Why angels and vc’s don’t sign nda’s

There are practical reasons for not signing an nda

We have listened to well over fifty pitches since we launched SLAAM. Of those, a half dozen folks have asked us to sign NDA’s before they pitched. We politely decline and for the most part, that was the end of it. Recently, someone asked us to sign an NDA, a very nice and creative guy we met when we first got to town. We declined. He said an NDA was a must as he was in the midst of his patent work. Our only suggestion was that he waits to pitch his idea to us until his protections are secured and he was comfortable making disclosures. Fact is most angels/VC’s don’t sign NDA’s and there are several very practical reasons as to why not.

1. Folks who are convinced that they are pitching the next big thing tend to use an NDA that is far-reaching and requires attorney review. We don’t want to spend that time or money just to hear a pitch. An NDA requiring more time and effort than the actual pitch is not a palatable model.
2. Once you start signing NDA’s you have to cross-reference them every time you sign a new one to make sure you are not violating another or that you don’t have some other conflict.
3. NDA’s are a psychological barrier more than anything. We make our portfolio companies get them from employees and from vendors or other interested parties prior to the beta of a product or if code is being disclosed but the enforceability is costly and dubious except in the most egregious of cases. So, again, it would be time and money spent without much impact.
4. Finally, and most importantly, of the 50 deals we have seen in Savannah (not to mention the hundreds we have collectively seen elsewhere), there are, more often than not, elements of a product, service, piece of software, etc. that is eerily close to something we have seen already or may see tomorrow. That’s the nature of the business and in and of itself speaks volumes to not entering into NDA’s.

On top of all that, entrepreneurial communities are small no matter where they are located. Discretion is part of our DNA (get it?) and if it wasn’t entrepreneurs wouldn’t pitch us at all. We are not in the business of stealing your ideas or disclosing them. We are not even in the business of investing in your ideas. We are in the business of investing in entrepreneurs who have the capacity and the desire to execute on great and disruptive ideas. That is a unique combination of factors that offers the best protection any entrepreneur can get.

February 22, 2013 | Startup Advice