NDA Template

When Should An Investor Sign An NDA?: Understanding When Confidentiality Matters

If you think you have a special idea and you are scared somebody could steal it from you, think again… Many people have the same ideas at the same time, but the difference is all in the execution!

We use to say that ideas are in the air and those with the right state of mind could tune into them and welcome innovation in their heads. Just have a look at the list of simultaneous discoveries in science...

It seems that when a concept or a solution lies on the right fertile ground, it gets discovered simultaneously by the frontrunners. 

Your idea is nothing special. Hopefully it’s the right idea at the right time and this simply means that other people already had the same epiphany and are already working on it.

It’s you who have the potential to be special! And an investor chooses the ideas to invest on, but is gambling on you, your team and your execution.

So, asking for NDAs to reveal the great secret simply makes no sense. When it’s important to have an NDA in place then? Short answer: whenever you are revealing something that could be used by your competitors. Everything else should be instead marketed as part of your strengths. Your product, your services, your team, your (general) strategies… The more you actively share this information, the more traction your venture will gain

There is also a very practical reason why early NDA requests can backfire: venture capital investors typically review hundreds of opportunities and manage large portfolios of companies. If they receive a document labeled “confidential” or requiring legal review too early, many will simply choose not to engage, closing the document immediately to avoid any potential legal complications or conflicts with existing portfolio companies. For this reason, it is almost never appropriate to ask a VC to sign an NDA at the first interaction. You should only consider it once they have demonstrated clear and serious interest.

Is It Just A Formality?

After a potential investor has shown interest in you, and wants to get serious about investing in the company, it’s a good move to have them sign an NDA. On one side, they are making a small commitment towards you but, on the other hand, you are now playing in an open field and have to think about protecting your edge against the competition (especially if the investors has a very active portfolio in your field). 

The best moment to ask for an NDA is typically just before granting access to your data room or sharing truly sensitive materials. At that stage, the relationship has progressed enough to justify confidentiality, and the investor is unlikely to see it as friction. And receiving the first piece of signed paper will boost morale significantly.

It may sometimes seem like a formality, but signing an NDA has profound implications: it’s a very important formality. That said, we advise to use the BVCA templates as they are relatively investor-friendly and virtually no VC or GP should be able to refuse them. You can visit the website of the British Private Equity & Venture Capital Association.