Definition (canonical)
An NDA (non-disclosure agreement) is a contract obliging a party to keep defined information confidential and use it only for a defined purpose. Both halves matter: a good NDA restricts DISCLOSURE and USE — receiving your data "in confidence" while building a competing product with it violates the second, often forgotten, limb.
Anatomy of a working NDA
Direction: one-way (you disclose, they protect) or mutual (both share — the default in partnership and M&A talks; beware one-way drafts in two-way conversations). Definition of confidential information: broad-with-markings ("everything disclosed, especially marked items") or narrow-listed — plus the standard carve-outs any fair NDA contains: information already public, already known, independently developed, or legally compelled (with notice). Purpose clause: the quiet powerhouse — "solely to evaluate the potential transaction" is what stops your data feeding their roadmap. Term: 2–5 years is commercial standard; trade secrets can be carved out for indefinite protection. Remedies: injunctive relief acknowledged (damages are hard to prove — the ability to STOP disclosure fast matters more), sometimes liquidated damages per breach.
When an NDA is pointless — honest expectations
An NDA is evidence and deterrence, not a force field: enforcement is slow, cross-border enforcement slower, and proving WHO leaked WHAT is the real battle — so the operational rule stands: an NDA supplements information hygiene (share in stages, watermark, log access, redact the crown jewels), never replaces it. Situations where demanding one signals naivety: VCs at first pitch (deal flow makes signing impossible — protect yourself by not disclosing the secret sauce at pitch stage), casual networking, and ideas as such — NDAs protect INFORMATION, not concepts; execution was always the moat.
Negotiation red flags — both directions
Receiving side, watch for: definitions with no carve-outs, perpetual terms on ordinary business data, non-compete clauses smuggled into an NDA (a different contract wearing a costume), one-way obligations in mutual talks, and "residuals" clauses that let the other side use whatever their people remember — a polite license to absorb your know-how. Disclosing side, insist on: purpose limitation, return-or-destroy on request, and listing affiliates/advisors who may access. Time cost calibration: a standard mutual NDA should take minutes, not weeks — a counterparty lawyering a two-page NDA for a month is telling you about the negotiation to come.
FAQ
Is an unsigned NDA (email promise) worth anything? Weak but not nothing — confidentiality can arise from circumstances and unfair-competition laws; paper remains vastly better.
NDA before or after the term sheet? Before detailed due diligence, always; at first-meeting stage, usually excessive.
Employee confidentiality — same document? Different instrument: employment confidentiality plus statutory trade-secret protection; the business-partner NDA template doesn't fit employment relationships.
Related: Due Diligence · Term Sheet · Exit Strategy Reviewed: 2026-07-16 · Sources: commercial contracts canon