Data room, VDR and due diligence terms explained in plain English.
22 definitions for the terms that come up most often when building a data room for M&A, fundraising, sell-side preparation or investor diligence. Each entry links to the guides that use the term and to matching downloadable templates.
These definitions are written for people preparing a data room for the first time, advisers documenting the workflow for clients, and anyone confirming what a buyer means by a request list, a permission group or a quality-of-earnings analysis. They are organisation aids, not legal, tax or investment advice.
Common questions
Quick answers before you read the definitions
What is the difference between a data room and a virtual data room?
A data room is the organised collection of folders and files used to share information with buyers, investors, lenders or advisers during diligence. A virtual data room (VDR) is the hosted software layer that adds access controls, permission groups, audit trails and Q&A workflow on top of that folder structure. The folder structure is decided before files are uploaded to the VDR.
Should the data room index be built in Excel or directly inside the VDR?
Most teams build the index in Excel first because spreadsheet edits, owner columns and Level 1/2/3 columns are easier to review and revise than folder operations inside a VDR. Once the index is signed off, the folder skeleton is created and the documents are uploaded. The Excel index is then kept as a tracker, not as the source of truth for files.
What is the difference between buy-side and sell-side diligence?
Sell-side diligence is run by the seller and its advisers ahead of buyer outreach to identify and resolve gaps before reviewers arrive. Buy-side diligence is run by the prospective buyer, often with bankers, lawyers and accountants, to verify earnings, contracts, ownership and risk. The seller's room serves both: a prepared sell-side room shortens buy-side workstreams.
What is a request list and how does it relate to the folder structure?
A request list (often called an information request list or IRL) is the numbered set of documents the buyer wants to review during diligence. The folder structure should mirror the request list one-for-one so every request has a clear destination folder. A clean mapping between request list and folder structure is what lets the seller answer reviewers quickly without restructuring the room mid-process.
Do investors need the same data room as M&A buyers?
No. An investor data room usually starts with the cap table, key financial metrics (ARR, MRR, customer cohorts), product and team, then layers in commercial, legal and governance materials. An M&A buyer typically wants a deeper financial diligence pack (quality of earnings, debt schedule, working capital) plus full legal, tax and commercial diligence. The folder structure for each follows a different priority order.
Also known as: Online data room, electronic data room
A controlled online workspace for sharing diligence documents with buyers, investors and advisers.
A virtual data room is a hosted workspace used to share corporate, financial, legal and commercial documents with buyers, investors, lenders and advisers during diligence. A VDR adds access controls, audit logs, permission groups and document-level analytics on top of a folder structure. The folder structure itself is decided before files are uploaded to the VDR.
The table of contents that lists every folder and subfolder in a data room before documents arrive.
The index is the numbered list of folders the room will contain. Many teams maintain the index as a spreadsheet with Level 1, Level 2 and Level 3 columns, an owner column and a status column, so the structure can be reviewed and changed before files are uploaded. A clean index is what turns a pile of documents into a navigable room.
Also known as: Folder hierarchy, room architecture
The numbered hierarchy of categories and subcategories that organises a data room.
The folder structure is the information architecture of the room. It usually uses two-digit prefixes such as 01, 02 and decimal numbering such as 01.01 to keep the hierarchy sortable. A good folder structure mirrors the way reviewers will read the business: corporate, financial, tax, legal, commercial, HR, operations.
The structured review buyers, investors and lenders run on a target business before signing.
Due diligence is the review process used to verify the financial, legal, tax, commercial, operational and people-related information presented by a seller or fundraising target. The data room is the navigation layer reviewers use during diligence. Folder structure, request lists and Q&A workflow are how the seller controls the pace.
Also known as: Information request list (IRL), diligence request list (DDR)
The buyer's list of documents and information they need to review during diligence.
A request list is the document buyers, investors or lenders send to the target to ask for the materials they need to complete diligence. It is usually a numbered spreadsheet with one row per request, an owner, a status and a target folder path. Most teams build the folder structure to mirror the request list so every request has a home.
The seller's preparation of documents, structure and advisers before launching a sale process.
Sell-side preparation is the work done by the seller and its advisers to assemble a clean room, reconcile financials, find gaps and stage sensitive materials before buyer outreach. A prepared sell-side room reduces buyer questions, shortens exclusivity timelines and helps the seller control the pace of diligence.
The buyer's review of the target business using advisers and an internal deal team.
Buy-side diligence is run by the prospective buyer, often with bankers, lawyers and accountants. It uses the seller's data room to verify ownership, earnings quality, contracts, customer risk, employee terms and operational dependencies. The clearer the seller's structure, the faster the buy-side team can move through workstreams.
The record of who owns the company and the terms attached to each ownership instrument.
The cap table lists shareholders, share classes, options, warrants, convertible instruments and the resulting fully-diluted ownership percentages. In an M&A room it sits inside corporate records; in an investor room it usually sits near the top because investors need to see ownership before discussing valuation.
An adjusted view of historical earnings that removes one-off and non-recurring items.
A quality of earnings analysis reworks reported EBITDA to remove one-off, non-recurring or owner-specific items so the buyer can underwrite a normalised earnings base. QoE work usually needs reconciled monthly accounts, revenue breakdowns, margin support and working-capital schedules to be findable in the data room.
Named groups inside a VDR that decide which folders and files each user can see.
Permission groups let the deal team stage access by buyer, adviser, workstream or process phase. Sensitive customer-level data, employee records, disputes and tax correspondence are often kept behind tighter permission groups than the broad operational folders. Permission planning is a VDR-layer concern, not part of the folder index itself.
The VDR record of who viewed, downloaded or edited each file and when.
The audit trail is a log of every action taken inside the VDR. It is one of the reasons teams pay for a VDR rather than a generic cloud drive: process advisers can see which buyer reviewed which folders, identify cold prospects and chase open items. The audit trail lives in the VDR; the folder structure does not have to.
Removing or masking sensitive content from a document before sharing it in the data room.
Redaction is the controlled removal of names, prices, personal data or commercially sensitive information from documents before they are shared with buyers. It usually happens before files are uploaded into the room. The folder structure can help by separating redacted versions from working drafts so reviewers never see the wrong file.
The structured way buyer questions are tracked, routed and answered during diligence.
Most VDRs include a Q&A module for buyers to submit questions, route them to the right adviser and track responses. Even when the room is small, an organised Q&A workflow with owners and status reduces repeated questions. The folder structure helps by giving every question a clear folder reference for the answer.
The window after a letter of intent during which the seller deals only with the named buyer.
Exclusivity is the contractually agreed period after signing a letter of intent during which the seller cannot engage other buyers. Buyer-side diligence runs hardest during this window, so a prepared room and a complete request list before exclusivity starts can materially shorten the timeline and reduce re-trade risk.
Also known as: Disclosure letter, exceptions schedule
The structured list of facts the seller discloses against warranties in the sale agreement.
The disclosure schedule is a structured set of exceptions the seller discloses against representations and warranties in the sale and purchase agreement. It usually points back to specific documents in the data room. A clean folder structure makes the cross-reference workable; a messy room makes drafting the disclosure schedule painful.
An empty folder hierarchy exported as a ZIP file, ready to be filled with documents.
A ZIP skeleton is the empty folder tree exported from a room-builder workflow before documents are loaded. Empty folders make collection gaps visible and let the deal team chase open items before buyers arrive. The same skeleton can be uploaded into a VDR, a cloud workspace or a local share.
Also known as: Monthly recurring revenue (MRR), recurring revenue
The annualised or monthly value of contracted recurring revenue, used as the headline metric in SaaS diligence.
Annual recurring revenue is the contracted recurring revenue normalised to a yearly figure; monthly recurring revenue is the same number divided by twelve. Buyers and investors usually want a monthly ARR or MRR bridge showing additions, expansion, contraction and churn, reconciled back to the financial accounts. The folder structure should keep the bridge, the supporting customer list and the underlying contracts findable without exposing customer identities prematurely.
The schedule of every tenancy at a property, with rent, term, break dates and arrears.
A rent roll lists each tenant at a property or portfolio, the demised area, the rent payable, lease start and expiry dates, break options, service charge arrears and any incentives. It is the source document property buyers, lenders and valuers use to underwrite cash flow. A clean real-estate data room places the rent roll next to the underlying leases so reviewers can verify each row.
A standardised summary of the commercial terms of a lease, used alongside the executed lease document.
A lease abstract is a one or two-page summary of the key commercial terms in a lease: parties, demised premises, term, rent, review pattern, break options, repair obligations and assignment restrictions. Real-estate diligence teams use abstracts to compare leases at portfolio scale; the executed lease PDFs sit next to the abstracts in the data room so reviewers can verify any term.
Also known as: Payor agreement, third-party payor contract
An agreement between a healthcare provider and a payer (insurer, government or private) that sets reimbursement terms.
A payor contract is the agreement that sets how a healthcare provider is paid for services delivered to patients covered by a third party such as a private insurer, a government scheme or a managed-care organisation. These contracts drive most of the revenue line in a clinic or provider business, so buyers and lenders want every active contract, its rate schedule and its term to be findable. Payor contracts usually sit behind tighter permission groups than the rest of the room.
The structured list of every loan, facility and lease in the capital structure, with key terms.
A debt schedule lists each loan, facility, bond or lease in the capital structure: principal, drawn balance, interest rate, maturity, security, guarantors and key covenants. Lenders and buyers need the schedule before they can model debt capacity or refinance risk. In a debt or M&A data room, the schedule sits next to the underlying facility agreements and the most recent compliance certificates so each row can be tied back to documentation.
The assets pledged to a lender as security for a loan or facility.
Collateral is the asset or pool of assets pledged to a lender to secure repayment of a debt: receivables, inventory, real estate, fixed assets, pledged shares or floating charges over an entire business. Debt-financing diligence rooms collect collateral schedules, valuations and the underlying security documentation in one workstream so lenders can confirm priority, perfection and value before drawdown.
Once the index is agreed, paste it into an Excel or CSV file with Level 1, Level 2 and Level 3 columns, upload it to Data Room Builder and export a clean ZIP skeleton you can drop into any VDR, cloud drive or file share.
