Why are virtual data rooms still so expensive?
If you are a 20 something analyst or a young associate you may not have the historical context to answer this question. That is because you never purchased a VDR in the early 2000’s when it first began replacing the physical data room. Or if you are a veteran deal maker, you may want to take a quick trip down memory lane.
That’s right, if you want to go old school when speaking about the evolution of VDR pricing you need to go back several decades when physical data rooms first started becoming extinct. That is when the actual cost of running a physical due diligence process was tremendous in so many ways for buyers and sellers alike.
Today’s generation of bankers, lawyers, and corp dev teams have never had the experience of managing the rotation of teams of professionals through a conference room stacked with bankers’ boxes sifting through endless amounts of documents. Then of course there was the poor paralegal or associate paid to sit for days on end in the room to collect questions and make sure nobody pocketed any documents.
Back then if you had five potential buyer orgs(for example) and gave each of them one week on site for due diligence- that’s ~five weeks for them just to get started on due diligence. Think about the time away from the office and home, hotel rooms, and airfare for all of the staff performing the due diligence. Then think about all of the challenges with the pace of Fed Exing new ad hoc documents vs. being able to simply post them on line in real time today. Figure three + months for due diligence in a physical environment.
The VDR has compressed the due diligence timeline from months into weeks and eliminated so much expense and pain on all sides. It is these dynamics that gave rise to the VDR cost model which remains in place today three decades later.
But how come it is still so expensive compared to other new technologies that have matured over time?
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