Why Don’t Venture Capitalists Sign An NDA?

Entrepreneurs often ask us why we are not willing to sign a non-disclosure agreement (NDA) before they send us their project. An NDA is a confidentiality agreement to make sure that the dealings between two parties or more remain strictly confidential.

Most serious venture capitalists don’t sign an NDA for most projects. One of the main reasons is due to the high number of potential deals seen every year. Signing NDAs with every firm could create legal issues if a fund decides to invest in project that share some perceived similarities with one seen in the past. If you are a superstar entrepreneur with a strong background, you might get a chance to sign an NDA if you are working on something truly special (but if you are already a superstar, you usually have the money to fund the start of a venture…). But for most of the deals that venture capitalists see during the year, there is no possibility to get an NDA signed.

In the end, we believe that if you are a small company with just a concept, prototype or idea with very few financials numbers to show, signing an NDA is not that relevant. We often hear from entrepreneurs what could be a good business idea but the problem is not only to have the idea. What also matters is to know how execute it. The capacity of a team to adapt its idea as it progresses is usually more fundamental than getting the best idea from the start. You can have the best idea in the world but if you don’t know how to execute it and you don’t show agility in your decisions, it is often useless.

If your idea is good and you manage to successfully get it in the market, you will most often get copied as more people will want a piece of the action (NDA or no NDA). The day your business becomes a multi-million dollar operation and you want to make sure that the data you share about remains absolutely confidential, then you should sign an NDA. But in this case, you are not trying to protect a concept (as you are already successful in the marketplace) but you try to protect sensitive information about the business. This information (usually financial or conversion metrics) doesn’t exist or is usually irrelevant when you start a new venture or project.

So don’t worry so much about signing an NDA for the time being. It is more important to work with investors and partners with whom a collaboration could result beneficial. Getting funding is like a long-term marriage and you want to choose the best possible partner before doing anything.