No NDAs, Please, We're VCs!

No NDAs, Please, We're VCs!

This morning, a start-up company sent their first email to me after a warm introduction from a great former colleague of mine. I was quite positively predisposed to giving this opportunity some close attention, since I think quite highly of my buddy's judgment, and the company's technology put them well within Pangaea's advanced materials mandate.

Like a kid on Christmas, I didn't read the message, but immediately tore off the wrapping paper. The sole attachment to the email was a PDF, which I assumed to be their slide deck presentation, and I was eager to be blown away by the amazing technical and business innovation I hoped to find inside. What could it be!?!?

It wasn't a glorious, beautifully designed PowerPoint with the next world-changing idea. It wasn't even a poorly-formatted executive summary giving the vaguest of impressions of the company. It was an NDA. And not just any Non-Disclosure Agreement! No, it was a 3-page, dense, small font, double columned, Microsoft-intense NDA. Signed. With Pangaea spelled incorrectly.

Imagine my disappointment.

So, as I responded to the company frankly that sending a contract in the initial contact email might be poorly received by other VCs, and they may have read between the lines (or just read this blog) to know how I personally might have felt, I advised them that their NDA-as-hello might be poor business practice. Being Canadian, I also apologized if I had offended them.

They aren't the only ones though, and if they're reading this now, they shouldn't feel too singled out. This happens all the time! It happened again while I'm editing this, although this time it was an investment bank that made the faux pas. I even remember once flying to another town to visit a start-up, and being presented with an NDA they wanted me to sign before they would let me past the reception desk!

So, why doesn't Pangaea like NDAs? Why don't VCs in general like NDAs, CDAs, or whatever you want to call them?

Imagine if you will, an alternate dimension where NDAs were our modus operandi. We do due diligence on hundreds of new companies every year, and invest in just a few. Let's presume that the typical term on these mirror universe NDAs is five years. Imagine the thousands of contracts we would have to keep track of, on top of, and be worried about, on an ongoing basis. Imagine having to prove for every one of those when we had last communicated with the company so that we could know when we might be able to destroy the contract. Imagine the legal fees we would incur each year just to review and negotiate all these contracts.

Now, imagine it from the perspective of one of our portfolio companies, with a Pangaea partner on its board of directors. They have to worry about getting sued over any innovation they come up with, because it might have similarity to something that was disclosed to some Pangaea partner by any of thousands of startups over the last five or more years.

Imagine it from the perspective of one of our Limited Partners, many of whom are major multinational corporations. Imagine their concerns about lawsuits over IP contamination! How could this Spock's-beard Pangaea possibly deliver strategic value to LPs when it has all information bound by NDA? How could this alternate Pangaea raise money for future funds?

Let's snap back to reality. I pride myself on my pattern recognition, and let me tell you what it tells me after an entrepreneur gives me an NDA. That entrepreneur is probably one or more of the following:

  • Inexperienced
  • Paranoid
  • Unable to effectively tell their story
  • Heeding bad advice
  • Judgment-impaired
  • Difficult to work with

Which item on that list do you think describes the kind of entrepreneurs with whom I want to work? Right. Exactly.

An NDA is not the only possible assurance an entrepreneur has that a VC will handle their information appropriately. One of the most powerful assurances we can give is our reputation. Pangaea has been in business since 2001. We are well respected by entrepreneurs, multinational corporations and other VCs. Our dealflow, the lifeblood of our entire business, is dependent upon our discretion. You may rest assured that the future of our company is worth more to us than any possible benefit you might imagine us getting from being indiscrete.

The truth is, you don't need to disclose confidential information to effectively tell your story. Leave the truly sensitive data or trade secret details out. You don't need to confess to us your entire cost basis in the initial communication. We don't need to know the name of the European partner with which you just signed a confidential agreement. And we certainly don't need to read "CONFIDENTIAL AND PROPRIETARY" stamped onto every page of your material, especially when it's sent to us unsolicited (I'm looking at you, investment bankers).

Maybe you're the entrepreneur who's read this far and understands all the points, doesn't think any of those bullets describe you, and yet are still convinced that an NDA is critical to you. Why is that? Is it because you haven't filed your patents yet? FILE YOUR PATENTS! The whole world is first-to-file now. Nobody cares if you can prove you were first-to-invent. Once you have your IP in order, come back and don't ask us to sign an NDA.

To be honest, we do actually have a form of NDA we will enter into during late stage due diligence. It's a specific IP release that allows a company to disclose unpublished or unfiled patents, so that we may review them just prior to making our investment. Obviously we only get to that stage with a very few companies each year (see my "Why We Say No" blog). And of course there are confidentiality clauses in our contracts with our portfolio companies and our investors. But generally speaking, we don't do NDAs.

I think Guy Kawasaki said it best, when he said that an entrepreneur who asks a VC to sign an NDA "might as well tattoo 'I’m clueless!' on [their] forehead.”

Sorry for the rant-y, PSA blog about NDAs (there I am, being Canadian again). Hopefully this information is valuable to some of you. As for the start-up that reached out to me this morning, I warned them about the blog and they thanked me for giving them frank and helpful feedback. They've retooled their presentation to be non-confidential and we're setting up a meeting to take a closer look at their business and technology. First impressions can be overcome, but they're strong. Don't send an NDA to a VC.

General Partner, Pangaea Ventures Ltd. Keith has been making cleantech and advanced material venture investments since 2001, having managed Mitsubishi Corporation's Canadian VC activities and BASF Venture Capital America out of Silicon Valley.View Keith Gillard's profile on LinkedIn


  • Guest
    Tommy Katzenellenbogen Thursday, 19 December 2013

    SNAP!!! Great post!
    Thank you for sharing... :)

    Reply Cancel
  • Keith Gillard
    Keith Gillard Wednesday, 08 January 2014

    Thanks Tommy. Glad my rant has provoked a lot of response. Cheers!

  • Guest
    Nicholas Field-Johnson Sunday, 22 December 2013

    Exactly right !! But also NDA's are mostly badly written and not worth the paper which they are written on as they are legally unenforceable. Most of the information has also been previously circulated and is therefore "in the public domain"..

    Reply Cancel
  • Keith Gillard
    Keith Gillard Wednesday, 08 January 2014

    Thanks Nicholas. You're right, a lot of NDAs are very poorly drafted. We have the benefit of having Chris, so there is always a lawyer on hand! But, to be honest, our NDA is our own, and we wouldn't be likely to sign somebody else's.

  • Guest
    Michael Monday, 23 December 2013

    A little counterpoint here, because this issue isn't quite as black and white, frankly, and I wouldn't want new entrepreneurs to be careless:

    1. Yes, NDAs in reality do not provide a lot of protection and entrepreneurs should not need to disclose proprietary details when pitching an investor (certainly not a first pitch). As entrepreneurs, you should assume your pitch deck is going to circulate.

    2. In the past I have been provided pitch decks, and briefing docs for competitors by tier 1 Silicon Valley VCs. It happens, perhaps infrequently (and not with Pangaea), but the VC line of 'we would never be able to survive if we did that' is not abided by in all cases: there are less careful people in the industry. Again, best to assume the pitch deck is going to circulate.

    3. I don't think it is inappropriate for entrepreneurs to ask VCs to sign NDAs at the due diligence stage. This is both pre and post term sheets, depending on the VC, since VCs increasingly do not sign term sheets until very late in the process, but if an investor is really interested in and doing a deep dive in a company, it is in the interest of both parties to not hold back on disclosures... IP details, contracts, etc. Both investor and company should want a investor coming in without post-investment surprises. Again, in my experience over 50% of VCs will sign NDAs at this point (including some of the biggest names in venture capital), and I don't see this is an inappropriate ask of VCs, since this will be a much smaller subset of their dealflow to keep track of.

    Having been an entrepreneur in VC-backed companies since before 2001, raised over $50M in investment capital from VC, and interacted with many dozens of funds, I know this is a grey area. Leading with an NDA request will get you nowhere, but there are also risks out there and entrepreneurs should be conscious of what they disclose. At the same time, many VCs have also realized that the 'No NDAs, ever', policy is not appropriate when they are wanting to dig through every detail of a company as part of seriously considering an investment.

    Reply Cancel
  • Keith Gillard
    Keith Gillard Wednesday, 08 January 2014

    Michael, you're right. There is a time and place for NDAs. That's why we have one for review of IP at the late stages of due diligence. 99% of companies we review do not reach that stage. But for the very best 1%, we are happy to do it. It is only a step or so before much more extensive contracts (which themselves have confidentiality provisions) as the start-up becomes a Pangaea portfolio company!

  • Guest
    Ken Wednesday, 25 December 2013

    Many of us spend years, and countless funding proving out a new business concept. Many along the way make expensive additions of the concept that is being presented to your company to bring it to life. We have a responsibility to all their investments.
    You may come to admire, but cannot help, causing more exposure to predation of a valuable intellectual property.
    Many components of this property have patent and copy write postures.

    In my projects: 'No Docs in place",,, "No Talks" about our Secret Sauce

    People who invest in the forward market of a concept will 'not' if the project has been compromised by built-in competition because of lax judgement

    Reply Cancel
  • Keith Gillard
    Keith Gillard Wednesday, 08 January 2014

    Thanks Ken. You are absolutely right. If a company's IP situation is not secure, they absolutely should not be disclosing it! Filing at least a provisional is a must. We are always looking for the kind of lax judgment to which you refer.

  • Guest
    David Thursday, 26 December 2013

    Funny how many articles I'm seeing from VC's lately trying to "educate" us entrepreneurs on how to conform to their needs. On the eve of crowd funding, VC's are still tone deaf and probably about ready to have Joe Lunchbucket investor eat their lunch.

    Those reasoning behind not signing NDA's in this article was just silly as it suggest that, in fact, VC's do use information they glean in ways that would be a violation of a signed NDA. The argument is akin to not wanting speedometers in their cars because to don't want to be responsible for speeding. As for using "reputation" as a reason why VC's don't sign NDAs, that just broke the laugh meter.

    On your pattern recognition list, you forgot one thing, That entrepreneur is probably one or more of the following:


    Honestly, I don't know the author, but my message to him would be "get over yourself". This is exactly why VC's will go the way of the dinosaur.

  • Keith Gillard
    Keith Gillard Wednesday, 08 January 2014

    Heh heh! Touché, David! I'm glad you found the article provocative – I did deliberately write it with that in mind. The reasoning you refer to is not actually that VC's "do" use confidential information, but rather that we "might", in the course of normal business, do something which might be construed as being a violation of an NDA. I mean, you can't honest expect that just because we reviewed a business plan about a green propylene process four years ago that we cannot look at another one, let alone invest in one. If that were the case, how could we ever be sure we were investing in the best possible option on behalf of our LPs? There are a lot of reasons why we only do NDAs in late stage due diligence, many of which I've attempted to humorously (and provocatively!) illustrate in this blog.

    Profitable is great (of course!), but we would never invest in a profitable company anyway. We are early stage investors, with expertise in helping companies commercialize advanced materials technologies and then BECOME profitable. Of course, by that point, we've been partnered with them for quite a while, and of course there are the usual confidentiality clauses in the investment agreements, so the company is covered.

    So, sorry I broke your laugh meter, David, but I'm glad I provoked your comment!

  • Guest
    Akshay Goel Sunday, 05 January 2014

    Great Post! Thank you!
    As an aspiring entrepreneur I have a question: Are NDA's useful/acceptable while recruiting first employees?
    When I was looking for a startup position - I despised NDA's (which could answer the question). However, now that I am looking at building my own team - (since my idea is not patented yet and I want to develop it further before filling for a patent) - I felt that a NDA would be beneficial.

    Please advise.

    Reply Cancel
  • Keith Gillard
    Keith Gillard Wednesday, 08 January 2014

    Thanks, Akshay. I would not advise using an NDA in the recruitment process. If you can't talk at some high level about what your company is doing, you need to do a bit more work to protect your idea first. Confidentiality is a standard employment provision, so in hiring someone, you should have recourse after that point. But in doing initial recruitment, no, I'd recommend you find a way to "sell them" on your idea without giving away its "special sauce". Good luck and best of success with your business!

  • Guest
    No Thanks Tuesday, 14 January 2014

    I agree with above dude...No NDAs, ever', policy is not appropriate when VC's are wanting to dig through every detail of a company as part of seriously considering an investment.

  • Keith Gillard
    Keith Gillard Tuesday, 14 January 2014

    Okay, but why? I've explained exactly why NDAs can hamstring our ability to raise new funds, process dealflow, and even manage a portfolio. I've obviously taken an extreme position for the purposes of the article, but my points are still the reality of our business. At what point do you think it is appropriate for us to enter into an NDA with a start-up company, and why?

  • Guest
    WAN HEMPEL Tuesday, 01 March 2016

    Practical article . I was enlightened by the information - Does someone know if my company might find a sample a form document to fill out ?

  • Keith Gillard
    Keith Gillard Wednesday, 02 March 2016

    Thanks Wan. There are lots of model NDAs freely available via a quick google search. Not being a lawyer, I wouldn't want to recommend one of them over another. Just remember what I wrote in the article before you send one to a VA!

  • Guest
    Maira Salter Thursday, 03 March 2016

    Hello WAN HEMPEL . my business partner got ahold of a sample a form document using this

    By the way, Keith Gillard , thanks for sharing useful information. Great article. :)

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