While nondisclosure agreements (NDAs) can’t protect you in every situation, they are an essential tool for protecting confidential information about your growing company.
In this guide, we’ll explain what NDAs are, when you need one (and when you don’t), and how to create a policy and process that will protect your proprietary information as your company expands.
What is an NDA?
An NDA is a legally binding document designed to protect your intellectual property (IP) and other proprietary info. They typically forbid the signee from discussing the stipulated information with others or using it for their personal gain. In the event of a breach of contract, you or your company can take legal action to prevent further breaches or recover damages.
NDAs can protect only specific types of information. Your basic business idea, for example, is not proprietary information, because it’s not private. If you’re pitching your ideas at networking events, then those ideas are not confidential.
What you can protect are your company secrets: highly technical processes, business plans, lines of code, or other intellectual property assets that are unique and important.
While NDAs are legal documents, they are only as effective as your willingness (and financial ability) to enforce them with a lawsuit. Even so, they are important for setting a tone of confidentiality and discouraging careless chatter.
Who should sign an NDA?
All startups should have a standard NDA that they can use to protect proprietary information about their company. Deciding when and where to use it depends on your company and the information you are trying to protect. Anyone who interacts with or could be knowledgable of proprietary info should sign an NDA.
Perhaps the most common and most important case for using an NDA is for contractors who do work for but are not employed by your company. These individuals are not bound by the same contractual and social ties as regular employees but may still come in contact with sensitive information during the course of their work. It’s a good idea to have any freelancers or contract workers sign an NDA before you begin a relationship.
If your company outsources components of their process to outside vendors or you are closely partnering with another company on a shared initiative, it’s a good idea to have them sign an NDA to make sure they don’t misuse proprietary information.
The people you launched your business with should theoretically be people you can trust. But situations can change as your company becomes more (or less) successful. Individuals who have the greatest access to the company’s IP should be bound by nondisclosure in case they leave the company or attempt to start a rival company.
Some companies require all employees to sign NDAs, and some don’t. Your standard employment agreement may cover similar ground regarding company ethics and privacy. If you have employees who are working in close contact with sensitive information, you should consider having them sign one as well. This will protect you if they are poached by another company.
You may want to have late-round interview candidates sign an NDA if they are privy to any proprietary internal processes or information during the hiring process. This is particularly true when hiring for higher-level positions, such as CEO or CFO, where the candidate may be coming from a competing company.
When you don’t need an NDA
While NDAs are an important tool, some startups fall into the trap of using them too broadly or too often. Not only is this ineffective and a waste of time, but sending out unnecessary NDAs can also make you look unprofessional and inexperienced.
NDAs are useful for protecting only private information, not information considered common knowledge. If you’re attempting to guarantee confidentiality for information that has already been disseminated to the public in some way (like in public documents, speaking events, or in networking), then you won’t be able to enforce nondisclosure.
As a rule, VCs don’t sign NDAs when evaluating pitch decks and other fundraising materials. They are often considering multiple ideas in similar spaces, and negotiating confidentiality wouldn’t be practical or time-efficient. Insisting that a VC sign an NDA before they can review your pitch will make you look inexperienced and might kill a deal outright.
Nervous about sending your materials to a VC without the protection of an NDA? Password-protected documents can help keep your materials safe by preventing unauthorized sharing. They also allow you to revoke access if a VC declines to meet.
What if you forget an NDA?
It’s been known to happen — you send confidential material, only to realize later that you forgot to send an NDA. You can calmly ask the person to sign one retroactively, and hopefully, they will agree. Try to prevent this from happening again by putting a more streamlined system in place.
Building a Startup NDA
It’s a good idea to create a standardized NDA that you can easily send out when needed. Here are some important concepts to consider when creating it:
Scope of the agreement
NDAs typically have two requirements of signees:
- They must keep the information a secret.
- They must not use the information themselves.
Occasionally, businesses add other provisions, like noncompete agreements or prohibitions against soliciting employees.
Mutual vs. NonMutual NDAs
NDAs can be mutual or one-sided. One-sided agreements are more common; they are used when only one side of the relationship will be sharing private information with the other. This is what you would use for contractors, employees, and other people who might be exposed to your company’s private dealings.
Mutual agreements mean that both parties are bound by the terms of the NDA. They are useful for partnerships in which both sides might be exposed to each other’s confidential information. They are trickier to create and enforce, so avoid them unless strictly necessary.
Terms of the Agreement
How long will the NDA last? Some are set up to last forever, a permanent information blocker. But recipients often ask for them to expire after a certain number of years (often two to five years). This is because most proprietary information becomes public or outdated over time (nullifying the need for protection), and the cost of indefinitely policing an NDA is prohibitive.
Depending on how legally savvy the recipient is, it’s reasonable to view any NDA you send as the starting point for a negotiation. Be prepared for the other party to come back with potential edits or amendments.
Ready to get started creating your own company NDA? We’ve created a template for you.
Streamline your NDA Process with DocSend
Once you’ve created your NDA and decided how to use it, you’ll need to determine how you’ll distribute it. The fastest, easiest way to send an NDA is with DocSend’s One-Click NDA feature on their advanced or enterprise plan. It lets you easily add an NDA as a requirement for viewing any document, so you’ll never forget to put your company’s security first.