7 Steps for Data Room Due Diligence

A data room stores company records that companies use to conduct due diligence during a business transaction. Proper dataroom due diligence protects all the documents you need for a successful transaction. Due diligence also allows you to identify potential business transaction risks.

Different types of transactions such as mergers and acquisitions (M&A), joint ventures, strategic partnerships, and real estate transactions require due diligence. Due diligence is the process of investigating an opportunity to verify facts. A due diligence dataroom stores all the information you need to evaluate the costs, benefits, and risks of an upcoming decision. Dataroom due diligence will reveal opportunities and security and privacy risks of a business transaction.

Steps for Dataroom Due Diligence

The due diligence process can take weeks or even months. Following a step-by-step guide will speed up the process and prevent you from overlooking key information.

Here are seven steps for effective dataroom due diligence:

1. Choose the Right Virtual Data Room

Not every virtual dataroom is good for due diligence. For instance, dataroom capacity matters. Your regular dataroom may not be adequate when you are dealing with a project that requires the exchange of large data volumes. Apart from storage capacity, two other main factors to consider when you are looking for a virtual dataroom solution are:


A secure platform will keep your confidential documents safe. Some important security features include fence view mode, audit logs, two-factor authorization, remote device purging, and document access control.

Ease of use

An easy-to-use data room makes it easier and faster for first-time partners to find information, speeding up the transaction process. Go for a platform with a simple user interface that’s easy to navigate and has a clear folder structure.

2. Use your Data Room Effectively

Many investors leave at the pre-diligence stage, making it uneconomical to upload all data at once during the initial stages. You can use your dataroom effectively by uploading a few temporary documents first and then having a different dataroom for those who are interested in going forward with the transaction. Keeping separate datarooms for everyone will help you close different deals simultaneously.

3. Prepare a Due Diligence Checklist

Due diligence is not a general investigation. Data should be tailored to specific deal requirements. Your due diligence should contain all significant data records that enhance your asset acquisition process, such as key contracts, employee information, financial statements, and intellectual property information.

Uploading all the required documents helps prevent delays and gives you bonus points for professionalism. Some of the main focus areas of a data room due diligence checklist are financial, legal, commercial, Human Resources, intellectual property, tax, and environment. Here’s a breakdown of what each of these areas should include:


  • A breakdown of the corporate structure including all subsidiaries and affiliates and the jurisdictions that are licensed for business.
  • A 3-year record of party transactions including the terms and approval or review procedures.
  • Shareholders’ certificate documents.

Commercial/Marketing and Sales

  • A record of the top 25 customers and the revenue each has generated for the past 3 years.
  • A list of all material customers who have ceased business within the past year.
  • All material sales channel partners, credit terms, and existing sales contracts for each of the past 3 years.


  • Copies of audited and unaudited financial statements for each subsidiary and affiliate.
  • Details of any off-balance sheet/statement of financial position items, liabilities, or obligations.

Human Resources

  • Copies of employment agreements indicating the agreements that will be affected by the business deal.
  • Compensation agreements with third parties.
  • Copies of all non-competition, confidentiality, non-solicitation, nondisclosure agreements (NDAs), intellectual property, and similar agreements.

Intellectual Property (IP)

  • Agreements that indicate permission to use a third-party IP and any infringement cases
  • Agreements giving third parties permission to use your company IP and any infringement cases.


  • A list of assets including plant and equipment, real estate assets, inventory, fixed assets, and technology.

Information Technology

  • Current and planned IT projects.
  • Policies and practices for software purchase and maintenance.

Environmental, Health & Safety

  • Summary of all environmental investigations or violation notices from a regulatory agency.
  • All litigations in the past 10 years and past or current remediation efforts.


  • Tax audit results for the past 5 years and resolutions to any findings.
  • Paid property taxes in the past 5 years.
  • Material communications and agreements with any taxing authority for the past 5 years.

Ongoing Contracts

  • Outstanding or ongoing partnerships, contracts, or joint ventures.

4. Organize and Upload all Documents

Store all documents in relevant folders and upload them to your data room. You can use a bulk upload feature to upload all your documents in a batch in a few minutes. Set different data rooms when dealing with multiple transactions and confirm that you have uploaded all the documents.

5. Create Document Access Control

Most documents such as marketing strategies, product designs, and research findings are confidential. You want to protect them from theft or copyright infringement. Set access restrictions on documents according to your requirements. Access controls include features such as fence view or view only. These settings will keep users from downloading, printing, copying, editing, or sharing documents. Create NDAs or use those in your data room to keep users from stealing or leaking information.

6. Set Security Settings and Permission Levels

Define user access levels to limit access to your data. Determine who can edit, share, copy, comment, or manipulate data in other ways. For instance, you can use watermarks for view-only documents to limit access. Have two more people recheck the settings to correct errors that could result in data theft.

7. Invite Users to your Virtual Data Room

Create accounts for all users who will have access to your data room to conduct due diligence. Fix their access settings before inviting them, so that they only have access to the required data. Once everything is set, get users to sign the NDAs and then invite them to your data room. You can also educate them on how to use the data to meet their needs. Have basic communication tools in your data room so that users can easily contact you.

Smooth Dataroom Due Diligence

As a business, you want to close deals that will take your business to the next level. Dataroom due diligence helps you eliminate or minimize risks in your business transactions. Follow the above seven steps and make virtual data rooms a central part of a successful deal-making process.

Related Articles

Leave a Reply

Back to top button