The question came from one of our startups quite early, on Day One, in fact. A team asked whether they would be signing any NDAs with our mentors. The answer is no, they won’t, but in the interest of clarity, we thought we’d make it clear what our view of NDAs or “non-disclosure agreements,” is.
A lot of startups are familiar with NDAs, and their members have probably signed one or two in their time. I’ve signed a few myself. But they aren’t worth much, particularly to a startup, for a couple of reasons I’ll lay out here.
They’re Worthless To Founders
You may have signed an NDA as an employee or contractor for a medium to large-sized company. In the context of corporate legal departments, an NDA makes a sort of sense. It is a piece of the due diligence of any company to show, through their normal procedures, that they value their proprietary information and practices, and are willing to defend them when necessary. Not to do so, in that context, would leave a larger company, and its legal officer, in danger of being found negligent, should legal action need to be taken against an employee who steals secrets, or leaks information.
On its own the NDA is not a powerful legal document that grants the company a right to control what you say, but it gives the company cover, in case an employee decides to really abuse their insider knowledge. But that arrangement is for employees and close partners, not for outsiders like investors. The only across-the-board exception to this general rule is for sensitive, one-time events like mergers or acquisitions, in which the details of the deal leaking could present major headaches for investors and companies both. In that case, NDAs are common, and not far-reaching in their scope.
VCs Won’t Sign Them Anyway.
And with good reason. A VC may hear 50 pitches in a week. And even if he hears only 2, there’s always a chance that your pitch, and the next company’s pitch are similar. The VC would open himself up to unnecessary risk by signing an NDA with you, if he knows that tomorrow, somebody presents him with a similar, but possibly better, idea. The value is in the team that is receiving the investment, and how they are executing their plans, not in the idea. That is virtually always the case. And VCs know this, and don’t want to be barred, possibly for life, from dealing with companies that do things similar to what your company does. By the same token, you wouldn’t want a VC to say: “I won’t invest in you because I’m afraid of legal action on the part of one of your competitors.” Does that sound fair to you?
It Makes You Look Arrogant
Contrary to most of our wishes about ourselves, our ideas are not usually all that valuable. So unless your pitch or your presentation to an investor includes earth-shattering news that simply must not be leaked for fear of some catastrophic consequence to your business (for example: you’ve invented cold-fusion, or you have created The Singularity), you’re likely to come off as an arrogant jerk for making a VC sign an NDA to hear your idea for the next Candy Crush Killer. StartupLand, however it may resemble Hollywood these days, is not dealing in tentpole movie releases, and VCs are not leaking screeners to Pirate Bay.