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When to use and when not to use an NDA

Entrepreneurs in California looking to get a new venture off the ground may well be interested in securing venture capital in order to help fund their new business. Certainly, it will be necessary for a person to share detailed and even confidential information with a potential investor in order for that party to determine whether or not they will financially support the effort. Before rushing to have a venture capitalist sign a nondisclosure agreement, however, entrepreneurs should stop for a moment.

As explained by Entrepreneur magazine, a VC is not like other parties with which sensitive business information is shared. A VC is in no way a potential competitor in part because they have likely already built businesses and their interest does not lay here any longer. They are simply looking for opportunities to make money without undergoing the effort of starting a new company. If a potential investor were to consider divulging secret information, they may end up finding themselves in hot water with government regulators and that is something most would prefer to avoid.

According to Forbes, a nondisclosure agreement or a confidentiality agreement as it can be called may be best used when working with distributors, vendors, suppliers and even with employees. All of these people and parties may have unique needs to know things about a company and its operations in order to support the larger business. 

A good NDA clearly identifies what information is included and what information is excluded from the contract as well as how long the contract is in effect for.

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