From Olivier Verhage – Kennet Partners (@olivierverhage)
In the Valley, it has become common practice that VCs don’t sign NDAs. In Europe, however, I frequently speak to entrepreneurs or CEOs that require me to sign and NDA – or they won’t disclose any data or information. Although the European tech scene is still very different to the US in many aspects, wouldn’t it be great to save time on NDAs which are usually difficult to hold up in court anyway?
In this blog I’ll try to outline why an NDA may hurt you in the long term and what you can do to protect yourself if you want to save time and win over top investors.
We don’t have in-house legal departments
Most funds in the European tech scene consist of fewer than 20 employees, with generally only half of the team actively looking after investment opportunities. As most funds are relatively small, we don’t employ our own in-house lawyers who can draft, review and negotiate NDAs. As we see so many companies, imagine that we would have to track every NDA. I would feel more like a bureaucratic banker rather than an entrepreneurial venture capitalist.
We provide valuable feedback
An NDA seems like a good way to protect yourself, but this may actually stop VCs from providing valuable feedback. We are unable to determine the areas where we can help and more importantly – it makes it difficult to determine whether there’s an investment fit. Funds differ in terms of their investment stage, some funds focus on very early stage investments and write small equity checks (e.g. seed or series-A, typically €0 – 5m in Europe) whereas other funds focus on later stage investments and may commit far more than €5m per investee. So without being able to identify the size and needs of a business, it is unlikely that we’ll spend time on a follow-up or make the intro to another investor that might prove a better fit.
We aren’t building products ourselves
Building a business takes blood, sweat and tears. VCs usually have a bunch of different businesses on their plate, so they certainly don’t have the time nor the passion to steal your idea and build it themselves. Instead of focusing on protecting your proprietary data, you should focus on the problem you are trying to solve. As venture firms look at thousands of pitch decks, you have to present yourself as being better than anyone else. Explaining what differentiates your product compared to your competitors is key to successfully raising funds.
We commit capital based on trust
Some investors say that a typical VC investment requires a commitment that takes longer than the average marriage of today’s millennial. As relationships are built on trust, waving an NDA before you’ve even had a conversation or received some high level data may show a lack of trust. Getting the best companies on board is just as competitive as any other industry today, so there is no point in giving away information to other VCs. Not requiring an NDA feels like a rather nice legitimisation of the seriousness to work with a potential investor.
How to protect yourself
We understand that pitch decks are easily shared. However, this can work to your advantage as we might share it with other investors as well (and hence the VEECEE initiative). Although I would never share something without permission and a formal intro, the easiest way to avoid unapproved sharing is to use a deck sharing platform such as DocSend, PandaDoc or Box. The benefit is that you can see what slides an investor spends most time on, so if you see that someone spent a lot of time on the revenue slide you have the opportunity to follow up and make sure everything is clear.
When we do sign an NDA
When entering later stage discussions, VCs will usually request a financial package that provides deep level data on customer acquisition costs, conversion and renewal rates as well as detailed information regarding all customers and existing contracts. Especially in fast paced consumer businesses with short-sales cycles, entrepreneurs are often secretive about data such as conversion rates and payback ratios. However, it forms a crucial part in understanding the health of a business, so in such scenarios VCs are more than happy to sign an NDA if both parties feel confident about a potential “marriage”.
