Rude VC: Rude on NDAs

Finance

Several times per week I’m requested to sign an NDA. Last I recall this practice was declining in the U.S. VC landscape, but it’s unfortunately alive and well in Europe.

I say unfortunately, because excluding a few valid exceptions, an NDA strikes me as a productivity-killer that hurts both me and the entrepreneur.

The process typically flows like this:

  1. An entrepreneur or intermediary sends me a teaser with an NDA attached.
  2. If the teaser provides sufficient information, great. But often it does not. So before I can determine whether the venture fits our investment scope, I need to download and review a legal document.
  3. Now reviewing legal documents is a frequent requirement of my job, but I would rather spend that time reviewing any of the number of contracts we would execute at the time of an investment. So I will rarely review an NDA. It is simply not an effective use of my time and unfair to my portfolio companies.
  4. Instead, I will email back suggesting we forego the NDA until absolutely necessary for efficiency sake. Most entrepreneurs and intermediaries are smart enough to agree with this approach.

Still, we’ve wasted valuable time, probably a couple days. Not only that, but often I will let incomplete teasers with NDAs slide to the corner of my Inbox where the dust collects. So a couple days might well become a week or more. Multiply this effect across multiple potential investors, and weeks or even months are lost.

For an entrepreneur whose core activity is building a business, not fundraising, this precious time may well mean the difference between success and failure.

Even more disconcerting than the productivity factor, however, is how a mindset of clinging to secrecy will hinder the entrepreneur’s ability to build a successful business.

If I could systematically reject signing any NDAs, I would do so. But hey we’re in France, a country that is a big fan of paperwork. If you insist on obtaining a signed NDA before we can have an exchange about your business venture, then I invite you to request my standard template.

5 Responses

  1. Avatar
    Charles Migli

    This is a  shame that people rely on NDA and paperworks to protect their ideas. They should be more confident in themselves. The best defense is a good offense. Focus should be done on success instead of protection. It makes me think of people who don’t want to talk about their ideas because they fear you might steal it. Sounds totally anti-entrepreneurship for me. Like you say time is essential, moving fast is key.

  2. Avatar
    Nicolas Metzke

    Mark, you’re being very nice here. Even if France is a country of paperwork as you say (and there are places with even more of it), then the key issue isn’t the waste of time for everyone, but the mistrust and believe that the idea you’re pitching requires protection at this very early stage. There might be a few, very rare exceptions where an NDA might be required, but in 99% of the cases when you pitch your project to a VC, you should be open to receive feedback. Keep the recipe of your secret sauce for face-to-face meetings.
    If you judge the risk that the somebody could just steal your idea and outperform you, then it might not be the project (or team) any VC would want to put the money into. If the VC has a potentially competing portfolio investment, then they would also likely not put money into, and if the VC might likely have receive competing pitches, then it’s up to the entrepreneur to make sure the VC goes with you, and not the other team.
    Finally, VCs talk just like everybody does and when you start pitching your project, just make the assumption that the information is out there. And that’s a good thing. How would you enforce the NDA anyway, and what would you claim … thus in 99% of all cases it’s pure waste of time and says more about the attitude of the entrepreneur then the quality of the project (again, there might be a few exceptions)

  3. Avatar
    Yves Weisselberger

    I disagree. Of course an NDA does no protect that much in the real world but it’s minimum courtesy to agree to keep confidential the information given. This correspond to no lack of desire of an entrepreneur to share and receive feedback, quite the opposite. If the initial summary says nothing, it’s the summary which is wrong and you won’t get many meetings, with or without an NDA.
    Regarding paper work and France, I’m tempted to find that comment ironic if you allow. I’ve raised funds a few times and the paper work requested by VCs is within the 500 pages range, including some provisions that look to me far less useful and productive than the NDA. As an example among many, in my last fund raising for a 150 people Company, we had to build attachments like the list of employees having joined or left our Company since 18 months, the list of all employee compensation, bonus and salary raises over that period. 
    Yves Weisselberger, Twitter @yweisselberger

  4. Avatar
    Chris Maresca

    I’m in Silicon Valley – no VCs  EVER signs NDAs here.  There are many reasons, the main one being what Mark outlined.   The other is that, for whatever reason, ideas seem to come in groups – there are 10-20 companies pitching the same idea at the same time, making it hard to keep track of what is secret and who said what.  Besides, it’s not like a VC is likely to go out and start a competitive company, that’s not their job.
    Not to mention that, with all due respect, if your idea is so fragile that it needs to be protected by an NDA, it’s not likely to stand up to the real world.  My attitude is that if a startup wants me to sign an NDA just to explain what they do, then I’m not like to be interested.   In fact, asking an investor to sign an NDA is a huge red flag – either you don’t understand the process or your idea/business model, etc is so easy to duplicate that it’s likely to fail in the marketplace…  Chances are you’ll never get past a first conversation.
    Finally, what are you going to do if someone violates an NDA?  Sue them?  You’re a broke startup vs a VC with, by definition, deep pockets.   Contracts of any kind are use less unless you can enforce them.

    • Avatar
      Yves Weisselberger

      I raised 15 Millions $ and every VC I talked to signed an NDA. That said you are right on one point: a contract is useful if you can do something with it and in that instance you probably can’t. Might be loss of time and I recognize it’s a lot less important than I thought when I did it.
      It remains funny that VCs are reluctant to sign 3 pages (useless paperwork) while you have to sign 1000.
      Final detail. You of course don’t protect an idea with an NDA. My Company was already making revenue and what was – maybe – to be protected was facts related to real existing business.

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