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Are NDAs a waste of time?

Many VCs find it a turn off when you hit them with an NDA. I wonder if they are a waste of time during the initial phases of fundraising.

57 Replies

Anthony Miller
11
3
Anthony Miller Advisor
President & CEO at millermedia7
They are! It actually shows how inexperienced you are by using them early, if at all.
Jamshed Dubash
3
2
Jamshed Dubash Entrepreneur • Advisor
CEO - Vaspar Strategies
Stephanie, Complete waste of time. 99.9% of VC's will not sign one. Completely agree with Anthony's comment.
Chris Kitze
9
1
Chris Kitze Entrepreneur
CEO at Safe Cash Payment Technologies, Inc.
VCs will never sign an NDA. They have too many conflicts and NDA's are lawsuit generators. Don't waste your time even asking. However, if you feel you need an NDA, because your ideas are close to a portfolio company, you should avoid that VC because they might take your idea to the competing company in their portfolio. The good VCs won't see you in the first place if there's something competitive. Bad ones will steal your things and bring it to their company. Remember, if anyone from their firm is on the board of that competitor, they have a fiduciary duty to bring the info to that company. Watch out!
Marc Milgrom
6
1
Marc Milgrom Advisor
Business Manager at Bloomberg, LP
They are a waste of time both because most VCs won't sign them and because they are nearly impossible to enforce. The only enforcement avenue is a lawsuit, which the VCs can more readily afford to fight that you can, and the burden of proof is on you.
The Facebook case is an outlier, and the Winklevi were able to fight it only because they came from a wealthy family already. And they still only got a small fraction of the value of the company.
I'd also argue they are largely unnecessary. Most VCs and entrepreneurs are too busy pursuing their own ideas to steal other people's, and most ideas really aren't that special by themselves. Execution counts for a lot more.
Peter Weiss
3
1
Peter Weiss Entrepreneur
President at American Outlook, Inc.
Investors generally will not (and should not) not an NDA, at least until you are in deep due diligence and showing them highly sensitive information (code, contracts where you have committed not to disclose without an NDA, some employment agreements, etc.).

On the other hand, in many circumstances NDAs with vendors, customers, employees, etc. are appropriate from day one and should be part of your standard business policies.
Bill Allen
0
1
Bill Allen Entrepreneur
Senior Vice President/ Team Leader Technology, Media & Telecom
If you have IP that has granted / issued and you need to protect it then most likely the MGP's would have sought you out. Other than that most fund GP will not sign an NDA. All funds have reputations. If you are a new leader putting a team together and a product set with a go to market strategy - recommending that you don't bother with an NDA and focus on anchor customers - not NDA
Tom Faust
5
12
Tom Faust Entrepreneur
CEO at Redwood Renewables
NDA's are good. VC's do have conflicts of interest and this NDA has the potential to keep them honest. So what if they do not sign it. Those are the ones that have current or potential conflicts or may have an ulterior agenda to reverse engineer your product with another company on better terms than your proposed. So what if they reject it. You wouldn't want to do business with them anyway. Regards, Tom
Jaykishan Prithiani
3
0
Jaykishan Prithiani Entrepreneur
AVP Business Consulting at Veloz TechForm
If you cannot trust VC for your idea, do you think they will trust you for money they are investing in your co?

Idea is nothing, until and unless its executed well.... and if you doubt your VC, they will never be part of you. As such relation are along with alike minded
Scott McGregor
3
0
Scott McGregor Entrepreneur • Advisor
Advisor, co-founder, consultant and part time executive to Tech Start-ups. Based in Silicon Valley.
Yes. Don't waste time with NDAs for investors. Work only with reputable investors. Or File provisional patents or whatever else you need to do to protect you IP without an NDA. Sent from my iPad
Alan W. Urech
2
0
Alan W. Urech Entrepreneur
Managing Partner, Stoney River Capital Partners, LLC.
NDA conversations at the beginning are definitely a waste of time. You either have to trust the people or don't send them your information. That being said, I would not initially send them your "secret sauce". but some publicly available information like a website, 10 words about what you do, management team information, etc.. The reason that I will not sign one is that I get 500 investment opportunities a year and the likely hood that some of them are very similar is very real. If the NDA is required, I will just go to the next opportunity. You are competing against the other 499 when I have limited funds for these types of investment.
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