Why vcs dont sign ndas

First time entrepreneurs may be tempted to ask a VC to sign a non-disclosure agreement NDA before pitching them or sending information to them. Here are four reasons why the investor may not be willing to sign the NDA, and why the request may harm your chances to secure funding. An NDA is an agreement between two or more parties that makes a party subject to legal liability if they reveal confidential information or use the information for a prohibited purpose.

The NDA defines what is and is not confidential information. Learn more Team Approach Companies Submit a pitch. However, for investors and VCs in specific they are challenging for a couple of reasons: administration : we see a lot of business plans every day and meet with founders all the time. Investors are interested in the team building the product, and that's what's typically more important than the idea itself.

Rather than focusing on the idea by using an NDA, an entrepreneur should be sharing his or her past successes and ability to solve the market problem and seize a market opportunity. If a venture firm was going around taking ideas, and creating a factory of inventors and developers to re-work your business into something great, the government might catch on and have a problem with it. The venture community can't just go around like rich robber barons stealing valuable ideas and leaving poor entrepreneurs penniless and homeless.

Venture firms look at thousands of pitch decks and companies, and there's a chance an entrepreneur's idea isn't as novel or original as they think. If a VC signs an NDA, litigious types might come after them if they invest in a company with competitive features or services, which is just a headache. Unfortunately, there is a subset of people who will sue over just about anything, and when companies get roped into signing an NDA with these types, just breathing wrong can bring on a lawsuit.

Even with a signed NDA, you have to prove the person you are suing did whatever it is you are accusing them of. You have to prove that there was not other means by which they could have had come across the information. If what you told them is publicly available, it won't hold up in court. You will have to provide evidence that they did it with full knowledge.

Not least, you will need enough money to survive in court against a company that has millions of dollars and can string this out over year. You should also note that many don't hold up in court due to vagueness.

This isn't even talking about the fact that there are different rules for NDA's based on different states. I had to learn some of these rules the hard way when developing my online invoicing company Due. We've been building out software for the past year, set to launch in Summer A few VCs even target a specific concentrated problem to be solved and fund multiple companies in the same space as an investment strategy.

This means that liability is being created by signing NDAs when you see or have multiple portfolio companies in a race for market dominance. If VC firms went around sharing company trade secrets with others, it would shrink the universe of future potential investment prospects. Plus the challenge isnt having an idea, its executing on it. Oh — and check your assumption in that case — especially since the value is in creating the thing, not simply having the idea.

This is based on the industry or generalist mandate of a fund, the size of the company and stage of funding that the VC targets, and exposure to a particular industry by the VC fund. Signing NDAs would be a time-consuming initial process for all parties to only later find out that the deal may not be appropriate for the prospective investor given their mandate.

There are a few situations that can warrant NDAs, but normally this is much further into the diligence process when an investor is doing due diligence into certain types of corporate data, especially for more science, pharma and deep tech focused companies.