Deal Flownda

NDA

Also known as Non-Disclosure Agreement, Confidentiality Agreement, Mutual NDA

Mikael Andersson
Mikael Andersson
VC Analyst · Updated

An NDA is a confidentiality agreement between two parties that restricts disclosure and use of shared information. In venture capital, most firms decline to sign NDAs at intro or pitch stage because partners hear overlapping ideas across hundreds of deals and cannot accept disclosure liability.

In depth

NDAs structure who can see what and what they can do with it. In commercial M&A or technology licensing, signing an NDA at first contact is routine because the discussion is between two specific counterparties with no parallel deal flow. In venture capital, the calculus inverts. A partner hears 200 to 1,500 pitches a year, many in the same category. Signing an NDA at intro would mean the firm cannot fund any company in the space for the NDA's duration without risking a claim. So firms develop a blanket policy of refusing intro-stage NDAs, and reputation enforces confidentiality instead.

The NDA does appear later, when the deal is concrete. The most common venue is the data room during confirmatory diligence. By then, the term sheet has been signed, both sides have aligned incentives, and the NDA scopes how the investor's outside lawyers, accountants, and reference checkers handle sensitive materials. Life-science deals also use NDAs earlier because patent and trade-secret material genuinely cannot be discussed without legal protection, and the NVCA publishes a model Life-Science Confidential Disclosure Agreement to standardize the form.

Why it matters

For founders, asking a tier-one VC to sign an NDA before the first meeting is a tell that the founder does not understand venture norms. The right move is to share enough at intro to spark interest without disclosing core trade secrets, then layer in deeper material as the relationship progresses and the deal becomes real. By the data-room stage, the NDA is routine and your counsel handles it.

Worked example

A stylized data-room NDA accompanying a signed term sheet:

ProvisionTerm
PartiesAcme HealthOps Inc. and Patel Ventures III, L.P.
ScopeAll materials posted to virtual data room and discussed in diligence
Term3 years from the disclosure date
Carve-outsInformation already public, independently developed, or compelled by law
Permitted useEvaluation of the proposed investment only
Return/destruction30 days after deal close or termination
Trade secretsConfidentiality survives indefinitely

If the deal closes, the NDA becomes largely moot for the lead investor, since the investor is now a shareholder with information rights under the Investors' Rights Agreement. If the deal does not close, the NDA does the real work: the investor must destroy materials within 30 days, and the trade-secret provisions live on. The asymmetry is the point. Early stage refuses NDAs because the risk-reward favors norms over contracts; late-stage signs them because the risk-reward has flipped.

Frequently asked

Why do most VCs refuse to sign an NDA before hearing a pitch?

Partners hear dozens of pitches per week on overlapping themes. Signing an NDA with one founder could block the firm from funding any nearby idea later, creating a compounding legal trap. Reputable firms manage confidentiality through professional norms instead, and founders who insist on an NDA up front rarely get to the second meeting.

When does an NDA actually appear in a VC process?

During confirmatory due diligence on a signed term sheet, when the company shares the data room. Both sides are aligned, the deal is real, and the NDA scopes how investor advisors and outside diligence vendors handle the materials. Customer reference calls run by the VC sometimes also use a one-way NDA from the customer's side.

What are the typical NDA terms in a venture data room?

Mutual or one-way, two- to three-year term, carve-outs for information already public or independently developed, and obligations to return or destroy materials if the deal does not close. Trade-secret carve-outs may extend indefinitely. The NDA is usually attached to or referenced by the term sheet's confidentiality clause.

Is a confidentiality clause in a term sheet the same as an NDA?

Functionally similar but narrower. Term-sheet confidentiality typically covers the existence and terms of the deal itself, not the underlying company information. A separate NDA covers data-room materials. Both can be in force simultaneously.

Sources & further reading