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Setting Up A Data Room (How To Setup And All You Need To Know)

Are you in the process of setting up a data room?

Looking to find out more information about the data room setup process?

Look no further!

This article is perfect for you.

In this article, we will look at how to set up a data room, step by step! We will look at your file preparation process, selecting your virtual data room provider, uploading your documents in the data room, creating groups and user permissions, testing and more. After reading this article, you will know precisely how to set up a data room.

Let’s get started!

What is a virtual data room?

A virtual data room is a virtual space where a company will store and make available corporate documents, highly sensitive and confidential information or material for the purpose of a business transaction, a legal proceeding or a regulatory investigation, among other things.

Typically, a virtual data room is used to facilitate due diligence processes and the closing of business deals.

Today, the use of virtual data rooms is now standard.

Step 1: Prepare your files for the data room

The first step in setting up a data room is to prepare the files you want to upload and share using the data room.

Digitize your physical files

Some of your contracts, documents or information may be paper-based and physically held somewhere in your archives.

You want to scan your documents so you can fully manage your data room online using a virtual data room setup.

Prepare ahead of time in case you have a lot of physical files to scan and digitize.

There are document management systems out there that help you manage and digitize your physical corporate documents if you have a lot of paper-based documents to work with.

Organize your electronic files

Once the relevant physical files are digitized, you will need to identify the relevant digital files and data you want to share in your data room.

Companies today deal with an overwhelming amount of electronic files and data.

You want to make sure you sort through your electronic documents carefully to avoid disclosing content you did not intend to disclose.

You want to check your data for accuracy, relevance and completeness to deal with the due diligence process you are about to engage in or close the deal you are looking to close.

It’s also crucial that you have your company executives or legal advisors authorize the scope and extent of information hosted in your virtual data room.

The more organized your virtual data room, the easier it will be for you to get your executive approvals.

Step 2: Select a virtual data room provider

Do your research

There are many virtual data room providers out there and so you want to do your research, contact a few of them and get to know their data room service offerings.

Selecting the right virtual data room provider can take you some time.

This activity can be done in parallel as you are preparing your files for your data room.

Do your research and see what type of virtual data rooms are available out there in the market.

Virtual data room features

A virtual data room should provide you with robust security and document sharing features.

The purpose of a data room is to keep your documents secure and allow for easy and seamless sharing while protecting the confidentiality of your documents.

You should understand the common features offered by virtual data room providers.

Generic vs industry-specific VDR

Depending on your industry, you may also want to consider getting a generic virtual data room or an industry-specific one.

Some data room providers will tailor their data room software to specific industries and provide standard workflows and features well-suited for the industry in question.

You should look into:

  1. VDR for general purposes
  2. VDR for financial transactions
  3. VDR for scientific purposes
  4. VDR for legal purposes
  5. VDR for commercial transactions

Be sure to read our buyer’s guide for virtual data rooms.

Negotiate your price well

Negotiating a fixed price with your virtual data room provider can be beneficial.

Stay away from variable fees based on the number of documents accessed or users unless you are dealing with a very simple transaction.

Most often, a data room is needed as you have a lot of files to share and potentially many stakeholders and users that need to access the virtual data room and view many documents. 

If you pay a fixed subscription fee for your data room, you can achieve a better cost certainty than a variable fee structure.

Step 3: Upload your documents to the data room 

Now it’s time to add your documents to your data room.

A good virtual data room will give you features and functionalities to help you manage the upload, classification and organization of your documents.

You want to look for the ability to do mass-uploads and have drag-and-drop functionalities helping you manage your upload process if you have a lot of data to upload.

Once you upload your files into the data room, you want to organize them in a logical way so you can easily navigate the documents uploaded and be able to define who gets access to what document.

Having search and indexing capabilities will allow you to quickly search through your corporate data, add files if things are missing or remove files if you added material that should not have been added or that needs to be removed.

You want to classify your documents from least sensitive to most sensitive so you can provide access to the right person at the right time as your due diligence process advances. 

You don’t want to give external parties immediate access to all the content “under-the-hood” so make sure you have a proper classification of your documents.

Step 4: Ensure you have NDA’s in place

One step you should never overlook as you are setting up your data room is to make sure that all external parties, individuals or stakeholders are bound by proper non-disclosure agreements.

You want to have your virtual data room administrator validate that a proper NDA is in place before granting any external party user access or creating any groups.

Your internal process in setting up a virtual data room should always keep data protection and confidentiality in mind.

There should be a validation or vetting process that you should have with your legal department or designated gatekeepers in your organization before a user is given any type of access to documents.

Step 5: Create groups and add users

In your virtual data room environment, you should add users and create groups so you can set different access permissions and security rules.

A user is a specific individual whereas a group is a group of users.

You want to be careful about which users you invite to your virtual data room and how you define your groups.

For example, if you need to share information with a venture capitalist to invest in a startup, you may want to give access to specific individuals working for the VC dealing with your file and create a venture capitalist group where you include all the individuals having access to your virtual data room acting on behalf of the venture capitalist.

This way, you can target individuals but you can also target the group when you share material or set user permissions.

Step 6: Set security rules and permissions

Once your users and groups are created and well defined, you should then set up security rules and user permissions.

The security rules and permissions you should be able to manage related to how a user can view and access a document such as:

  1. Setting watermarks 
  2. Defining if files can be downloaded
  3. Defining if files can be copied
  4. Defining if files can be printed
  5. Defining if a user can edit, upload, rename or manage the virtual data room space

Your virtual data room administrator will be the one having full control over the security rules and permissions, make sure your administrator is very well informed of your plans and the sensitivities of your documents and who can view them.

Step 7: Test first your data room

Once everything is done, you should test your data room as if you are going live with it.

Grant a few of your internal colleagues access to the virtual data room based on different user-level permissions and access and have them test the security features are all operating well.

See if you can change the user’s editing access of the document, play around with the printing functions, save and copy functions or any other security feature offered by your virtual data room provider.

Step 8: Start using your data room 

Once your tests successfully pass, you are ready to use your virtual data room live!

This is where you will grant external parties access to the documents you hosted in your data room.

Your due diligence process is about to begin, now you are on your way to closing your deal.

The ongoing management of your virtual data room is also crucial.

You should continually monitor the viewing activity and logs to see who has accessed your documents and when the files were accessed by whom.

This way, you are validating that the right people are accessing your corporate data and seeing the right documents.

If you need to make any changes, you should have a process allowing you to quickly make any needed changes.

Advantages of setting up a data room

Setting up a data room can have many advantages, particularly in complex transactions such as M&A transactions.

Selecting a virtual data room or VDR for instance over a physical data room to close an M&A transaction will have the following benefits:

  1. Reduce costs 
  2. Transaction efficiency 
  3. Security 
  4. Convenience 

Let’s look at each of the benefits.

Reduce costs

Comparing a virtual data room to a physical data room will immediately reveal many areas where there are differences in costs.

It goes without saying that setting up a physical data room may end up costing an organization more money than a virtual data room.

When setting up a data room in a physical space like a warehouse, you’ll need to take into account the following costs:

  1. Warehouse costs
  2. Security guards
  3. Maintenance 
  4. Administration costs
  5. Moving costs
  6. Photocopy costs
  7. Travel costs to and from the data room

When setting up a virtual data room, the data room costs will boil down to the actual costs of the virtual space needed for the transaction, one or two employees or personnel in charge of managing the data room and potentially administration costs for scanning physical documents.

Also, having a virtual data room, the relevant stakeholders have access to the data room from anywhere at any time. 

The tedious effort of going to the data room, doing a blitz through the material and coming back is over.

The potential to reduce costs and save on the overall transaction costs may be quite interesting.

Transaction efficient

Virtual data rooms can improve the efficiency of your transaction.

Searching for physical papers in a warehouse filled with documents is much more time-consuming than searching for a file using the search capabilities of the software.

VDR’s allow you to search through the material to find what you really need without having to spend a lot of time searching for it.

You can achieve efficiency in other ways as well.

Through an online VDR, you can provide access to the data room to the relevant stakeholders no matter where they are.

In an instant, the right people can have access to the data room without having to travel or take excessive measures to consult the material.

A VDR can also help accelerate a deal as anyone can access it at any time without having to be bound by warehouse opening hours or waiting for someone to finish consulting the documents before getting your turn.


What is perhaps very interesting with VDR’s is the level of security you can get.

You have the ability to select the employee or personnel in your organization in charge of managing the VDR and that person has the ability to manage external access to the VDR.

Most VDR’s will provide tracking and monitoring capabilities allowing you to see who accessed the data room, what material was accessed, for how long, was it printed and so on.

A VDR provides an organization with a much greater level of security than a traditional physical data room.


A major difference between a physical data room and a virtual data room is the convenience aspect of it.

Gone are the days when you need to book an appointment to access the data room warehouse, travel to the place, fill up forms when you arrive, wait for the appointments before you finish so you can access the data room for a limited amount of time.

VDR’s make the overall transaction much more convenient.

Individuals can access the material from their office or their home no matter where they are in the world.

They can access the material during the day, at night or concurrently with other users.

Setting up a data room takeaways

Setting up a data room is not as complex as it used to be with a physical data room.

The success of your data room set up will largely depend on your ability to find the right virtual data room provider, how you organize your digital data and documents, the security offered by your virtual data room software and how you keep control of your document access and sharing as your due diligence process advances up to the closing of your deal.

In this article, we’ve looked at the eight steps in successfully setting up a data room.

Make sure you take your time in handling each step with care so you can always protect the sensitivity and confidential nature of your corporate documents.

We hope that you enjoyed this article.

Have you already set up a data room? How did you do it? What was your experience? We would love to hear from you. Drop us a comment!

Editorial Staff
Hello Nation! I'm a lawyer by trade and an entrepreneur by spirit. I specialize in law, business, marketing, and technology (and love it!). I'm an expert SEO and content marketer where I deeply enjoy writing content in highly competitive fields. On this blog, I share my experiences, knowledge, and provide you with golden nuggets of useful information. Enjoy!

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