A colleague recently brought me a BVCA standard NDA for signature that had been significantly marked-up by an entrepreneur’s adviser over the previous week. After a brief scan of the edits, I instructed her to revert to the entrepreneur politely declining to accept the edits and say that we would not be entering into an agreement on confidentiality. Within hours, we had received the entrepreneurs business plan and had engaged in a conversation about his exciting business. A week had already been wasted and the entrepreneur had received poor advice.
We refuse to sign NDAs, unless there is a clear and genuine reason for doing so. We are not alone. Almost all leading VCs will not sign them and in the US, they are all but extinct. Why is this? And why you shouldn’t care about them…
1. The law of numbers
Each year we invest in three to seven new companies. Each new investment is the product of deep analysis, negotiations, business planning, due diligence and a stack of legal agreements. The process is intense and thorough, lasting for weeks or months. It is also the product of sifting through many investment opportunities. Our proactive and reactive research leads to over 1,000 investment opportunities being screened each year. It is a vast number and the screening is brutal, but we hope, honest and fair. If each one needs a NDA, even if standardised, we would never be able to engage with so many entrepreneurs and be bogged down in a mire of legals. Keeping track of so many agreements is logistically challenging, and time ineffective.
2. You may be ill-advised
Over half of NDA requests come from advisers, often trying use the NDA to secure their own position in a deal. This immediately forms a first impression and a calculation that goes: Difficult adviser + complex legals at first hurdle = most likely a poor investment opportunity. Of course, we want to give the benefit of the doubt. Our profession is looking for needles in haystacks, but the practicalities mean we have to be ruthless.
3. We are looking for originality
But in practice, it is rare. Most business plans we see are a about better mousetrap, an improvement, a new twist, a new approach. Often it is about tapping into emerging demand, exploiting an unmet need or driving efficiency in businesses or markets. All are valid reasons for a start-up and may be fundable. But a truly unique opportunity is less common. Is your idea so special it really needs a NDA in place before we can speak?
4. Reputation is our bedrock
Our industry is made up of (mostly) bright professionals that are passionate about growing companies with inspirational entrepreneurs. Reputation is everything. In the age of the Twiter-sphere and Facebook-Likes, news of a VC screwing an entrepreneur by breaching confidentiality will travel at the speed of light and their ability to close a quality new investments will fall sharply. There are many ways of finding out information about your business and if it leaks, it is unlikely to have come from a VC.
In a quick poll of my colleagues, none of us can recall ever being asked to check back on a NDA we signed in the past. Some entrepreneurs or advisers have been insistent that we enter into one, but they are never referred to again. Further, we are not aware of any VC or entrepreneur going to court over a breach of NDAs. This suggests they are never used and that time has been wasted. At best you have been through a box ticking exercise.
6. Due diligence phase may be the right time
As we get to know each other and learn about our respective businesses, we will have conversations about confidential information. Our standard shareholders agreements have certain confidentiality clauses built in, but we accept that from time to time, it may make sense to enter into a NDA as we enter the due diligence phase. Sharing information on specific customer contracts, undisclosed IP or code is clearly sensitive and we understand that it may be appropriate to enter into a confidentiality agreement. But let’s get to that stage first.
7. It’s about you and us
In the end, investing in your business is a partnership that is likely to last a long time. Perhaps longer than your kids are at primary school or than you will own your car. From the first meeting or interaction, we are looking to form a relationship based on trust and ambition. On the roller-coaster experience of you entrepreneurial journey, there will be good and bad times, highs and lows. If there is a partnership of trust in place, the chances are, together, we will emerge from them successfully. Is an NDA really the best starting point?
So think twice about asking a VC to sign a NDA. And be sceptical if your adviser insists that NDAs are put in place. It might improve your chances of getting funded and reaching your full potential as an entrepreneur.
Oxford’s entrepreneurs and innovators have never had it so good. For the first time, in over two decades, there is a wall of capital of over £1 billion available to fund great ideas and emerging businesses within the Oxford cluster.
According to Oxford Capital, over £1bn has been raised by investors active in the Oxford cluster in the past year, much of which is either allocated to or available for start-ups and high growth companies in the cluster. The investors - Oxford Capital, Oxford Sciences Innovations, IP Group, Woodford Investment Management, Parkwalk, Mercia, and OSEM - have together raised over £1bn in the past 12 months. Four of these firms increased their firepower by over £100m each during the period. Much of this capital is either managed locally, dedicated to backing new companies emerging from the research institutions or in part available to back the rising stars of the Oxford cluster.
This mass of new capital is set to fund a wave of investments in new and expanding technology businesses. This follows the recent success stories such as Circassia, Oxford Immunotec, Natural Motion and Arieso, whose combine valuations exceeded £1 billion following their acquisitions or listings in London and New York.
The quality of companies around Oxford emerging from the science parks, research centres and universities has been rising rapidly in recent years. A virtuous circle is developing as successful companies attract both talent and funding. As these companies grow in size and value, they foster new generations of ambitious entrepreneurs and innovators who in turn will launch the next generation of businesses. Companies such as Oxford Nanopore, Oxitec, Oxford Pharmascience and Oxford PV have already received significant funding and are emerging as leaders in their markets.
The Oxford cluster is best known for the strength of its life sciences sector, though other sectors have attracted substantial funding as well such as energy, software and advanced engineering. Increasingly, companies in the Oxford Cluster are attracting international capital from the US, Europe or Asia. Green Biologics, a specialty chemicals business is backed by the Swire Group, an Asian conglomerate, as well as venture capital investors Sofinova Ventures and Oxford Capital.
At Venturefest Oxford on 8 July 2015, we are hosting a debate bringing together leading investors in the cluster to explore how the Oxford cluster has attracted so much capital and how it will be deployed to create the next generation of technology stars.
Co-founder of Oxford Capital Partners. Husband, father, adventurer and polar marathon runner. Represent Great Britain at master level in Modern Pentathlon.