10 Things a VC Would Rather Do with Your NDA than Sign It
A non-disclosure agreement — an NDA — is a legal document signed by at least two parties prior to sharing confidential information. It’s intended to prevent one party (or, in some cases, both parties) from sharing the information with people not involved in the meeting itself. It’s also a surefire way of destroying any chance you have of getting investment from a venture capitalist. Do you know why?
Asking a venture capitalist to sign an NDA at the start of a meeting is the equivalent of wearing a giant sign around your neck that says: “You’re better off setting fire to your money than giving it to me because you’ll waste less time and the heat might keep you warm for a little while.” It tells VCs you’re an amateur who doesn’t understand three important things.
First, it signals to venture capitalists you don’t have empathy for the people you’re talking to. In this case, you haven’t considered the job requirements of an investor. Investors meet with dozens of companies each week, and many of those companies have similarities based around the investor’s investment thesis. By signing your NDA, they could inadvertently put themselves in a position of not being able to discuss something necessary for considering another investment. They can’t take that risk, and the fact you aren’t able to anticipate the problem you’d be creating raises concerns about your ability to understand the needs of potential customers.
Second, asking VCs to sign NDAs tells them you don’t understand or appreciate the purpose of venture capital. A venture capitalist has no interest in “stealing” your idea or proprietary information because venture capitalists don’t build companies. That’s not their business model. Their business model is to invest in companies, and that’s a full time job. They don’t have time to do whatever work is involved in building the company you’re pitching.
Third, an NDA tells venture capitalists you don’t understand your own job. The job of a venture-backed entrepreneur isn’t to “have unique ideas” or “create proprietary knowledge.” The job of a venture-backed entrepreneur is to grow a company to the point at which it can exit and generate a return on the VC’s investment.