To NDA or not to NDA that is the question?

When looking for funding this can be a thorny issue.

I am often told that if you ask for an NDA from an investor you look like a ‘beginner’ because they never sign an NDA – this is B.S. – you should always try and get some protection if you can.

In my experience over 75% of investors I have asked (and thats over 100) will sign an NDA, often as part of a second meeting or more detailed due diligence.

So don’t be put off from asking for some protection and always get any legal documents checked out by your lawyer before you use them to ensure they will offer the correct protection.

So to deal with the beginner issue – I say that “I realise it’s not normal practise to sign an NDA for many VC/Investors but you can’t give them the fine details of inventions/customers/prospects/finances until they do”.

This is especially important when handing out information about customers and contracts, in my case most of dealings with my customers are under NDA and I can’t share that information unless the potential investor is very serious and also prepared to extend the cover of the NDA I have signed with my customer to their firm or themelves.

Savvy investors want to prevent wasted time with NDAs but they also know they have to help the Entrepreneur in circumstances like the above and so they will sign when they are interested.

If they won’t sign then give them all the details you can without handing out the “crown jewels”.

The argument from many investors is that they see 1000’s plans and that an NDA will be of little protection to you and that they can’t sign for one reason or another – it’s up to you to convince them or to simply make a business decision.

If they look like trustworthy people or they are a top flight player who has a reputation to protect then you may want to go without an NDA (unless you have signed an NDA with a customer and are legally obliged to protect the information etc).

However VCs and investors love to gossip and they often send around details of deals to each other and they can “forget” that you have given them sensitive customer information and proprietary product details! If they have not signed an NDA there is no risk to them and indeed they have a duty to disclose any useful information to their investee Companies – this is often why they let competitive companies pitch, so they can ‘suck their brains’ and feedback to their own investments – beware!

I have seen many competitive plans this way and while no-one admits to doing it – it happens all the time – so it pays to be careful.

So in summary – you actually look smart if you pitch the NDA the right way and then decide if you want to share information or not based on your due diligence on the investor. Don’t just give out important and sensitive information without trying to protect it but don’t kill an opportunity with a top flight and trustworthy investor if it’s not necessary.


Online magazine The Chilli has some interesting views in their article: Why investors and non-disclosure agreements don’t mix. By Bipin Parmar

Conflicts of interest:

All investors, whether they are angels, HNWIs or general partners at VCs, have the same obligations and duties as board directors of their portfolio investee companies. Their first duty is to inform the investee company of any material information which will impact the performance of the company. Unfortunately, this includes any information, which pertains to existing or future competition to the investee company.

So now it is easier to understand why angels, HNWIs and VCs are hesitant when it comes to signing NDAs: if they had signed an NDA and later find that the information you provided them will impact their existing investee companies they are obliged to divulge this information. Investors therefore try to avoid this conflict of interest by refusing to sign an NDA upfront. It is therefore important that entrepreneurs are aware of this potential conflict of interest, and only disclose minimal information at the beginning
of a contact with a potential investor.

Entrepreneurs, founders, and their advisors are reminded to carry out their own due diligence on potential investors, and to check if there is a potential for conflict from one of their existing investee companies. It is also worth bearing in mind that most VCs will not invest in a second company that will compete directly with one of their existing investee companies, so you would be better off focusing on those investors, where the likelihood of conflict is minimised. Most reputable investors will let the entrepreneur
know up front if there is a chance of potential conflict.

Bear in mind that even if there is no immediate conflict of interest, there is nothing stopping the VC in investing in another company at some future date, once they have a better feel for the specific market or domain sector, in which you are playing – thus reinstating the conflict. If they had signed an NDA, it would be in your rights to complain that the VC had taken specific knowledge from your plan to facilitate another venture – hence one more reason why the VC will not readily sign NDAs.


My view is don’t lose the deal by forcing the issue but do everything you can to protect any sensitive information until you have a firm commitment from an investor, this will remove much of the risk.

Attached is a standard VC NDA you could tailor for your own use: Download 2002_standard_bvca_confidentiality_agreement_12months.doc

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