glossary
What is a Data Room?
Governance GlossaryPublished: January 17, 2025 Last Reviewed: March 16, 2026
Key Takeaways
- A data room is a secure environment for storing and sharing confidential documents with investors, donors, or partners.
- Virtual data rooms have largely replaced physical ones, offering faster access, better security, and multi-user support.
- Not-for-profits use data rooms for fundraising, grant applications, and partnership due diligence.
- A good data room is concise — include pitch decks, financials, and KPIs, but avoid unnecessary detail.
- Security features like encryption, access controls, and audit trails are essential for protecting sensitive data.
A data room is a secure, controlled environment — physical or virtual — where organisations store and share confidential documents with investors, donors, auditors, or legal advisors during due diligence, fundraising, or transactions. Historically, data rooms were physical spaces with printed documents laid out for review. Today, most are cloud-based.
New organisations and start-ups preparing to approach investors or donors will typically need one. A data room helps structure a pitch by putting financials, forecasts, and supporting documents in one place. Legal teams, auditors, and financial advisors also rely on them for secure document access during transactions.
What is a Data Room used for?
The primary purpose of a data room is to store and share confidential files. Data rooms are used during legal processes and can support the board and management by creating a general file-sharing system. A data room can be used by both businesses and not-for-profit organisations.
Here are a few practical applications:
Non-Profits
A data room gives non-profit boards a structured way to share documents with stakeholders — government agencies, corporate partners, and individual donors — without losing control over who sees what.
This matters for fundraising (grant bodies and major donors expect organised documentation), for protecting sensitive data, and for reducing compliance risk. A virtual data room also speeds up information sharing compared to emailing files back and forth.
Companies
Andreessen Horowitz Partner Justine Moore describes data rooms as essential during fundraising, as well as other liquidity events such as IPOs and SPAC transactions. During an IPO, for example, a private company opens its data room to prospective investors as part of the capital-raising process.
How to Create a Data Room
Morgan Cheatham, Partner at Breyer Capital, offers practical recommendations for building a data room. His advice: be concise, keep information accurate and current, and let the data speak for itself rather than over-explaining.
What should a data room include?
If the goal is to secure funding, the room should give potential donors or investors a clear picture of your organisation: what it does, how it performs, and what the funds will be used for.
The information provided in a data room should include:
- An explanation of the market research, introducing the donor, funder, or investor to the industry and market opportunity. This section should provide sources such as research reports.
- A pitch deck presenting the vision, team, competitive landscape, and a plan for how the funds will be used.
- A profit and loss statement (P&L) outlining the company’s revenue, expenses, and costs over a specific period of time.
- The Customer Acquisition Cost (CAC), outlines the total money spent to acquire new donors or customers, helping the organisation find effective tools for marketing and fundraising.
- The cash burn rate assesses how quickly the organisation loses money and measures how efficient and sustainable it is at using its funds.
- A capitalisation (Cap) table showing the organisation’s equity and helping donors or investors make decisions about market capitalisation. Cap tables can also help an entity meet its legal obligations.
- Financial information showing the company’s growth over time, where it acquires customers or donors (acquisition channels) and customer or donor retention.
- A balance sheet and a list of key performance indicators (KPIs) show potential donors the growth rate.
- A (brief) summary of the executive team members to show the functional areas of leaders.
Cheatham recommends providing only a few KPIs to show what matters most and how the organisation is performing against them.
Virtual Data Room vs Physical Data Room
Physical data rooms have obvious limitations. Searching through printed documents is slow, reviewers must visit on-site, and the number of people who can review at the same time is restricted. The process can drag on for months.
Virtual data rooms solve most of these problems. Multiple approved users can access documents simultaneously from anywhere. They are faster to set up, cheaper to run, and designed to meet security standards like encryption and access controls.
What to avoid in a data room
Leave out detailed team bios, org charts, financial projections, legal documents like leases or loan agreements, tax returns, audit details, and board meeting minutes. These add clutter without helping the reviewer make a decision.
Common mistakes: unclear or fragmented data, slide decks without headings, no summary or takeaway, and too much information overall. Reviewers get overwhelmed quickly. Including brief commentary or notes alongside key documents saves time — otherwise reviewers will come back with questions that could have been answered upfront.
How to ensure the data room is secure
At a minimum, your data room should support encryption and regular backups. Security matters because donors, funders, and partners need to trust that their information is protected. Look for features like document redaction, multifactor authentication, and intrusion detection.
On the practical side, the room should let you categorise files and do bulk uploads that preserve folder structures — this makes documents easier to find during review. Securing personal and financial data is also a legal requirement under Australian privacy law and cyber security guidelines.
Here are some tools organisations use as data rooms:
Dedicated virtual data room providers:
- Sharevault — VDR built for due diligence and fundraising
- SecureDocs — simple VDR aimed at smaller deals
- Datasite — enterprise-grade VDR used in M&A
General file-sharing tools (less secure, but sometimes used for early-stage fundraising):
Board management with document sharing:
- Our Cat Herder — board portal with secure document features (not a traditional VDR, but useful for NFP boards managing board packs and stakeholder documents)
Podcast Episode: Diving into Data Rooms
Prefer to listen?
Check out the Our Cat Herder Herding Cats discussion on Data Rooms.
Frequently Asked Questions
Frequently Asked Questions
What is another name for a data room?
A data room is also commonly referred to as a 'virtual data room (VDR)' or 'deal room.'
What is the difference between a data room and a data center?
- Data Room: A secure space, often virtual, used for sharing and managing sensitive documents during financial transactions, due diligence, or legal processes.
- Data Center: A physical facility housing servers, storage, and networking equipment to store, manage, and process data for various applications and systems.
- Key Difference: Data rooms focus on secure document sharing and collaboration, while data centers are infrastructure hubs for data storage and computing power.
What is the purpose of a data room?
The purpose of a data room is to provide a secure environment for sharing, reviewing, and managing sensitive documents during transactions like mergers and acquisitions, fundraising, audits, or legal proceedings.
What is a data room in private equity?
In private equity, a data room is a secure online repository where a target company shares critical documents with potential investors or buyers during due diligence. It ensures transparency and facilitates informed investment decisions.
What is a data room in due diligence?
A data room in due diligence is a secure space where all relevant documentation—such as financial statements, contracts, and operational records—is shared with potential buyers or investors to evaluate the risks and opportunities of a deal.
Why are data rooms so expensive?
- Security Features: Advanced security measures to protect sensitive data, including encryption and access controls.
- Customisation: Tailored solutions for specific industries or transaction types.
- Scalability: Ability to handle large volumes of data and users simultaneously.
- Support Services: customer support and training for users.
- Compliance: Ensuring adherence to legal and regulatory requirements for sensitive data.
What is a Deal Room?
A Deal Room is a secure virtual environment where parties involved in a financial transaction, such as mergers and acquisitions, share and review documents, collaborate, and manage the deal process efficiently.
Related Terms
Additional Resources
Cybersecurity – Is This a New Directors’ Duty?
What Directors need to know about Cyber Security
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Better Boards connects the leaders of Australasian non-profit organisations to the knowledge and networks necessary to grow and develop their leadership skills and build a strong governance framework for their organisation.
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