Consider the Context Before Asking for an NDA

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Matt Mireles (http://www NULL.metamorphblog NULL.com/) called my attention to a good Venture Hacks (http://venturehacks NULL.com/articles/ndas-wazoo) thread on NDA use.  Brad Feld (http://www NULL.feld NULL.com/wp/archives/2006/02/why-most-vcs-dont-sign-ndas NULL.html) also has a very good one.  Opinions on NDA use are all over the map, so I thought it might be helpful to summarize (and add to) some of the key points that I’ve seen in the blogosphere:

  • You should ask for an NDA if you want to disclose information that’s truly confidential and a source of competitive advantage.  Conversely, if the information is in the public domain or not competitively sensitive, you don’t need one unless you, for some reason, want to signal to the other party not to mess with you.  While some people say that almost everything is in the public domain (i.e. there are very few new ideas), I don’t think I’d go that far.  Still, you shouldn’t use NDAs indiscriminately.
  • Consider industry/relationship/geographic/cultural norms before asking for an NDA.  In certain circumstances, such a request may poison a potential business relationship by signaling a lack of trust. What’s the norm for your particular situation?  Are you in a space where patents are important (such as semiconductors or medical devices) and therefore NDAs are common?  Or the consumer Internet space, where innovation is rapid and conversations sometimes more informal?  Are you seeking to establish a trust relationship with someone you believe to be trustworthy?  Or is the other party talking with your competitors?  The Venture Hacks (http://venturehacks NULL.com/articles/ndas-wazoo) thread has some good comments on context.
  • If you want to disclose an invention on which you’ll be filing a patent application, you must use an NDA if you don’t want to destroy certain foreign filing rights.  Similarly, if you want to protect the trade secret status of certain information, you must use an NDA (or not disclose the information).
  • VCs rarely sign NDAs, except maybe in the M&A context.  You risk appearing unsophisticated if you ask a VC for an NDA.  Guy Kawasaki (http://blog NULL.guykawasaki NULL.com/2006/01/the_venture_cap NULL.html#axzz0hbwc049R) on this point: “Before you even start addressing the hard stuff, never ask a venture capitalist to sign a non-disclosure agreement (NDA). They never do…If you even ask them to sign one, you might as well tattoo “I’m clueless!” on your forehead.” Mark Suster (http://www NULL.bothsidesofthetable NULL.com/2009/07/26/on-ndas-and-confidentiality/) has good advice re: disclosing information to VCs: “When you write your Powerpoint deck write it with the assumption that people you don’t want to read it will get a hold of it. It probably won’t get in the wrong hands but keep your information high-level enough that you wouldn’t feel compromised if it did.  The detailed information can be delivered verbally and/or in follow up documents once you know that they VC firm you’re talking with is more serious.”
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