Why VC's do not sign NDAs
Sometimes we are asked to sign a NDA before receiving information that will allow us to understand and evaluate a business and team. Unfortunately we cannot sign them for several reasons but we want to explain why and also why you should not worry about that.
Do not get us wrong, in general NDAs are an useful tool to ensure information stays where it should belong to and they are definitely of value when interacting with customers, providers and especially competitors or strategic partners (exit). 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. We simply do not have the (legal) resources to check, negotiate and manage NDAs
- risk: we cannot risk exposure (of our investors and our portfolio companies) to the malicious use of NDAs in order to tie up our time and/or money
- distraction: asking for an NDA can be a signal for lack of trust, usually slowing down a conversation
- co-investment: we work with international top VC and could not exchange ideas or consider a joint investment in your company
On the other hand we believe that a NDA would not provide much value, because:
- focus: we are not interested in copying ideas or building businesses ourselves. We want to invest in and support great teams building disruptive businesses
- limited protection: in practice they do not protect and are costly and complex to execute
- importance: great teams and execution always beat ideas or technology
As the topic has been discussed a lot in the past, take a look at these references if you want to dig deeper into the motives and viewpoints:
- https://www.entrepreneur.com/article/245023
- https://startuplawyer.com/venture-capital/why-a-vc-will-take-a-lighter-to-your-nda
- https://entrepreneurcampblog.wordpress.com/2016/01/24/ndas-a-good-idea
- https://everynda.com/blog/nda-vc-meeting/
- https://www.digitalkompakt.de/ratgeber/nda-investor-venture-capital/
