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Why we don’t do NDAs

February 15, 2006

Lots of folks ask us to sign NDAs. Very few folks in the equity business will sign NDAs and we are no different. Why not? Brad Feld from Mobius has a great explaination on his blog found here. Guy Kawasaki offers:

“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.”

Brad adds:

  • 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.
  • 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.

Written by Alexander Muse · Filed Under Uncategorized 

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