By DiligensHub team · Last updated
What Do You Need Before You Start?
You need a list of the parties, a due diligence checklist, a timetable and one owner for the room. Gather these before you open any software.
- The parties. Who is on the deal team, which advisors are involved, and roughly how many bidders.
- A checklist. The documents buyers will ask for, area by area.
- A timetable. When the room opens, when later rounds start, and the target date for signing.
- An owner. One person who controls the structure and the permissions.
- A [non-disclosure agreement](/glossary#nda). Bidders usually sign one before they get access.
With these in hand, each of the eight steps below is a short task, not a debate.
Step 1: Plan Who Sees What
List every party that needs access, and what each one should see. This plan drives every setting that follows.
| Party | Typical access |
|---|---|
| Deal team | Every folder, and control of the room |
| Company management | Upload into their own areas; read the rest as needed |
| Seller's advisors | Every folder, to read and upload |
| Each bidder | Its own group, with first-round folders at first |
| Bidders' advisors | The same as their bidder, or a narrower set |
Decide when access changes, too. Note which folders open in later rounds, and when each group's access should end.
Step 2: Choose the Data Room
Pick a room that sets permissions by party and logs every view. Check how it prices a deal of your size and length.
Test it with your own plan from step 1. Create two groups, upload one folder, and view the room as each group. What Is a Virtual Data Room? has the full list of questions to ask.
Step 3: Build the Folder Index
Create the numbered folder structure before any file goes in. Base it on your due diligence checklist, one top-level folder per area.
Start from our M&A due diligence checklist, then cut what doesn't apply. Keep to three levels where you can. How to Structure a Data Room Index has a sample structure and naming rules.
Step 4: Set Permissions by Group
Create one group per party, then set each folder's access for each group. Start strict, and open folders as the deal moves on.
Most data rooms offer a range of access levels per folder. From strictest to most open, they usually run like this:
- Hidden. The group doesn't know the folder exists.
- Names only. The group sees file names but can't open them.
- View only. The group reads files in the browser, with no download.
- Watermarked download. The group downloads PDFs stamped with the reader's name.
- Original files. The group downloads files as uploaded, such as spreadsheets with formulas.
Keep each bidder in its own group. Then no bidder sees another's name, activity or questions. Set an end date on each group's access where you can.
Step 5: Upload and Check the Documents
Upload whole folders at once, so the structure is kept. Then check each document before anyone outside the deal team sees it.
Check each file against these questions:
- Is it the signed, final version?
- Is it complete, with every schedule and exhibit?
- Do the totals add up, and do they match other documents?
- Does it show personal data that should be redacted?
- Is it a duplicate of a file that is already in the room?
This is when a problem costs least. A missing signature found now is a quick fix. Found by a buyer, it raises questions about everything else.
Step 6: View the Room as Each Party
Before you invite anyone, open the room as each group will see it. Check its folders, its files and its download rights.
Look for folders that should be hidden, and files that shouldn't be downloadable. Check that a bidder's view shows no other bidder's name. Fix the group, not the person, so the fix applies to everyone in it.
Step 7: Invite Users
Invite people into their groups, never one by one with custom rights. Send a short welcome note with the rules for questions.
- Add each person to their party's group.
- Require two-factor authentication for every user.
- Set an end date for access where the timetable allows.
- Explain how Q&A works: who may ask, how many questions, and when to expect answers.
Step 8: Run Q&A and Track Activity
Send each question to the right expert, and answer it with a link to the document. Watch activity to see which parties are engaged.
Activity reports show who opened which files, when, and for how long. A bidder reading the customer contracts closely is serious. A bidder that hasn't logged in for a week may be drifting.
Keep the Q&A log tidy. Answer once, then point repeat questions to the first answer. Decide whether each answer goes to one bidder or to all.
As rounds progress, open new folders to the bidders who remain. Close access for those who leave, on the day they leave.
At closing, export the activity record and the Q&A log for the deal file. Then archive the room.
What Are Common Data Room Setup Mistakes?
The costly mistakes come from inviting people too early, or setting access too wide. Each one is avoidable with the order above.
- Inviting before checking. A bidder sees a folder meant for another, or a draft meant for no one.
- Rights set person by person. One person ends up with more access than their group, and nobody notices.
- One room-wide setting. Every party sees every folder, and nothing is staged by round.
- No end dates. Former bidders keep access long after they drop out.
- Q&A by email. Answers go out inconsistently, and there is no record of who was told what.
Questions
- How long does it take to set up a data room?
- Creating the room and its permissions is the quick part. Collecting and checking the documents takes longest. Start from the checklist well before the sale is announced, so the room is ready when buyers are.
- Who should set up the data room?
- One person on the seller's side should own it, often the deal lead or an advisor. Others can upload, but one owner keeps the structure and permissions consistent.
- Can you change permissions after inviting users?
- Yes. Change the group's access, and the change applies to everyone in that group. That is why group permissions work better than rights set person by person.