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Non-Disclosure Agreements for Entrepreneurs: Protecting Your Business When Seeking Funding

Learn how non-disclosure agreements (NDAs) protect your business ideas and confidential information when meeting with potential investors, with essential guidance for entrepreneurs and startup founders.

Introduction

A Non-Disclosure Agreement (NDA) is a legally binding contract that establishes a confidential relationship between you, as a business owner or entrepreneur, and the party with whom you're sharing sensitive information, such as potential investors. When you're seeking funding for your business, an NDA helps protect your proprietary information, trade secrets, business plans, and other confidential details from being disclosed to competitors or used without your permission. This document serves as your first line of defense in maintaining control over your valuable intellectual property while you navigate the funding process.

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Key Things to Know

  1. 1

    NDAs should be signed before sharing sensitive business information with potential investors or funding partners.

  2. 2

    Not all investors will sign NDAs, particularly venture capital firms and angel investors who see many similar ideas.

  3. 3

    A well-drafted NDA clearly defines what information is considered confidential and what is excluded.

  4. 4

    Standard NDAs typically include a specific time period for which the confidentiality obligations remain in effect.

  5. 5

    There are different types of NDAs: one-way (unilateral) where only one party discloses information, and mutual NDAs where both parties share confidential information.

  6. 6

    Overly broad NDAs may be difficult to enforce, so specificity about what's being protected is important.

  7. 7

    Include specific remedies and consequences for breaches of the agreement to strengthen enforceability.

Key Decisions

Startup Founder

HR Manager in Growing Company

Small Business Owner

Startup Founder with Innovative Product

Established Company Expanding Supply Chain

Early-Stage Startup Founders

Small Business Owners Seeking Growth Capital

Solo Entrepreneurs Seeking First-Time Funding

Customize your Non-Disclosure Agreement Template with DocDraft

MUTUAL NON-DISCLOSURE AGREEMENT

1. PARTIES

This Mutual Non-Disclosure Agreement (the "Agreement") is entered into as of ________________, [YEAR] (the "Effective Date") by and between:

[DISCLOSING PARTY NAME], a [TYPE OF ENTITY] organized and existing under the laws of [STATE/COUNTRY], with its principal place of business at [ADDRESS] ("Party A"); and

[RECEIVING PARTY NAME], a [TYPE OF ENTITY] organized and existing under the laws of [STATE/COUNTRY], with its principal place of business at [ADDRESS] ("Party B").

Party A and Party B may be referred to individually as a "Party" and collectively as the "Parties."

2. PURPOSE

WHEREAS, the Parties wish to explore a potential business relationship relating to [DESCRIPTION OF BUSINESS OPPORTUNITY] (the "Purpose");

WHEREAS, in connection with the Purpose, each Party may disclose to the other certain Confidential Information (as defined below); and

WHEREAS, the Parties wish to establish terms governing the disclosure, use, and protection of such Confidential Information.

NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

3. DEFINITION OF CONFIDENTIAL INFORMATION

3.1 Definition

"Confidential Information" means any and all non-public information, in any form or medium (whether oral, written, electronic, or otherwise), that a Party (the "Disclosing Party") discloses to the other Party (the "Receiving Party"), either directly or indirectly, before, on, or after the Effective Date, including but not limited to:

(a) Business information, including but not limited to business plans, strategies, forecasts, projections, operations, performance data, financial information, pricing, customer and supplier information, marketing plans, research and development activities, product roadmaps, and business opportunities;

(b) Technical information, including but not limited to inventions, know-how, trade secrets, algorithms, software programs, source code, object code, designs, processes, formulas, systems, data, databases, and technical specifications;

(c) Intellectual property, including but not limited to patents, patent applications, trademarks, copyrights, and other proprietary rights;

(d) The terms and conditions of this Agreement; and

(e) The fact that discussions or negotiations are taking place concerning the Purpose or the status thereof.

3.2 Marking Requirements

Information that is disclosed in written, electronic, or other tangible form shall be considered Confidential Information if it is marked or otherwise identified as "Confidential," "Proprietary," or with a similar designation at the time of disclosure. Information disclosed orally or visually shall be considered Confidential Information if the Disclosing Party identifies such information as confidential at the time of disclosure and, within thirty (30) days after such disclosure, delivers to the Receiving Party a written summary of such information marked with an appropriate confidentiality designation. Notwithstanding the foregoing, any information that a reasonable person would understand to be confidential or proprietary, given the nature of the information and the circumstances of disclosure, shall be treated as Confidential Information whether or not marked or specifically identified as such.

3.3 Exclusions

Confidential Information shall not include information that:

(a) Is or becomes publicly available through no fault of the Receiving Party or its Representatives (as defined below);

(b) Was rightfully known to the Receiving Party without restriction prior to receipt from the Disclosing Party, as evidenced by the Receiving Party's written records;

(c) Is rightfully obtained by the Receiving Party from a third party who has the right to disclose it without violation of any confidentiality obligation to the Disclosing Party;

(d) Is independently developed by the Receiving Party without use of or reference to the Disclosing Party's Confidential Information, as evidenced by the Receiving Party's written records; or

(e) Is disclosed with the prior written approval of the Disclosing Party.

The burden of proving any of the above exceptions shall rest with the Receiving Party.

4. OBLIGATIONS REGARDING CONFIDENTIAL INFORMATION

4.1 Confidentiality Obligations

The Receiving Party shall:

(a) Maintain the confidentiality of the Disclosing Party's Confidential Information with at least the same degree of care that it uses to protect its own confidential information of similar nature and importance, but in no event with less than reasonable care;

(b) Not disclose any Confidential Information to any person or entity, except to its Representatives (as defined below) who need to know such information for the Purpose and who are bound by confidentiality obligations at least as restrictive as those contained herein;

(c) Be responsible for any breach of this Agreement by any of its Representatives;

(d) Promptly notify the Disclosing Party in writing of any unauthorized use or disclosure of Confidential Information of which it becomes aware and take all reasonable steps to mitigate the effects of such unauthorized use or disclosure; and

(e) Not remove, obscure, or alter any proprietary notices or legends that appear on or in the Confidential Information.

4.2 Permitted Uses

The Receiving Party shall use the Confidential Information solely for the Purpose and for no other purpose whatsoever without the prior written consent of the Disclosing Party.

4.3 Permitted Disclosures

The Receiving Party may disclose Confidential Information only to its officers, directors, employees, attorneys, accountants, financial advisors, and other representatives (collectively, "Representatives") who:

(a) Need to know such Confidential Information for the Purpose;

(b) Have been informed of the confidential nature of such information and the obligations under this Agreement; and

(c) Are bound by confidentiality obligations at least as restrictive as those contained in this Agreement, whether through written agreement, professional ethical obligations, or otherwise.

Before disclosing Confidential Information to any Representative, the Receiving Party shall inform such Representative of the confidential nature of the information and the requirements of this Agreement. The Receiving Party shall be responsible and liable for any breach of this Agreement by its Representatives.

4.4 Non-Solicitation

During the term of this Agreement and for a period of one (1) year thereafter, neither Party shall, directly or indirectly, solicit or attempt to solicit for employment or engagement as an independent contractor any employee, consultant, or contractor of the other Party with whom such Party had contact or who became known to such Party in connection with the Purpose, without the prior written consent of the other Party. General advertisements or job postings not specifically directed at the other Party's employees, consultants, or contractors shall not be deemed a solicitation under this Section.

5. TERM AND TERMINATION

5.1 Term

This Agreement shall commence on the Effective Date and shall continue in full force and effect for a period of [NUMBER] years thereafter, unless earlier terminated as provided herein (the "Term").

5.2 Survival of Obligations

Notwithstanding the expiration or termination of this Agreement for any reason, the obligations of confidentiality and non-use with respect to Confidential Information shall survive for a period of [NUMBER] years from the date of expiration or termination of this Agreement; provided, however, that with respect to trade secrets, such obligations shall continue for as long as such information remains a trade secret under applicable law.

5.3 Termination

Either Party may terminate this Agreement by providing thirty (30) days' prior written notice to the other Party. Termination or expiration of this Agreement shall not relieve either Party of its obligations with respect to Confidential Information disclosed prior to such termination or expiration.

5.4 Return or Destruction of Confidential Information

Upon the earlier of: (a) the completion or termination of the Parties' relationship under the Purpose; (b) the termination of this Agreement; or (c) at any time upon the written request of the Disclosing Party, the Receiving Party shall promptly:

(a) Return to the Disclosing Party all tangible materials containing or embodying the Disclosing Party's Confidential Information;

(b) Permanently delete or destroy all electronic or other intangible records or files containing or embodying the Disclosing Party's Confidential Information, including any copies, summaries, analyses, or other materials derived from or based on such Confidential Information; and

(c) Upon request, provide the Disclosing Party with a written certification of such return or destruction signed by an authorized representative of the Receiving Party.

Notwithstanding the foregoing, the Receiving Party may retain one copy of the Confidential Information in the secure files of its legal department solely for the purpose of establishing compliance with the terms of this Agreement or applicable law, provided that such Confidential Information remains subject to the confidentiality obligations set forth herein.

6. REMEDIES

6.1 Equitable Relief

Each Party acknowledges and agrees that money damages may not be a sufficient remedy for any breach or threatened breach of this Agreement and that the Disclosing Party shall be entitled, without the requirement of posting a bond or other security, to seek specific performance, injunctive relief, and other equitable relief as a remedy for any such breach or threatened breach. Such remedies shall not be deemed to be the exclusive remedies for a breach of this Agreement but shall be in addition to all other remedies available at law or in equity.

6.2 Indemnification

The Receiving Party shall indemnify, defend, and hold harmless the Disclosing Party and its officers, directors, employees, agents, successors, and assigns from and against any and all losses, damages, liabilities, deficiencies, actions, judgments, settlements, interest, awards, penalties, fines, costs, or expenses of whatever kind, including reasonable attorneys' fees, that arise out of or result from any breach of this Agreement by the Receiving Party or its Representatives.

6.3 Attorney Fees and Costs

In any action, suit, or proceeding brought to enforce or interpret this Agreement, the prevailing Party shall be entitled to recover its reasonable attorneys' fees, costs, and expenses incurred in connection with such action, suit, or proceeding, including any appeal thereof, in addition to any other relief to which such Party may be entitled.

7. GOVERNING LAW AND DISPUTE RESOLUTION

7.1 Governing Law

This Agreement shall be governed by and construed in accordance with the laws of the State of [STATE], without giving effect to any choice or conflict of law provision or rule that would cause the application of the laws of any other jurisdiction.

7.2 Jurisdiction and Venue

Each Party irrevocably submits to the exclusive jurisdiction and venue of the state and federal courts located in [COUNTY] County, [STATE], in any legal action, suit, or proceeding arising out of or relating to this Agreement. Each Party waives any objection based on forum non conveniens and waives any objection to venue of any action instituted hereunder.

7.3 Alternative Dispute Resolution

Prior to initiating any legal action, the Parties agree to attempt in good faith to resolve any dispute arising out of or relating to this Agreement as follows:

(a) Negotiation: The Parties shall first attempt to resolve any dispute through direct negotiation between representatives of each Party who have authority to settle the dispute.

(b) Mediation: If the dispute is not resolved within thirty (30) days after the commencement of negotiations, either Party may require that the dispute be referred to a mutually agreeable neutral third party for non-binding mediation. The mediation shall take place in [CITY], [STATE], and the costs of mediation shall be shared equally by the Parties.

(c) Litigation: If the dispute is not resolved within sixty (60) days after the commencement of mediation, either Party may initiate litigation in accordance with Sections 7.1 and 7.2 above.

Notwithstanding the foregoing, either Party may seek injunctive or other equitable relief at any time to prevent or enjoin the breach of this Agreement.

8. MISCELLANEOUS PROVISIONS

8.1 No Waiver

No failure or delay by either Party in exercising any right, power, or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power, or privilege preclude any other or further exercise thereof or the exercise of any other right, power, or privilege. The rights and remedies provided in this Agreement are cumulative and not exclusive of any rights or remedies provided by law.

8.2 Assignment

Neither Party may assign or transfer this Agreement, in whole or in part, without the prior written consent of the other Party, which consent shall not be unreasonably withheld, conditioned, or delayed. Any attempted assignment or transfer in violation of this Section shall be null and void. Notwithstanding the foregoing, either Party may assign this Agreement without consent to a successor in interest in connection with a merger, reorganization, consolidation, or sale of all or substantially all of its assets or the business to which this Agreement relates, provided that the assignee agrees in writing to be bound by all of the terms and conditions of this Agreement. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective permitted successors and assigns.

8.3 Severability

If any provision of this Agreement is held to be invalid, illegal, or unenforceable by any court or tribunal of competent jurisdiction, the remainder of this Agreement shall remain in full force and effect to the maximum extent permitted by law. The Parties agree that any such invalid, illegal, or unenforceable provision shall be modified and limited in its effect to the extent necessary to cause it to be enforceable, or if such modification is not possible, shall be deemed severed from this Agreement. In such event, the Parties shall negotiate in good faith to replace any invalid, illegal, or unenforceable provision with a valid, legal, and enforceable provision that corresponds as closely as possible to the Parties' original intent and economic expectations. The invalidity or unenforceability of any provision in one jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction.

8.4 Entire Agreement

This Agreement constitutes the entire agreement between the Parties with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements, understandings, negotiations, and discussions, whether oral or written, between the Parties with respect to such subject matter. No amendment, modification, or waiver of any provision of this Agreement shall be effective unless in writing and signed by authorized representatives of both Parties.

8.5 Amendment

This Agreement may be amended, modified, or supplemented only by a written instrument executed by authorized representatives of both Parties. No oral amendment or modification of this Agreement shall be binding on either Party.

8.6 Notices

All notices, requests, consents, claims, demands, waivers, and other communications under this Agreement shall be in writing and shall be deemed to have been given:

(a) When delivered by hand (with written confirmation of receipt);

(b) When received by the addressee if sent by a nationally recognized overnight courier (receipt requested);

(c) On the date sent by email (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next business day if sent after normal business hours of the recipient; or

(d) On the third day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid.

Such communications must be sent to the respective Parties at the addresses set forth in Section 1 of this Agreement (or to such other address as may be designated by a Party from time to time in accordance with this Section).

8.7 Counterparts

This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement. A signed copy of this Agreement delivered by facsimile, email, or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement.

9. INTELLECTUAL PROPERTY

9.1 Ownership of Confidential Information

All Confidential Information shall remain the exclusive property of the Disclosing Party. The Receiving Party acknowledges and agrees that nothing in this Agreement shall be construed as granting any rights, by license or otherwise, in or to any Confidential Information, or any patent, copyright, trademark, trade secret, or other intellectual property or proprietary right of the Disclosing Party, except as expressly set forth in this Agreement.

9.2 No License

Nothing in this Agreement shall be construed as:

(a) Granting any right or license, express or implied, by estoppel or otherwise, to any intellectual property rights of the Disclosing Party;

(b) Obligating either Party to disclose any information, enter into any additional agreement, or negotiate any business relationship;

(c) Creating any agency, partnership, joint venture, or other form of joint enterprise, employment, or fiduciary relationship between the Parties; or

(d) Warranting the accuracy or completeness of any Confidential Information.

9.3 No Reverse Engineering

The Receiving Party shall not, directly or indirectly, reverse engineer, decompile, disassemble, or otherwise attempt to derive the composition, structure, construction, or underlying ideas, concepts, or algorithms of any Confidential Information, including any prototypes, software, or other tangible objects that embody the Disclosing Party's Confidential Information, except to the extent such restriction is expressly prohibited by applicable law.

9.4 Residual Information

Notwithstanding anything to the contrary in this Agreement, the Receiving Party may use Residual Information for any purpose, including without limitation use in the development, manufacture, marketing, or maintenance of its products and services, provided that this right to Residual Information does not represent a license under any patents, copyrights, or other intellectual property rights of the Disclosing Party. "Residual Information" means information that is retained in the unaided memories of the Receiving Party's employees or Representatives who have had access to the Disclosing Party's Confidential Information pursuant to the terms of this Agreement. An employee's or Representative's memory is considered unaided if the employee or Representative has not intentionally memorized the Confidential Information for the purpose of retaining and subsequently using or disclosing it. This Section shall not be deemed to grant any right to disregard the other provisions of this Agreement.

10. COMPLIANCE

10.1 Required Disclosures

If the Receiving Party is required by law, regulation, court order, subpoena, or other legal or governmental process to disclose any Confidential Information, the Receiving Party shall:

(a) Promptly notify the Disclosing Party in writing of such requirement, to the extent permitted by law, so that the Disclosing Party may seek a protective order or other appropriate remedy or waive compliance with the provisions of this Agreement;

(b) Cooperate with the Disclosing Party, at the Disclosing Party's expense, in seeking such protective order or other remedy;

(c) Disclose only that portion of the Confidential Information that the Receiving Party is legally required to disclose; and

(d) Use reasonable efforts to ensure that any Confidential Information so disclosed is treated confidentially by the recipient.

If a protective order or other remedy is not obtained, or if the Disclosing Party waives compliance with the provisions of this Agreement, the Receiving Party shall furnish only that portion of the Confidential Information that is legally required to be disclosed and shall exercise reasonable efforts to obtain reliable assurance that confidential treatment will be accorded to such Confidential Information.

10.2 Export Control Compliance

Each Party shall comply with all applicable export control laws and regulations in its performance under this Agreement. Neither Party shall export or re-export, directly or indirectly, any Confidential Information, or any direct product thereof, to any destination or person prohibited or restricted by the export control laws of the United States or any other applicable jurisdiction without first obtaining any required governmental authorization. The Receiving Party acknowledges that the Confidential Information may be subject to export controls under the laws and regulations of the United States and other countries, and agrees not to export, re-export, or transfer such Confidential Information without first obtaining all required governmental authorizations.

10.3 Compliance with Laws

Each Party shall comply with all applicable laws, regulations, and ordinances in connection with its performance under this Agreement.

IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the Effective Date.

[PARTY A NAME]

By: ________________________________

Name: _____________________________

Title: ______________________________

Date: ______________________________

[PARTY B NAME]

By: ________________________________

Name: _____________________________

Title: ______________________________

Date: ______________________________

Rhode Island Requirements for Non-Disclosure Agreement

Trade Secrets Protection (R.I. Gen. Laws § 6-41-1 et seq.)

Compliance with the Rhode Island Uniform Trade Secrets Act (RIUTSA) which provides legal protection for trade secrets in Rhode Island. The NDA must define trade secrets in accordance with this law and establish safeguards that meet the 'reasonable efforts' standard to maintain secrecy.

Federal Defend Trade Secrets Act Compliance (18 U.S.C. § 1836 et seq.)

Acknowledgment of the federal protection available under the DTSA, which provides a federal cause of action for trade secret misappropriation and includes provisions for ex parte seizure orders in extraordinary circumstances. The NDA should include notice of whistleblower immunity provisions required by this law.

Economic Espionage Act Compliance (18 U.S.C. § 1831-1839)

Recognition that theft of trade secrets may constitute a federal crime under the Economic Espionage Act, providing criminal penalties for trade secret theft intended to benefit foreign entities or for commercial advantage.

Rhode Island Computer Crime Law Compliance (R.I. Gen. Laws § 11-52-1 et seq.)

Acknowledgment that unauthorized access to computer systems to obtain confidential information may violate Rhode Island's computer crime laws, which prohibit unauthorized access to computer systems and data.

Statute of Limitations (R.I. Gen. Laws § 6-41-6)

Specification that actions for misappropriation under Rhode Island law must be brought within 3 years after the misappropriation is discovered or should have been discovered through reasonable diligence.

Contract Formation Requirements (R.I. Gen. Laws § 6A-2-201 et seq.)

Compliance with Rhode Island contract law requirements for valid contract formation, including offer, acceptance, consideration, legal purpose, and competent parties. The NDA must satisfy these basic elements to be enforceable.

Electronic Signatures (R.I. Gen. Laws § 42-127.1-1 et seq.; 15 U.S.C. § 7001 et seq.)

Recognition that electronic signatures are valid under both Rhode Island's Uniform Electronic Transactions Act and the federal ESIGN Act, allowing for electronic execution of the NDA.

Restrictive Covenant Reasonableness (R.I. Gen. Laws § 6-41-1 et seq. (case law interpretation))

Ensuring that any restrictive covenants within the NDA are reasonable in scope, geography, and duration under Rhode Island law, which requires such restrictions to be narrowly tailored to protect legitimate business interests.

Intellectual Property Protection (17 U.S.C. § 101 et seq.; 35 U.S.C. § 1 et seq.; 15 U.S.C. § 1051 et seq.)

Acknowledgment of federal copyright, patent, and trademark protections that may apply to disclosed information, with clear provisions distinguishing between trade secret protection and other forms of intellectual property protection.

Choice of Law and Jurisdiction (R.I. Gen. Laws § 6A-1-301)

Specification of Rhode Island law as governing law and Rhode Island courts as having jurisdiction over disputes, in compliance with Rhode Island's rules regarding choice of law provisions in contracts.

Remedies and Injunctive Relief (R.I. Gen. Laws § 6-41-2)

Provisions for remedies including injunctive relief, which are specifically authorized under Rhode Island's Uniform Trade Secrets Act for misappropriation of trade secrets.

Attorney's Fees Provision (R.I. Gen. Laws § 6-41-4)

Acknowledgment that Rhode Island law permits courts to award reasonable attorney's fees to the prevailing party in cases of willful and malicious misappropriation or bad faith litigation.

Severability Clause (R.I. Gen. Laws § 6A-1-302 (general contract interpretation))

Inclusion of a severability clause in compliance with Rhode Island contract interpretation principles, ensuring that if any provision is found unenforceable, the remainder of the agreement remains valid.

Federal Securities Laws Compliance (15 U.S.C. § 78j(b); 17 C.F.R. § 240.10b-5)

Recognition that certain confidential information may constitute material non-public information under federal securities laws, prohibiting insider trading based on such information.

Privacy Law Compliance (R.I. Gen. Laws § 11-49.3-1 et seq.)

Provisions addressing compliance with Rhode Island's Identity Theft Protection Act and other applicable privacy laws if the confidential information includes personal information of Rhode Island residents.

Data Breach Notification (R.I. Gen. Laws § 11-49.3-4)

Requirements for notification in the event of a data breach involving confidential information, in compliance with Rhode Island's data breach notification law.

Gramm-Leach-Bliley Act Compliance (15 U.S.C. § 6801 et seq.)

If financial information is involved, acknowledgment of obligations under the GLBA regarding the disclosure of nonpublic personal information by financial institutions.

Health Information Privacy (45 C.F.R. § 160 and 164; R.I. Gen. Laws § 5-37.3-1 et seq.)

If health information is involved, provisions ensuring compliance with HIPAA and Rhode Island health privacy laws regarding the protection of personal health information.

Unfair Trade Practices (R.I. Gen. Laws § 6-13.1-1 et seq.)

Recognition that misappropriation of trade secrets or confidential information may constitute an unfair trade practice under Rhode Island's Deceptive Trade Practices Act.

Contractual Statute of Limitations (R.I. Gen. Laws § 9-1-13)

Provisions regarding any contractually agreed statute of limitations for bringing claims, which must comply with Rhode Island law limiting the ability to contractually shorten statutory limitation periods.

Frequently Asked Questions

You should consider using an NDA before sharing detailed business plans, financial projections, proprietary technology, or trade secrets with potential investors. The ideal time is after initial interest has been established but before diving into specifics that could be valuable to competitors. However, be strategic—requesting NDAs too early in discussions with professional investors might signal inexperience, as many VCs and angel investors typically won't sign them for initial pitches.

A comprehensive NDA should include: (1) Clear definition of what constitutes confidential information; (2) Specific exclusions (publicly available information, information already known to the recipient, etc.); (3) The obligations of the receiving party; (4) Permitted uses of the confidential information; (5) The time period for which the NDA remains in effect; (6) Remedies in case of breach; and (7) Return or destruction of confidential information requirements when the relationship ends.

Professional investors, particularly venture capitalists and angel investors, often refuse to sign NDAs because: (1) They see numerous similar ideas and signing NDAs for each could create legal complications; (2) It could restrict their ability to invest in similar companies; (3) They rely on their reputation in the industry and typically don't share entrepreneurs' ideas; and (4) They may view NDA requests as a sign of inexperience. Focus instead on building relationships with trusted investors and consider what information you're comfortable sharing without an NDA in early discussions.

The duration of an NDA should balance your protection needs with reasonableness. For most small businesses and startups, a term of 2-5 years is common. Technology-focused businesses might need longer terms if their intellectual property has a longer development cycle. Perpetual NDAs (those with no end date) are generally harder to enforce, as courts may view indefinite confidentiality obligations as unreasonable restraints. Consider the shelf-life of your confidential information when determining the appropriate duration.

A one-way (unilateral) NDA is used when only one party (typically you as the entrepreneur) is disclosing confidential information to another party (the potential investor). This is common in initial funding discussions. A mutual NDA is used when both parties exchange confidential information. For example, if an investor shares their proprietary investment criteria or portfolio performance data with you, a mutual NDA would protect both parties. Choose the type that best reflects the nature of information being shared in your specific situation.

If your NDA is violated, you typically have several options: (1) Send a cease and desist letter demanding the recipient stop using or disclosing your information; (2) Seek an injunction to prevent further disclosure; (3) Sue for damages resulting from the breach; (4) Pursue specific remedies outlined in your NDA, such as liquidated damages. To strengthen enforceability, include specific provisions about jurisdiction, choice of law, and dispute resolution methods in your NDA. Document all confidential information shared and maintain evidence of the breach to support potential legal action.

While templates can be a cost-effective starting point, having an NDA customized to your specific business needs provides better protection, especially when significant intellectual property or trade secrets are involved. For early-stage entrepreneurs with limited budgets, a well-reviewed template from a reputable source can be modified to suit your needs. As your business grows or for particularly sensitive information, investing in a custom-drafted NDA by an attorney familiar with your industry is advisable. The cost of customization is typically much less than the potential cost of inadequate protection.

If an investor declines to sign an NDA, consider these alternatives: (1) Limit initial disclosures to high-level information that doesn't reveal your secret sauce; (2) Stage your disclosures, revealing more details as the relationship progresses; (3) Use a confidentiality clause in a preliminary agreement instead of a full NDA; (4) Focus on investors with good reputations and track records of ethical behavior; (5) File for appropriate intellectual property protections (patents, trademarks, etc.) before disclosing; (6) Document all meetings and communications to establish a paper trail of what was disclosed and when.