As a startup founder, you have dozens of conversations with potential partners weekly. Those talks are specific enough to be productive, but not so detailed that you give away confidential information or trade secrets.
When conversations start getting serious, you know it’s time for an NDA.
This article gives founders and ops teams a primer on non-disclosure agreements and covers common situations when you might need one.
What is an NDA?
A non-disclosure agreement is a confidentiality agreement between two or more parties. NDAs limit the information that each party can share and stipulate what happens if a party breaks the agreement.
You may have heard of an NDA referred to by other names—a confidentiality agreement, non-disclosure contract, confidentiality disclosure agreement (CDA), among others—but they all refer to the same thing: a contract that protects valuable information.
When to use an NDA
Consider an NDA before sharing confidential business information. People often sign NDAs before sharing:
- Intellectual property: An NDA can help protect proprietary data, such as product development or trade secrets, that you might relay to employees, consultants, or vendors.
- Financials: Information such as MRR, ARR, average deal size, or sales projections could give away your competitive position. This might come up in business-sales discussions, such as M&A activity or investor conversations.
- Customer data: Personally identifiable information such as names and addresses or sensitive data like banking and tax information often gets shared in the course of working with a vendor or consultant. An NDA can restrict disclosure and use, but it does not replace applicable privacy, security, or data processing requirements.
Non-disclosure agreements protect confidential business information, but not every conversation needs an NDA. If you insist on one for regular sales conversations, you could end up slowing down deals unnecessarily.
Types of NDAs
There are three types of non-disclosure agreements.
Unilateral NDA
In a unilateral NDA, only one party shares confidential information. The other receives it and has to respect limits around sharing it. Employees and contractors, for example, usually sign a unilateral NDA when hired by a company.
Mutual or bilateral NDA
When both parties to an NDA are sharing confidential information, they each sign a mutual or bilateral NDA. This two-way NDA is what businesses typically use in partnership agreements or M&As. They’re also common during B2B sales deals.
Multilateral NDA
A multilateral NDA involves three or more parties, with at least one of them sharing confidential information. Instead of signing three different NDAs, organizations and individuals in a joint venture or multi-party transaction usually sign one multilateral NDA.
Terms to include in an NDA template
Here are the terms to look for and include in an NDA template:
Essential clauses
- Identification of parties: Who’s involved in the NDA. Identify the disclosing party (the one sharing information) and the receiving party (the one getting access to confidential information).
- Purpose of disclosure: The purpose served by sharing the information. This could include developing competitive positioning, creating software for internal use, negotiating an M&A deal, etc.
- Definition of confidential information: The information protected in the NDA. This section should be as detailed as possible while still being reasonable. Whatever’s left out might not be protected under the agreement.
- Exclusions: What’s not protected under the NDA. These can be details that are already publicly known, those lawfully obtained from a third party, or findings independently developed by the receiving party without using the confidential information shared under the NDA.
- Permitted use: The situations and ways in which the receiving party is allowed to use the information shared under the NDA.
- Duration of the obligation: How long the NDA is valid. Set a period appropriate to the information and applicable law; trade-secret obligations may continue while the information remains a trade secret.
Protections and end-of-agreement clauses
- Confidentiality and permitted-use obligations: The boundaries around what the receiving party can do with the confidential information. This covers both who they can share it with (typically limited to team members on a need-to-know basis and bound by equivalent confidentiality obligations) and what they can use it for (often only the purpose the NDA was signed for). It could say, for example, that a consultant hired to build a campaign can use customer data for that campaign, but not for their own social media or to build a competing product.
- Remedies for breach: The penalties for violating the NDA. If the receiving party shares or uses the information beyond what’s allowed, the disclosing party might seek monetary damages or injunctive relief.
- What happens at the end: What must be done with confidential materials at the end of the project or contractual relationship. This usually means returning or destroying confidential materials.
A note about injunctive relief: An NDA may allow a party to seek a court order to stop unauthorized disclosure or use. Relief is not automatic; the party must meet the applicable legal requirements, which may include showing irreparable harm and that monetary damages are inadequate.
How to customize and sign an NDA
Uncustomized documents from template sites might include details you don’t need and exclude ones you do. Here’s how to customize and sign an NDA template to make it your own.
Customizing the template
When customizing templates, be as specific as possible to increase enforceability:
- Party details: Include the name and address of each party. Naming “ABC Company” isn’t specific enough. Give more identifying details, such as “ABC Company LLC at 123 Corporate Ave in South Hadley, Massachusetts.”
- Effective date: Specify when the NDA takes effect, whether that’s the date all parties sign the agreement or another date in the future.
- Confidential information: Instead of merely saying “intellectual property is confidential,” list the IP you want to protect, namely source code, marketing plans, customer personas, APIs, technical roadmap, etc.
- Scope: Make explicit the full range of how confidential information can be used. For example, instead of saying "The roadmap can be used to complete the project,” say “The recipient may only use the provided roadmap to complete a new user onboarding workflow.”
- Duration: Rather than saying the NDA will last “a few years,” specify “two years,” “five years,” or “indefinitely.”
- Required consideration: Make sure it’s clear what value is being exchanged, whether that’s confidential information from both sides or a business engagement.
Review and execute
Before signing, run a final check on the document itself. Is the scope tight enough to be enforceable but broad enough to cover all the confidential information at issue? Consider:
- Is the scope too broad? If the NDA legally allows the recipient to use the information outside of a defined project, your scope may be too broad. This can happen when “permitted use” isn’t specific enough.
- Is the duration reasonable? Think about how long the project lasts and how long confidentiality is needed to maintain competitive advantage. Trade-secret obligations may continue while the information remains a trade secret. For other information, choose a duration appropriate to its sensitivity and the applicable law.
- Are the obligations mutual where they should be? Double-check that all parties’ confidential information is protected. This comes down to using the right kind of NDA, for example, not using a unilateral NDA when both parties are sharing private data.
When all your checks are complete, collect signatures using your preferred method. Electronic signatures are common. If you use click-to-accept, make sure the process clearly presents the terms, records assent, and meets applicable legal requirements.
How Crosby helps accelerate contracting
Standard NDAs are relatively simple to execute. You can use templates to draft and customize them, before sending them for signature. But if your NDA is complex, involves a high-value deal such as M&A, or comes back redlined from the enterprise counterparty’s legal team, you may need to involve a lawyer.
Crosby can redline faster than a typical law firm. AI takes the first pass, and barred attorneys supervise the work. Fixed per-document pricing means no surprise fees. Talk to Crosby today.
FAQs
Are NDAs always enforceable?
No. Enforceability depends on the wording, facts, and applicable law. Overbroad terms or provisions that conflict with public policy may be limited or unenforceable. A severability clause may help preserve valid provisions, but does not guarantee that a court will enforce the rest.
How long should an NDA last?
The duration of an NDA depends on the nature of the information being protected. Standard business NDAs often specify a period of two to five years, while obligations protecting proprietary trade secrets may continue as long as the information remains confidential and qualifies for trade-secret protection.
Should I sign an NDA before pitching investors?
Investors typically won’t agree to sign an NDA before an initial pitch. They frequently hear from companies with similar ideas and want to avoid conflicting confidentiality obligations. Keep the initial pitch nonconfidential and discuss protections before sharing sensitive details in diligence.
Do I need a lawyer for every NDA?
A lawyer-reviewed template and clear escalation rules can help with routine NDAs. Consider legal review when the agreement is unfamiliar, materially changed, tied to a high-value transaction, or raises questions about scope or enforceability.