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Why we can't sign an NDA even though we want to.

Monday, June 15, 2020
Why we can't sign an NDA even though we want to.

There's a great article about why VCs can't sign NDAs.

It's not because we plan on violating your privacy. Its simply because the sheer amount of companies we see. If we see over 100 companies a month, and sign an NDA for each one, we will become effectively paralyzed.

  1. We do not have the ability to manage our obligations based on so many discretion commitments.
  2. Each time we invest, we would have to hire a legal team to read all those NDAs to make sure there is no violation in there.
  3. NDAs are pretty useless. Can you cite an example where anyone enforced one?
  4. We do not control the celebrities we work with. We need to provide them information about the companies we offer them. They cannot be put at risk of liability on this subject.

Please assume we are looking at deals that are at least somewhat similar. We do everything we can to ensure discretion is kept.

Do we ever make an exception?

Rarely if ever. If there is a piece of information you cannot disclose because it puts you at risk, we prefer you mention there is information you cannot disclose and let us decide whether we will make an exception.

Do others agree with you?

Famous investor Brad Feld had the following to say about the subject:

[1.] Even if I was inclined to sign an NDA, I’d have to go through the process of reading it and deciding if it had any problems (many of them do — they are usually overreaching for the information being disclosed), dealing with my lawyer to change it, and you dealing with (and spending time with your lawyer) to accept or reject my requests. In some cases, I’d probably spend more time dealing with the NDA then with the entrepreneur and his idea. How stupid.

[2.] I’d have to keep track of all the NDA’s I signed. It’s “yet another legal document” in the pantheon of documents we have to keep track of. Hmmm — maybe we should consider funding a startup to automate the creation and tracking of NDA’s. Nah.

[3.] In 20 years of high tech (as an entrepreneur, angel investor, and VC), I’ve never been involved in a situation where an NDA is enforced except in an M&A context. It’s simply a waste of paper and time for anything but M&A.

There is one type of NDA that I’ll sign. Some large companies — for some reason — want to show you stuff, but then don’t want you to tell anyone about it “until they are ready.” I can usually deal with this as it’s not worth the ensuing arguement. However, I don’t need to sign an NDA for this — all they have to do is ask me to keep my trap shut “until they are ready.”

As an entrepreneur, don’t think of this as “arrogance”, think of it as “practicality.” Your friend the VC is actually trying to save you time and money. If you think you have something super secret that no one else should know, just don’t tell me about it. Oh — and check your assumption in that case — especially since the value is in creating the thing, not simply having the idea

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