Going to Ask That Angel or VC to Sign a NDA? Hit the Brakes!

Many entrepreneurs are afraid of letting others in on the most important and valuable parts of their business plan or strategy — so much so that some are even hesitant to reveal these pieces of information even to potential angel investors or VCs. Those entrepreneurs who are wary of letting prospective investors in on their startup’s secrets often think about asking the prospective investor to sign a non-disclosure agreement.

However, asking an angel or VC to sign a NDA from the outset may not be the best idea. Obviously, the angel or VC has no idea whether he or she will even be interested in your company after hearing your pitch. However, by giving you a NDA, they effectively hand you the ability to bring a suit against them for breaching the NDA, especially if they end up investing a similar business. Even if the entrepreneur isn’t likely to win at trial, there is usually enough of a genuine dispute to lead to protracted, costly litigation for the angel or VC (and if the entrepreneur does win it could lead to big damages). As a result, if you put a NDA in front of a prospective investor before pitching to them, it may (and often does) cause the investor to simply walk away.

Instead, tailor your pitch to only include information that you would be okay with an investor knowing even if you didn’t do a deal with them; you can tell the investor that you aren’t asking for a NDA at this point because you’re only revealing information that you’re okay with them knowing. If they’re interested in doing a deal after your pitch, then you can discuss signing a NDA (if you’re in serious negotiations with an angel or VC firm, they also may want you to sign a NDA).