NDA’s in Venture Capital are useless

I typically don’t have extreme positions on things but I seriously doubt the effectiveness of NDA’s in venture capital. My general advice to startup CEO’s is not to ask a VC to sign one and just don’t share confidential information before you engage deeper (Due Diligence). Venture capital is a business of trust and if you as a startup CEO wants our money they have to start trusting us…. If you don’t trust us then you should do your homework and check references.

As a VC you have everything to lose if you’re known as a party that cannot be trusted. That reputation for integrity is worth everything and worth much more than breaching confidentiality and what we can gain from it.

My top three practical reasons why NDA’s are not a smart idea:

• Execution of an idea and the team around is so much more important and defensible than the idea itself.
• In practice, an NDA does not provide enough protection. And maybe more important: Will you spend your valuable money to fight (defensive)or to beat the enemy (offensive)? I would say: BEAT them.
• It signals a lack of trust already from the beginning of a relationship

Further, it slows down the dialog between a startup and the VC and as a VC is quite challenging managing all these NDA’s when you professionally review 1.000+ opportunities per year.

Corporate VCs might be an exception to the topics mentioned above because their parent might already be competing or could be in the future with you. But still execution is key!

If we have to make an exception, we will sign an NDA for 1 year and not for 10 years.