NDA · Venture capital

Why do VCs have issues signing a Standard NDA?

Anonymous

March 12th, 2015

Recently I was told by an Entrepreneur / VC / EC that he wouldn't sign our NDA, after our discussion regarding products, services and general business plans for a StartUp.

Granted, we should have had him sign prior to the discussion, but it was acknowledged that we would be sending an electronic NDA to cover our discussion.

His contempt for our NDA was boiled down to: "I never sign NDAs and work with StartUps & Fortune500s alike, and quite frankly nothing you have told me is protectable. Sleep assured that your information is safe with me and my integrity."

Obviously, he wasn't the right fit for our StartUp and didn't believe in us at some level, but if you have No interest in spilling our beans, why not sign the document?

Thoughts?

Mitchell Portnoy Healthcare Information Executive

March 12th, 2015

All of them will tell you the same. No one signs NDAs.

Jessica Alter Entrepreneur & Advisor

March 12th, 2015

I interact with investors on a daily basis and I have literally never heard of a VC or investor signing anNDA. Never. Their job is to meet with entrepreneurs and companies - 10-20/day. Quite frankly, they have better things to do than steal your idea and the world is too small for a good investor to do that - consequences are too high.
No one is going to steal your idea, especially a VC. I mean this in the most helpful way possible - any other advice you receive is wrong and probably a less sophisticated investor.

Andrew Crump CEO of Mitoo, Advisor to some Startups

March 12th, 2015

I would have told you the same as this guy.

If you need an NDA to protect you, your company is unlikely to be be investable.

If you have real IP then it should be protected and NDA is not needed.

If you have real competitive advantage NDA is not needed.

If you have no IP and no competitive advantage then there is nothing to stop your competitors from beating you (the information advantage will eventually be null by you being public, and also it would be naive to think that someone else has not already worked out what you have). Thus you want a NDA to protect the time that this information is exclusive to you as a last resort... thus an investor is unlikely to invest.

A




Vijay MD Founder Chefalytics, Co-owner Bite Catering Couture, Independent consultant (ex-McKinsey)

March 12th, 2015

None of them will sign.  Otherwise they wouldn't be able to talk to anybody before being conflicted. 

Derek Bereit Startup founder || python neophyte, NY attorney, veteran || general counsel Nimbo || co-founder Symptomly | Techstars

March 12th, 2015


One addition to comments above -- corollary -- don't share stuff that you would typically be covered by an NDA (e.g., trade secrets, source code, financials, Jimmy Hoffa's body)

(not legal advice)

Brian Sharwood VP Operations at CareGuide

March 12th, 2015

I'll 100% agree with all the prior voices in the room, but add one small exception. If you're raising money to do an acquisition, there's often a confidentiality clause in the LOI, which will require NDAs be signed before disclosing the target. In that case, most investors will sign  - otherwise the presentations look very vague and the investors want to know more.

Sylvain Carle Partner @RealVentures. General Manager @FounderFuel.

March 12th, 2015

Chris

March 12th, 2015

This blog by Brad Feld explains why VCs don't sign NDAs - http://www.feld.com/archives/2006/02/why-most-vcs-dont-sign-ndas.html I'm not sure about why other Entrepreneurs wouldn't sign NDAs under the right circumstances. If you're ever in doubt, nobody's forcing you to disclose confidential information. There are many other reasons for why NDAs don't make sense in many conversations - limiting future options, casual discussion, just to name a few.

Eric Wold

March 12th, 2015

Ok, the questions was WHY do they have a problem signing NDA's...

It's commonly claimed that a general partner at a VC firm will review up to 5,000 deals per year.  They will span almost every sector of the economy.  Can you imagine the legal nightmare of keeping track of which sectors you had signed an NDA in?  And the accumulating legal exposure?

It would not be long before every single startup you talk to was in the same industry as another NDA you had already signed, and then the VC's would have to just close up shop.  Not even theoretically possible to do business that way.

They expect anybody smart enough to deserve their money would figure out the above on their own in about 1 minute (preferably less) of thinking it through.

Brian Nickerson CEO and Co-Founder at MagicLinks

March 12th, 2015

I had the opportunity to provide perspective on this topic for the New York Times last year; here is a link that you may find helpful with perspectives from entrepreneurs, VC's, and lawyers:  http://www.nytimes.com/2014/07/03/business/smallbusiness/why-more-start-ups-are-sharing-ideas-without-getting-legal-protection.html?_r=0

Friends of mine who are entrepreneurs have been forever written off by certain high-profile angel investors and VC's just for asking this question.  It demonstrates a lack of understanding of your customer; an investor who sees that mistake rightly sees big risk that you'll make it again with your product or service.