Why I don’t sign NDAs (usually)

Too often I am approached by company founders to raise funds for them but first with the proviso that I sign their NDA (Non Disclosure Agreement). 

I’ve written this blog post so that from now on I can refer to it, instead of having to respond individually each time and explain why I am unlikely to sign the requested NDA.

Below are some thoughts and several reasons why I and many in the investment landscape generally do not sign NDAs just to take a look at a business plan, executive summary or pitch deck.

Who is the NDA target?

If the target recipient of your business data is an investor or someone who can get you investment such as a broker or an intermediary, then don’t NDA them.

If they are an investor then they get tens or even hundreds of submissions to wade through and they couldn’t possibly sign NDAs for all of them (let alone have time to store, track and cross reference with each new incoming business plan and NDA).

If they are a fundraising intermediary, then they need to get your investment proposition in front of the right people and an NDA can hamper that process.

If the target is a supplier, affiliate, commercial partner – someone in the trading mix, then sure, do an NDA but not to someone who is considering either getting you money or giving you money, as you’re tying their hands needlessly.

If with that investor or intermediary you start to move towards further discussions, then at that stage it is quite ok to discuss an NDA but be aware, some individuals will make it their policy to not sign NDAs unless there is an absolute necessity to do so.

‘Secret Sauce’ or just ‘Go-To-Market’ Strategy?

Most people don’t have a ’secret sauce’ in their business plan; no technological breakthrough, ‘key’ IP or an innovation that is the cornerstone of their proposition.

They may have some IP but the essence of the majority of the business plans that I see are about an identified a gap in the market with a go-to-market strategy that requires stealth, speed, momentum and someone else’s money.

Too often I am asked to do an NDA when the essence of the idea is either to squeeze into the market place with what is often called in business as a ‘me too’ offering, or to race your way into virgin territory, known as a ‘first mover advantage’ or a ‘land grab.’

Neither of these usually have a secret sauce (cornerstone IP or some designed, technical or conceptual protectable advantage) that no one else has.

More commonly, it is a business that has identified a gap in a market that is trying to steal a march on their potential competitors.

I can understand wanting to keep such plans under wraps a little and away from the eyes of competitors but if you want money from strangers, you are going to have to raise your head above the parapet and display the essence of your wares.

Two alternatives to (an immediate) NDA.

Instead of thrusting an NDA before someone, there are one or two steps you could take if you really do feel there are parts of your business plan that should not be seen before an NDA is signed.

1) Initially send out an anonymous executive summary that does not give away who the company is but still outlines the investment proposition and the majority of the business concept.

2) Send out the business plan with full details but take out the core which describes the key innovation. Put a little note in its place saying that it has been removed pending the signing of an NDA.

Times When I Do Sign NDAs.

Generally, I am not going to sign an NDA just to read a business plan.

If the founder believes there is some very commercially sensitive data within their business plan and they want me to assess their proposition without exposing their very tangible innovative core, then just as mentioned above, I usually suggest that they blank out or remove this particular data.

This way I can still get an understanding of the business just as an investment proposition, without understanding the secret sauce.

One time when I may consider signing an NDA is if I am going to work directly with a company for a fee or retainer. It would not be out of place for a company to ask me to NDA if they wanted to pay me for consultancy (but not for fundraising, unless there was the previously mentioned ‘key’ IP).

Time Poor.

For those that are involved in getting businesses funded (and I include funding types – angel/VC equity, debt, grants and asset finance, etc) they receive too many businesses plans on a weekly basis to be able to take time to read not only the business plan but also to study the legal terms of a multiplicity of NDAs (each NDA is always different from the last).

It is not realistic to ask your fundraiser or potential investor to sign an NDA (at least not at the review stage). VCs and angels may well sign an NDA once they are interested in doing a deal and in getting you locked into exclusive discussions. If you were to stand up and pitch at an angel network event, would it be realistic to turn to everyone in the audience and ask that they sign an NDA before they heard your pitch or saw your business data?

If we’re gonna get legal, let’s do it properly!

I’ve heard one individual say to a founder after being presented with an NDA “If you want me to help you and insist that I sign your NDA then you should cover my legal bill to get the NDA reviewed by a solicitor.” This is not a very realistic scenario or at all likely to happen but when you think about it, If you want someone to represent/fund you and speculate on your success, why should they be locked in to some sort of legal terms when it is you asking for their assistance.

Some NDA Demands look amateurish or arrogant.

Most VCs certainly do not sign NDAs just to look at a business plan. There can be the perception that if a founder approaches, barking “NDA me, NDA me” then it can actually make you look a little amateurish, or worse still, arrogant.

Amateurish for some of the reasons above, or just that perhaps you’ve heard a solicitor once say “always get an NDA signed,” without realising things don’t work exactly like that in the real world.

Arrogant because you presume your business plan somehow warrants special treatment and the overriding of their ‘no review-stage NDAs’ policy.

NDAs do have a use in the investment landscape and I have signed a few in my time but knowing when and how to submit them is the trick.

For further reading, here’s a good article on the same theme: http://www.youngentrepreneur.com/blog/real-investors-don’t-sign-confidentiality-agreements/ and here is someone else who has similar thoughts and approach on this subject as I do: http://www.marcus-povey.co.uk/2012/07/09/i-almost-certainly-wont-sign-your-nda-heres-why/

About Aristos Peters
I work rest and play in the digital space, with particular interest in digital startup companies and their need for seed, angel and VC investment. As a NED, I have worked with several start-ups, taking them through funding rounds and also work on investment acceleration and business growth helping companies to become investment ready. Currently about to launch the startup fundraising app D RISK IT (www.drisk.it).

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