VC's Don't Sign NDA's

This is basically all over the web if you search a bit. I thought it made sense to re-address it briefly here. VC's don't sign NDA's when looking at new investment targets. On the rare occasion that they do, it's an extreme exception to the rule. I basically rather skip seeing a deal than signing an NDA. The reason is pretty simple: there is no way for us to make sure we stick to the rules of the NDA and there is no way to manage the risk involved. We see too many deals and are invested in too many companies to not infringe somewhere upon an NDA. Hence, we would never put ourselves in the position where we would need to defend ourselves against an NDA. Are we out there trying to steal ideas and make sure you fail? No, not at all. Do we regularly share information we get in business plans with our portfolio companies and other targets? No, we never have and never will. You screw this up even once and your reputation is tarnished. Will you be able to argue enough to get us to sign an NDA? Nope, no chance. The only time I've ever signed NDA's was with people whom I knew really well or where I offered it myself.

Comments

[Scott Wheeler]

Is this actually a frequent request? From the outside it seems like one of those adages repeated so often that it'd almost be a litmus test for not knowing anything about the funding process.

[David]

Great point, Scott.

[Paul Jozefak]

Well basically, yes, I've been asked twice this week. I thought this is something I wouldn't bother writing about as it's been said so often. I was proven wrong.

[Antoine Clarke]

OK, as someone who is looking to put together a proposal to take to VCs, what should I expect to be confidential?

I admit I ask in ignorance and would have probably tried to get an NDA signed before showing any details.

My reasoning (no doubt flawed) would have been that if I'm trying several potential investors, I'd assume each would want to know who else has seen my proposal.

[Paul Jozefak]

Sorry for responding so late to this. I wouldn't expect anything to be confidential. That's the nature of talking to a VC. As I mentioned in other posts, we talk with a lot of people when considering a deal. Unless you have the cure for cancer or a machine to turn sand into gold, it's highly likely that anyone can copy your product or service. Hence, if we invest in your business we are expecting you to execute quicker and better than the next guy. Of course we want your business to have a USP but at the end of the day, it's management that counts. Don't sweat the confidentiality part so much. If we really like your deal, we want to invest and will hence shut up about it in our group of peers where it would be risky to mention what you have. If we don't want to invest, then we're quickly moving on to the next thing. As VC's we don't get together around campfires and talk about all those "great ideas" we didn't invest in but can steal as ideas for our own businesses.