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On NDAs & Confidentiality

Those of you who follow me on Twitter know that at least once a month I get asked by an entrepreneur to sign an NDA in order for him/her to share their venture with me.

I have a usual drill where I explain that I, along with other professional investors, don’t sign NDAs. I always include a link to a post by Brad Feld titled ‘Why Most VCs Don’t Sign NDAs' that outlines the reasoning perfectly. I'll sum-up the key points:

  • We’re professional investors, not professional thieves.
  • We see far too many similar ventures and cannot complicate ourselves legally.
  • The process would entail involving lawyers and as much as we’re friends with some of them, we try to avoid paying for their kids’ orthodontist needlessly.

From my experience—and I’m basically at a 100% hit-rate with this—entrepreneurs that ask me to sign an NDA usually have rather weak, completely non-defendible ideas. From my same experience—and again, 100% on the following too—every killer startup that I’ve ever seen, that truly does have defensible IP, has never asked me to sign an NDA. 

Along with NDA requests I also tend to be reminded when I pass on deals, that the information—mind you, completely indefensible and one I’ve seen in multiple, very similar variations—is confidential and cannot be shared. 

I received such an email a few days ago and decided to scratch the scab.

First, I contacted Initial Capital’s lawyer, Joeri Kreisberg (who should name a wing in his house after me). Then I contacted investors, both angels and institutional. No one. Not a one, has ever heard of an instance where an entrepreneur sued an investor for breach of a formal or informal confidentiality agreement. They heard of investors being sued for a myriad of other reasons, but confidentiality is not one of them.

Let’s lay our cards on the table, shall we? No entrepreneur that I know has the funds to pursue such a case. I mean, if they had that kind of cash laying around, they wouldn’t be talking to investors in the first place. 

To close the loop, I had asked the entrepreneur that reminded me about confidentiality why he did so. His main reason is that he doesn’t want info about his venture travelling among investors.

That, boys & girls, is bat-sh*t crazy.

Every entrepreneur should **wish** to have their investment deck travel among investors. It’s done for the benefit of the entrepreneur(!) Let me explain… Investors see lots of decks, most that don’t fit their investment strategy, focus, phase, etc. However, if the venture has merit, they’ll forward it to an investor they think may be a better fit. 

To put it in simpler terms: If your deck isn’t shared, it sucks. (FWIW, no investor has ever shared a deck with me because of how bad it is.) 

So to sum up… Investors trade upon their reputation. It’s what led the entrepreneur to the investor in the first place. Any mentions of NDAs and Confidentiality reflect poorly on the entrepreneur. In case of a ‘pass’ the best line you can end with is, ‘I’d appreciate you sharing the deck with investors you feel my venture would be a better fit for. Visca Barca! Visca Catalunya!’ (last part optional, but may impact liquidation preference in your favor).

* This post is confidential and cannot be shared with anyone. I mean it. 

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I'm Roi Carthy. A dude on the Interwebs. Managing Partner at I also cover Israeli startups for TechCrunch.