NDAs

January 17, 2010

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 use my standard template.

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posted in venture capital by mark

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