Startup general interestVenture Capital

Why most VCs don’t sign NDAs

By November 9, 2009 13 Comments

As most of you will know few VCs, and especially the larger ones, won’t sign NDAs.  I posted the explanation below as to why on my Tumblog earlier this year and I’m repeating it now on TheEquityKicker because this issue has come up a couple of times recently, including last Friday.

The words were originally penned by Brad Feld and Guy Kawasaki in 2006.  I agree 100% with their reasoning, although as befits my Englishness I would have toned down the language a little.  That said I don’t think it hurts to ram this point home.  The block text is taken verbatim from Brad’s blog.

Most VC’s don’t sign non-disclosure agreements.  Guy Kawasaki had a good comment on it in his Venture Capitalist Wishlist post.

“Before you even start addressing the hard stuff, never ask a venture capitalist to sign a non-disclosure agreement (NDA). They never do. This is because at any given moment, they are looking at three or four similar deals. They’re not about to create legal issues because they sign a NDA and then fund another, similar company–thereby making the paranoid entrepreneur believe the venture capitalist stole his idea. If you even ask them to sign one, you might as well tattoo “I’m clueless!” on your forehead.”

That basically says it all. I’d add a few things:

  1. Even if I was inclined to sign an NDA, I’d have to go through the process of reading it and deciding if it had any problems (many of them do – they are usually overreaching for the information being disclosed), dealing with my lawyer to change it, and you dealing with (and spending time with your lawyer) to accept or reject my requests. In some cases, I’d probably spend more time dealing with the NDA then with the entrepreneur and his idea. How stupid.
  2. I’d have to keep track of all the NDA’s I signed. It’s “yet another legal document” in the pantheon of documents we have to keep track of. Hmmm – maybe we should consider funding a startup to automate the creation and tracking of NDA’s. Nah. In 20 years of high tech (as an entrepreneur, angel investor, and VC), I’ve never been involved in a situation where an NDA in enforced except in an M&A context. It’s simply a waste of paper and time for anything but M&A.
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