How do I draft a legally binding Non-Disclosure Agreement (NDA) for investors?

1. Identify the Parties and Purpose

You must clearly define who is involved and exactly why you are sharing information.

  • Legal Entities: You should use the full legal names and addresses of both your startup and the investment firm to avoid any ambiguity in enforcement.

  • The “Purpose” Clause: You must explicitly state that you are disclosing information solely for the “evaluation of a potential investment or business relationship”. This prevents the investor from using your data for any other commercial advantage.

2. Narrowly Define “Confidential Information”

While many templates use broad definitions, sophisticated investors prefer specific categories to ensure they aren’t inadvertently blocked from advising other companies.

  • Protected Categories: You should list specific types of data, such as proprietary algorithms, unfiled patent details, financial projections, and strategic customer lists.

  • The Marking Requirement: Investors often require that confidential materials be clearly marked “Confidential” in writing. For oral disclosures, you must typically follow up in writing within a set period (e.g., 30 days) to confirm that the conversation was protected.

3. Include Standard Exclusions

To be legally enforceable, an NDA must exclude information that the investor cannot reasonably be expected to keep secret.

  • Public Domain: Information that is already public or becomes public through no fault of the investor is not protected.

  • Prior Knowledge: You cannot bind an investor to secrecy regarding information they already knew before meeting you.

  • Independent Development: If the investor’s team (or another portfolio company) develops similar technology independently without using your data, the NDA should not apply.

4. Define the Term and Survival

Confidentiality obligations should not last forever, as indefinite agreements are often viewed as “overreaching” by courts.

  • Typical Duration: Most investors expect a term of 1 to 3 years.

  • Trade Secret Exception: You should specify that information qualifying as a “Trade Secret” remains protected for as long as it retains its secret status, regardless of the agreement’s expiration date.

5. Establish Remedies and Governing Law

You must outline what happens if a breach occurs to make the agreement meaningful.

  • Injunctive Relief: You should include a clause allowing you to seek an immediate court order to stop further disclosure, rather than just waiting for a trial to prove monetary damages.

  • Jurisdiction: Because your business is in Nashville, you should specify Tennessee law as the governing authority to ensure any disputes are handled in local courts.

  • This article is part of the Tennessee Business Law FAQs.
  • Related practice area: Business Law
  • Collins Legal is a Tennessee-based law firm providing straightforward legal guidance to individuals and businesses.