Tue, Mar 11, 2014
Here’s the three letter-acronym you should never, ever ask an investor for (in your early interactions): NDA.
The venerable NDA (non-disclosure agreement) binds two parties to confidentiality about information which is exchanged between those parties. The theory for founders seems to go: I have an idea which will be the next Facebook, Google and Apple combined. I need to protect this idea from the evil world. If I tell my idea to anyone, including a VC, they will steal it. Thus I need to protect myself. And by protecting myself I show the world how professional I am.
That’s not how it works.
A VC can’t sign an NDA as it would preclude her from doing business: If she signs an NDA, say for the a private 1-to-1 message exchange, passes the opportunity on (which VCs do with 99.9% of ideas presented to them) and later decides to invest into any company which is broadly in this space she would violate her NDA. As this a) precludes her from doing her business and b) would simply be a complete pain to keep track of — she simply doesn’t sign NDAs to begin with. Simple as that. And our founder, who asks for a NDA, signals that he doesn’t understand that game. Not a great first impression.