Brad Feld

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Why Most VC’s Don’t Sign NDAs

Feb 14, 2006

The following question appeared in my inbox the other day.  “As you mention in this blog VCs never sign NDAs. Maybe you can also tell me why actually not? If I follow your blog does it mean that in most cases they simply want to check the startup out?”

For starters, I’ll restate the assertion.  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.
  3. In 20 years of high tech (as an entrepreneur, angel investor, and VC), I’ve never been involved in a situation where an NDA is enforced except in an M&A context.  It’s simply a waste of paper and time for anything but M&A.

There is one type of NDA that I’ll sign.  Some large companies – for some reason – want to show you stuff, but then don’t want you to tell anyone about it “until they are ready.”  I can usually deal with this as it’s not worth the ensuing arguement.  However, I don’t need to sign an NDA for this – all they have to do is ask me to keep my trap shut “until they are ready.”

As an entrepreneur, don’t think of this as “arrogance”, think of it as “practicality.”  Your friend the VC is actually trying to save you time and money.  If you think you have something super secret that no one else should know, just don’t tell me about it.  Oh – and check your assumption in that case – especially since the value is in creating the thing, not simply having the idea.