Why VCs Require NDAs Before Term Sheet Discussions
During US fundraising, you share sensitive information: financial models, customer contracts, burn rate, cap table, and competitive strategy. An NDA protects this from disclosure to competitors or portfolio companies.
What VCs expect to protect with NDAs:
- Financial forecasts and unit economics
- Customer lists and contract terms
- Technology roadmap and product strategy
- Team compensation and equity allocation
- Supplier and partnership agreements
Why US VCs Are More Willing to Sign NDAs
Unlike Australian VCs, many US venture capital firms WILL sign NDAs, especially at the term sheet stage. Why?
- Term sheet NDAs are shorter and more focused
- They explicitly allow portfolio committee and advisory discussions (bound by confidentiality)
- US VCs expect mutual NDAs as part of the pitching process
- Federal law (DTSA) makes trade secret protection automatic, so VCs are comfortable with it
However: Early-stage VCs may still decline. Always be prepared for some VCs to refuse and operate on mutual trust.
Mutual NDA for Term Sheets
A focused mutual NDA works well in the US:
- Scope: Covers term sheet, financial data, and due diligence information only
- Duration: 12–24 months after deal closure or last disclosure
- Permitted disclosures: Allow VC to discuss with investment committee, counsel, board advisors (all bound by confidentiality)
- No exclusive dealing: VC isn't obligated to fund or prevented from considering competitors
- DTSA language: Include federal trade secret protection language
- Public announcements: Either party can disclose if publicly announced or legally required
What VCs Actually Expect
Even if a VC won't sign an NDA, they expect:
- Confidentiality by default under UTSA/DTSA
- Transparency about your metrics and challenges
- That you've shared details selectively, not with every potential investor
- Mutual trust and good faith during negotiations
When NOT to Push for an Investor NDA
Skip the NDA if:
- The VC explicitly declines or has a stated policy against NDAs
- You're pitching at a startup event with multiple VCs present (NDAs are impractical)
- You want to maintain good relationships with major VCs
- The VC is an early-stage investor with limited legal resources
Rely on selective sharing instead — only discuss sensitive details with serious investors.
Official US Resources on Trade Secrets & NDAs
For authoritative guidance on US trade secret law and NDA enforceability, the following government and legal sources are the definitive references:
- USPTO Trade Secret Policy — the US Patent and Trademark Office's official guidance on trade secret protection and the Defend Trade Secrets Act (DTSA)
- IRS: Independent Contractor vs Employee — relevant when your NDA involves contractors whose IP and confidentiality obligations differ from employees
- FTC Business Guidance on Privacy & Security — for NDAs covering personal data or customer information disclosures