According to EY Global, 2022 marked the second most active year of the last decade, with private equity firm transactions valued at slightly below US$730 billion.

While 2022 private equity had either met or exceeded LP expectations during the year, 60% of Bain & Company’s survey respondents expressed skepticism regarding the state of private equity in 2023 due to the signs of a global economic slowdown.

To address doubts about their effectiveness, private equity funds should offer attractive investment opportunities for the long term. Private equity firms must evaluate potential investments more carefully and conduct more thorough due diligence to assess risks and determine the most optimal pricing for their deals.

One useful tool for private equity investors in making informed investment decisions is a virtual data room. Let’s explore what this solution has to offer the industry.

What is a private equity data room?

Private equity virtual data rooms are secure online platforms that enable private equity firms to share confidential information with prospective investors, buyers, or other stakeholders throughout the private equity deal-making process.

By utilizing a virtual data room, private equity firms can exercise full control over the investment process. Additionally, a private equity data room helps with the following:

  • Securing centralized communication. Private equity virtual data rooms are designed to provide a secure environment for due diligence and facilitate communication between parties involved in private equity deals.
  • Better decision-making. A virtual data room can also facilitate better decision-making and lead to successful outcomes for all parties involved in a private equity transaction.
  • Securing information exchange. Virtual data rooms allow private equity firms to share sensitive private equity data securely, such as financial statements, legal documents, and other proprietary information related to potential investments.

That said, a private equity data room ensures that all parties involved in private equity deals can access and review the relevant documents in a centralized, secure, and efficient manner.

The main use cases of private equity data rooms, which we’ll discuss in more detail, include:

  • Mergers and acquisitions — including sell-side M&A, buy-side M&A, and the private equity due diligence process
  • Deal sourcing — investment strategies and opportunities review, analysis of deal attribution, and portfolio construction
  • Transaction overview — AI-driven document analysis and through deal reporting and analytics
  • Risk identification — real-time document reviews, and auto-notifications about new activity
  • Deal facilitation — simplified onboarding, smooth deal processing, and stronger support of a portfolio company

3 main virtual data room advantages for private equity deals

Thanks to virtual data room providers, private equity deals close faster and more securely. Let’s see what other benefits virtual data rooms have to offer private equity firms:

  1. Secure data storage
  2. Easy supervision of private equity deals
  3. Streamlined collaboration tools for better decision making

1. Secure data storage

Each private equity data room serves as a secure location for all sensitive transaction data. With advanced measures like end-to-end encryption and two-factor authentication, virtual data rooms provide fully controlled data storage.

The secure platform offers granular user permissions, limiting access to specific documents and individuals. Furthermore, each private equity data room features digital watermarks for tracking activity, redaction for limiting access to certain sections of files, and access limitations based on time of access or IP address.

A combination of such security measures, along with compliance with world-renowned security certifications, ensures complete data integrity of private equity deals.

2. Easy supervision of private equity deals

For companies seeking investments, virtual data rooms offer the ability to store all deal-related documents in a centralized online repository, fill the data room quickly with easy upload features, such as drag-and-drop capabilities, and organize all documents in one click with auto-indexing.

For investors, private equity data room software provides a comprehensive activity log that allows them to monitor the progress of their investments easily. Most virtual data rooms also feature in-depth analytics capabilities that make investor reporting easier.

3. Streamlined collaboration tools for better decision making

Private equity virtual data rooms enable streamlined collaboration by providing a secure place for multiple authorized users to access. For instance, investors can access information simultaneously, make real-time edits, and even get instant notifications on any new data room activity. Investors can also interact within the virtual data room in real-time and ask questions via document annotations, comments, or a dedicated Q&A block.

Use cases of private equity data rooms

Private equity and venture capital firms develop an investment strategy and research potential portfolio companies with one single purpose — to maximize profits.

To achieve this, they need to set up a life cycle for their virtual data room to assist companies throughout the ownership period, from purchase to management, eventual sale, exit strategies, or long-term planning.

That said, by utilizing a virtual data room, a private equity firm can streamline an asset life cycle — from acquisition to holding and eventual sale. Let’s explore how this works and see in what specific cases during the transaction life cycle data rooms can be used:

  • Mergers and acquisitions
  • Deal sourcing
  • Transaction overview
  • Risk identification
  • Deal facilitation

Mergers and acquisitions

A virtual data room for private equity facilitates merger and acquisition transactions — from buy-side to sell-side M&A and the complete due diligence process. Let’s see how.

  • Buy-side M&A. A virtual data room facilitates buy-side M&A by streamlining sensitive information exchange between the buyer and seller. It also offers real-time analytics to help buyers evaluate information and identify potential risks or opportunities in portfolio companies.
  • Sell-side M&A. Each virtual data room solution facilitates sell-side M&A by enabling more efficient communication and collaboration between sellers, buyers, and advisors. It also allows sellers to control access to sensitive information via granular user permissions and to monitor buyer engagement with the ability to track user activity.
  • Due diligence. Conducting due diligence is crucial to the success of private equity investments. Investors need to analyze a potential target’s strategy, operations, finances, taxes, and other factors thoroughly to identify opportunities for creating value. By conducting due diligence using a virtual data room platform, the investment committee has real-time, secure, and structured access to all data about the target, thus gaining more confidence to make aggressive decisions regarding the deal’s overall performance and debt levels.

Deal sourcing

By organizing the information in a virtual data room, private equity firms can easily refer to previous intelligence and applicable information for deals they are considering or reconsidering. Thus, a virtual data room can streamline all essential deal-sourcing tasks, including:

  • Investment opportunity review. Virtual data room providers help investment teams quickly gather and analyze key information about potential targets, such as market positions, growth opportunities, cash flows, and track records, thereby streamlining the initial stages of the due diligence process.
  • Deal attribution analysis. Each virtual data room provider offers a seamless environment for managing investor reporting, document approvals, and financial statements, which allows private equity funds to evaluate investment distributions and identify profitable deals more effectively.
  • Portfolio construction. By providing a bird’s-eye view of their portfolios, virtual data rooms enable private equity firms to approve profitable deals while identifying additional investment sectors and regions.

Transaction overview

Private equity transactions often accumulate massive amounts of sensitive documents during due diligence, which can take months to complete. However, with the help of a data room, private equities can extract value from the vast amounts of documents more quickly:

  • Search powered by artificial intelligence. With the help of artificial intelligence and machine learning, private equity firms can extract insight into the progress of their transactions quicker. This includes retrieving data on document downloads, logins, invitations, and any other interaction with data room materials.
  • Insightful analytics. A VDR captures user activity in real time, generating color-coded reports for administrators that highlight Q&A participation, frequently accessed folders, modifications, downloads, and print documents. This feature assists investors in identifying any obstacles to closing a deal.

Risk identification

With a virtual data room, target companies can structure all types of essential documents relating to financial statements, biographical information on the leadership team, and business plans. Private equities, on the other hand, can have easy, yet controlled access to it, while having a bird’s-eye-view of the whole deal-making process.

  • Real-time document review. Data rooms help to store documents in an organized way, enabling multiple parties involved in private equity transactions to review and analyze them simultaneously. This helps close deals faster while facilitating collaboration among the deal teams, portfolio company executives, and advisors.
  • Auto-notifications about new document activity. Auto-notifications in virtual data rooms inform private equity firms about any new activity in a folder or particular document in real-time. Notifications get delivered via email, SMS, or inside the modern user interface of a virtual data room.

Deal facilitation

Virtual data rooms expedite private equity deals by providing investors and target companies with plenty of tools for deal facilitation:

  • Quick user onboarding. With built-in NDAs and terms of use, data rooms enable faster onboarding of partners, while custom branding options ensure employees are more comfortable with the familiar workflow setting.
  • Portfolio company support. Improved portfolio company support is possible through Q&A workflows that allow private equity firms to consult with portfolio companies on transaction specifics, building more trustful relationships.
  • Better collaboration. Private equity dealmakers can securely exchange an unlimited number of files and update collaborators on agendas while also sending due diligence questionnaires to target companies to expedite the deal investigation period.

The best VDRs for private equity deals

Based on the feature sets discussed above, the cost-to-quality ratio, and feedback from private equity firms, we’ve compiled a list of data rooms that serve as the best solutions for this industry:

Top featuresStorage rangeRating
iDeals24/7 industry-leading support
In-app live chat with a 30-sec response time
8 levels of granular user permissions
Auto-notifications about new activity
Complete audit trail
10 GB  → 1 TB4.81/5
Datasite24/7/365 multilingual customer support
Single sign-on (SSO) for convenient login
5 levels of granular user permissions
Multi-factor authentication
AI-backed document search
0.5 GB → Unlimited4.6/5
Firmex24/7/365 multilingual customer support
Dynamic watermarking
4 levels of granular user permissions
Quick data room setup
Built-in redaction
0.5 GB → 20 GB4.3/5
OneHub24/7/365 multilingual customer support
Password-protected link sharing
3 levels of granular user permissions
Custom session timeouts
Automatic indexing
1 TB → Unlimited4.2/5
Citrix 7 levels of granular user permissions
Auto-notifications for new activity
Two-factor authentication
Built-in redaction
Detailed audit trail
5 GB → Unlimited4.1/5


Now, let’s briefly summarize key findings from the article:

  • A private equity data room is a data room used specifically during a private equity transaction. It offers a secure, centralized location for more secure information exchange and enhanced decision-making.
  • The main uses of a private equity data room include mergers and acquisitions, deal sourcing, transaction overview, investment risk identification, and deal facilitation.
  • The main benefits of a private equity data room include secure data storage, easier supervision of deals, and streamlined collaboration.
  • Based on our findings, the best private equity data rooms include iDeals, Datasite, Firmex, Onehub, and Citrix.