Wait - Why Are THEY Asking ME to Sign?
In typical fundraising, the dynamic usually works like this:
Normal Fundraising
Founders share pitch decks, financials, and business plans. Investors are the ones receiving confidential information. Founders often want NDAs from investors (which most VCs refuse to sign).
Investor Asks You to Sign
Unusual but not unheard of. May happen with strategic investors, PE firms, or acquirers who plan to share proprietary deal terms, portfolio data, or acquisition strategies.
When This Happens
Investor-originated NDAs are more common in: M&A discussions, strategic partnerships with portfolio companies, co-investment opportunities, or when investors share proprietary market research or deal terms.
Key Terms to Scrutinize
Investor NDAs may include terms that go beyond simple confidentiality. Watch for these:
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Exclusivity or No-Shop Provisions
Prevents you from talking to other investors or pursuing other deals. This is a deal term, NOT an NDA term. Should be negotiated separately with a defined period and clear scope.
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Standstill Provisions
Prevents you from acquiring their stock or taking certain actions. Common in M&A but needs careful review. Understand what you're giving up and for how long.
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Non-Disclosure of Discussions Themselves
Prevents you from telling anyone you're even talking. This can prevent you from consulting advisors or other investors. Ensure carve-outs for legal/financial advisors.
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Broad Definition of Confidential Information
May include "any information about the fund, its portfolio, or its strategies." Understand what this covers before you sign.
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Restrictions on Competitive Activities
Watch for language that could restrict you from pursuing opportunities with their competitors or portfolio companies. This is a business restriction, not confidentiality.
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Mutual Confidentiality
If you're both sharing sensitive information, the NDA should be mutual. One-way where only you have obligations is a yellow flag.
Different Investors, Different Concerns
| Investor Type | Typical NDA Approach | Key Concerns |
|---|---|---|
| Traditional VCs | Usually won't sign NDAs you send; rarely ask you to sign theirs | If they do, likely protecting deal terms or co-investment info |
| Strategic Investors | More likely to have NDAs; may be protecting competitive info | Watch for non-compete or exclusivity provisions |
| Corporate M&A | Almost always require NDAs; part of due diligence process | Standstill, no-shop, and process confidentiality |
| PE Firms | Often require NDAs to protect proprietary valuation methods | May include restrictions on discussing with other PE |
| Angel Groups | Less formal; may use template NDAs | Review for unusual terms they may not have vetted |
M&A and Acquisition NDAs
When a potential acquirer sends you an NDA, pay special attention to these provisions:
Standstill Provisions
Common in acquisition contexts. Typically prevents you from:
- Acquiring their stock without permission
- Soliciting their shareholders
- Making public statements about the potential deal
- Taking actions that could be seen as hostile
These are reasonable in context but should have clear time limits (typically 12-18 months) and should fall away if they make an offer.
No-Shop Provisions
Prevents you from soliciting competing offers. Key considerations:
- Should be time-limited (30-60 days typical for serious discussions)
- Should include a "fiduciary out" allowing you to respond to unsolicited offers
- Should only kick in at a defined stage (e.g., after LOI, not initial discussions)
- Should not be embedded in an NDA - negotiate as a separate term
Board Considerations
If you have a board, they should be aware of any exclusivity or no-shop provisions before you sign. These can affect your fiduciary duties and the company's options.
What's Normal vs. What's Concerning
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Protecting Deal Terms
Reasonable to keep valuation, structure, and specific terms confidential during negotiations.
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Portfolio Company Information
If they're sharing information about their portfolio for partnership opportunities, confidentiality is appropriate.
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Advisor Carve-outs
You should be able to share with your attorneys, accountants, and key advisors (bound by their own confidentiality obligations).
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Confidentiality of Discussions
Some investors want discussions themselves kept confidential. Reasonable in M&A; more concerning in early-stage fundraising.
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Restrictions on Other Fundraising
An NDA should not prevent you from talking to other investors unless you've agreed to exclusivity separately.
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IP or Technology Claims
An investor NDA should not include any claims on your intellectual property or technology. If it does, that's a major red flag.
Negotiation Tips for Founders
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Read Before You Sign
Don't assume investor NDAs are standard. Each firm may have different terms, and some include provisions that significantly limit your options.
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Separate Deal Terms from Confidentiality
Exclusivity, no-shop, and standstill provisions should be negotiated as deal terms, not buried in an NDA.
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Ensure Advisor Carve-outs
You must be able to consult with legal counsel, accountants, and key advisors. Never sign away this right.
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Push for Mutual Terms
If you're also sharing sensitive information (which you usually are), the agreement should be mutual.
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Watch the Duration
2-3 years is reasonable for most investment discussions. Perpetual terms are a red flag.
When to Get Attorney Help
Definitely Get Help If:
The NDA includes standstill provisions, exclusivity/no-shop terms, restrictions on your business activities, or if the potential investment is significant ($1M+). M&A situations almost always warrant attorney review given the stakes involved.
Cost-Benefit
Attorney review of an investor NDA typically costs $300-800. Compare that to the potential value of the investment or acquisition. For a Series A or M&A discussion, this is essential due diligence.
Got an Investor NDA to Review?
Get an attorney to review your specific agreement and provide personalized recommendations.
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