Venture Capital Term Sheet Negotiation — Part 18: Non-Disclosure and Developments Agreements

This post is the eighteenth in a series giving practical advice to startups with respect to understanding and negotiating a venture capital term sheet.

In the prior seventeen posts, we provided an introduction to negotiation of the term sheet and discussed binding and non-binding provisions and discussed valuation, cap tables, and the price per sharedividends on preferred stockliquidation preferencesthe conversion rights and features of preferred stockvoting rights and investor protection provisionsanti-dilution provisionsanti-dilution carve-outs and “pay to play” provisionsredemption rightsregistration rights,  management and information rightspreemptive rightsdrag-along rights, representations and warranties, rights of first refusal and co-sale, closing conditions and expenses, and non-competition and non-solicitation agreements. In this post, we will discuss non-disclosure and developments agreements. [Read more…]

Drafting Nondisclosure Agreements in the M&A Context: Consider What Will Happen When the Deal Goes South

Let’s say you’re buying a business. As a condition to receiving more information, you are required to sign a nondisclosure agreement that contains all of the usual blather. You then start to sift through the mountains of information provided (and have your accountants and lawyers do the same, at considerable expense) to decide whether the company is worth purchasing, and on what terms. You like what you see, so you negotiate a letter of intent, and continue your due diligence investigation. You spend five or six months in negotiations and due diligence to the tune of many thousands of dollars (or more). [Read more…]

Should you ask potential investors to sign an NDA?

I am frequently asked by entrepreneurs whether I think a startup should ask potential investors to sign a non-disclosure agreement (NDA). While the answer depends largely on the situation, my view is that in most cases an NDA is unnecessary if the only information being conveyed to potential investors is their company’s general business plan or overall market strategy. [Read more…]