Drawbacks and risks of virtual data rooms

Amidst rising cyber threats, virtual data rooms (VDRs) are crucial, especially during processes such as mergers and acquisitions (M&A) and other complex financial transactions where lots of confidential data is shared.

However, while providing all the services and features a user might need for data security, the use of virtual data rooms can still pose risks if not approached appropriately. 

In this article, we explore the main VDR drawbacks and list the most common virtual data room risks. 

Common drawbacks of using virtual data rooms

Virtual data rooms ensure straightforward and effective data-sharing during complex financial transactions such as M&A or due diligence processes. But even more importantly, virtual data room software enables secure sensitive data storage, distribution, and collaboration. 

However, improper use or a weak understanding of why you need a virtual data room could have VDR drawbacks. 

If not managed properly, these issues could pose a risk to the efficiency and cost-effectiveness of using virtual data rooms, especially in high-stakes M&A or legal transactions.

When choosing a virtual data room provider for your organization’s needs, you should consider ones that can address as many of these issues for you as possible. 

There are additional virtual data room risks, particularly in relation to security and operations.

Security risks

Though virtual data rooms are the ultimate solution when it comes to the security of confidential business data, inappropriate approaches to security measures might lead to VDR data breaches. 

These are the main virtual data room security risks to consider:

• Vulnerabilities to hacks and data leaks
  During the first half of 2024, more than 1 billion internet users fell victim to data breaches. At the same time, the cost of an average data breach keeps rising. It’s already estimated at $4.88 million, which is a 10% increase year-on-year. Virtual data rooms can be vulnerable to cyberattacks too, if they lack advanced encryption, multi-factor authentication (MFA), or other protective measures. Hackers may exploit software vulnerabilities or poor security practices, leading to unauthorized access or data leaks. As VDRs are often used in high-stakes transactions like M&A, the data stored is highly valuable. This makes VDRs attractive targets.
• Improper VDR user access control management
  If VDR administrators fail to apply the “least privilege” principle when managing access controls, unauthorized users may gain access to confidential files. For example, if a junior employee is accidentally granted admin rights, they could access files that are not meant for them to view and potentially leak sensitive documents, whether unintentionally or maliciously.
• Compliance risks
  Virtual data rooms must comply with various legal and regulatory frameworks, such as GDPR or HIPAA. Failure to comply can result in fines or legal action. If a VDR provider doesn’t implement the necessary security and privacy features, users may unknowingly violate these regulations, exposing themselves to significant penalties.
• Third-party tool management challenges
  Many virtual data room providers integrate third-party tools for enhanced functionality, such as document management, communication features, or workflow automation. While these integrations improve productivity, they may also bring potential security risks if the third-party vendors are compromised or lack strong security protocols.

Operational concerns

Sometimes, the use of a virtual data room can cause certain operational difficulties or disruptions. The most common operational risks are:

• Data migration challenges
  Some VDRs may store data in proprietary formats or organize it in ways that are incompatible with other platforms. That’s why migrating data can involve manual reorganization or conversion, which is time-consuming and error-prone. Additionally, important metadata (such as timestamps, document access logs, version history, or permissions) may not transfer correctly during migration. This can result in lost context, hindering audit trails, and increasing risks for legal compliance.
• Risks of being dependent on a single vendor
  If a company becomes too reliant on one VDR provider, it may face significant challenges when switching to another service. There could be high switching costs, complex data migration, or contractual restrictions. What’s more, a single vendor can raise prices or modify service agreements once its solution is deeply integrated into the company’s platform, leaving the latter with little leverage.
• Downtime and data room accessibility issues
  Sometimes, especially during the migration process, critical business data might not be available to users, causing operational delays. Also, unexpected technical difficulties can prolong the migration period, disrupting business continuity.

Human factor risks

68% of data breaches include a non-malicious human element, meaning these incidents involve an insider human error, such as clicking the phishing link. Unfortunately, even the best virtual data room that takes robust security measures to protect sensitive data can’t ensure 100% data protection from human factors.

Some of the most common human factor risks are as follows:

• Accidental data deletion
  Human error can lead to the unintended deletion of critical files or folders, which might result in permanent data loss if proper backups aren’t in place.
• Human error during data upload
  Uploading outdated, incomplete, or inaccurate documents due to a lack of version control or attention to detail can mislead decision-makers and create operational inefficiencies.
• Insider threats
  Employees with malicious intent, especially those with elevated permissions, can purposefully leak, modify, or delete confidential data. This can have severe consequences, including legal liability or competitive damage.

Mitigating risks and addressing drawbacks with iDeals

iDeals provides a secure infrastructure, offering robust security features that help users overcome potential VDR challenges and mitigate risks.  

Visit our Help Center to learn more about how we approach user data management and security.

Key takeaways

• While offering a secure space for confidential data sharing, the use of virtual data rooms sometimes comes with certain risks and drawbacks.
• These include onboarding challenges, operational concerns, performance issues, security risks, cost considerations, or human factor issues.
• However, when approached correctly, these risks can be mitigated by the right virtual data room providers, offering a variety of dedicated tools, services, and training possibilities.
• In conclusion, virtual data rooms like iDeals take all possible precautions to mitigate the possible risks of using VDRs.

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