Thursday, December 15, 2005

NDAs -- asking is a death sentence

With a few minor exceptions, every VC I've queried won't sign an NDA early in the vetting process. As a general rule, I won't sign an NDA until a company is a client. Whether I've signed a piece of paper or not, I jealously guard the information that an entrepreneur shares with me. My integrity/reputation is my product and it's a small community so it would be bad business to do otherwise not to mention against my personal ethics.

Bill Snow did a good job of capturing the issues in this post. Here are a few highlights:
  • In the pantheon of entrepreneurial mistakes, the NDA is right up there with the infamous line, “these projections are conservative.” Simply put, if you hope to raise money from VCs, you increase your chances of success by eschewing the NDA request. Most (if not all) VCs will not sign the darn things.
  • An entrepreneur who asks a VC to sign an NDA is unwittingly exposing himself as a rank amateur. Simply uttering the phrase “will you sign an NDA” is a virtual death sentence. VCs know there is usually an inverse relationship between the voracity of the NDA request and the strength of the deal.
  • If your plan is based on an idea so tenuous that merely hearing what you do (or plan to do) will cause grievous harm to your plan, you don’t have a plan. You have a pipe dream.

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