Do I need non-disclosure agreements (NDAs)?
Takeaway: Yes, an NDA is an essential legal tool for protecting your company's confidential information, but you must be strategic and realistic about when and how you use them to avoid creating unnecessary friction.
The Non-Disclosure Agreement (NDA), also known as a Confidentiality Agreement, is one of the most common legal documents in the business world. It is a contract that creates a confidential relationship between two or more parties, legally obligating them to not disclose or use any sensitive information they share with each other. For a startup whose primary asset is its intellectual property and its innovative ideas, protecting this information is paramount.
While an NDA is a critical part of your legal toolkit, it is also a tool that is often misused or overused by first-time founders. Understanding when an NDA is necessary and when it is inappropriate is a key part of operating like a sophisticated entrepreneur.
When an NDA is Absolutely Necessary
There are several clear situations where you should always require a signed NDA before proceeding:
Before a Deep Technical Discussion with a Potential Partner: If you are engaging with a large corporate strategic partner to discuss a potential collaboration or joint venture that will require you to disclose your "secret sauce," a mutual NDA is a non-negotiable first step.
Before Engaging with a Vendor or Contractor: Any time you engage with a third-party service provider who will be exposed to your confidential information—whether it's a software development shop, a marketing agency, or a manufacturing partner—you must have them sign an NDA that includes strong IP assignment provisions.
Before an M&A Discussion: If you are in discussions to be acquired, the due diligence process will require you to open up your entire company. This process should only begin after a robust NDA is in place with the potential acquirer.
When an NDA is Inappropriate (and a Major Red Flag)
The most common mistake founders make is asking a venture capitalist to sign an NDA before they will share their pitch deck. Do not do this.
Why VCs Don't Sign NDAs: A venture capital firm looks at thousands of potential investments every year. Many of these companies are in the same or similar spaces. If they were to sign an NDA with every startup that pitched them, they would quickly be trapped in a web of conflicting confidentiality obligations and would be unable to invest in anything without risking a lawsuit.
It Signals Inexperience: Asking a VC to sign an NDA is a major amateur move. It signals to the investor that you do not understand the norms of the startup ecosystem. Most VCs will simply refuse to take the meeting.
The Real Protection: Your real protection when pitching VCs is not an NDA. It is the fact that a VC's entire business is built on their reputation. A fund that gets a reputation for stealing ideas from founders will quickly find that no one will ever pitch them again.
An NDA is a vital tool for protecting your company in specific, high-stakes business relationships. But it is not a tool to be used casually. By being strategic about when you require an NDA, you can protect your confidential information without creating unnecessary friction or signaling that you are an inexperienced founder.
Disclaimer: This post is for general informational purposes only and does not constitute legal, tax, or financial advice. Reading or relying on this content does not create an attorney–client relationship. Every startup’s situation is unique, and you should consult qualified legal or tax professionals before making decisions that may affect your business.