Below are a few collaboration features to look for in a private equity data room:

  • Q&A sections. Potential investors can leave a question about any document or a part of it, and the target company’s representatives can then react to their queries online and in a timely manner.
  • Expert auto-assignment. For even better collaboration, users who leave questions can assign them to particular experts to get a more precise answer. For example, if an investor has a question about your financial statement, then the question should be assigned to the financial expert.
  • Prompt notifications. Every time the question is posted/answered or the expert is assigned, they get a prompt email notification about that, and thus, can react proactively without blocking the due diligence process.

The bottom line

Virtual data rooms are specifically built for private equity transactions, featuring professional tools for running deals as smoothly as possible.

A data room for private equity deals allows you to contact investors, conduct due diligence, and with a bird’s eye view of your investment performance.

Most importantly, you can do all of this on one secure platform without spending valuable time on a dozen third-party apps. 

Therefore, a VDR is a powerful asset for managing more deals at a time, eliminating risks, and boosting investment returns.


A private equity data room is basically a virtual data room solution used specifically for private equality deals.

Private equity data rooms assist in sourcing, overseeing, and closing deals. They provide a secure online repository where all the parties involved can securely share sensitive information, collaborate, and track the deal progress or parties’ involvement.

A private equity data room should include all the documentation required for the deal to proceed. It can include financial statements, tax information, intellectual property materials, marketing materials, and general company information.

A fund data room is a virtual data room used for fundraising purposes. It includes exhaustive information about the company that seeks fundraising — from marketing materials and customer base to financials and tax documents.

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