Founders Non-Disclosure Agreement (NDA) Template

Regardless of the industry, a company’s founders often have essential knowledge, including trade secrets, product designs, financial data, and other confidential information. NDAs can prevent harmful disclosures of this information.

Why Startups Use NDAs

Startups can quickly grow beyond a few founders. As they add employees, refine products and services, and develop rollout strategies, these companies need to control who knows their valuable secrets. Implementing non-disclosure agreements imposes a duty of secrecy on those receiving protected information.

One-Way vs. Mutual NDAs

Unilateral NDAs only bind one party to secrecy, while mutual NDAs bind multiple parties. For example, a startup will typically use a unilateral employee NDA with its key early employees. Such an agreement blocks the worker from disclosing the company’s information.

By contrast, companies investigating a merger might use a mutual NDA. This allows them to exchange confidential information without concern about unapproved disclosures.

When to Use and When to Skip

You’ll generally use an NDA when you expect to disclose confidential, proprietary, or trade secret information. The following types of information may warrant protection:

• Financial data
• Customer lists
• Software code
• Non-public inventions
• Proprietary processes and methods
• Business strategies

This kind of information has value to the company because it isn’t publicly known.

Why Investors Rarely Sign NDAs

Investors typically won’t sign NDAs, at least early on in the process. One reason is that they hear many pitches, and they would face a significant risk of litigation if they signed NDAs for each pitch.

Additionally, investors often don’t want confidential information during an initial pitch, making an NDA unnecessary. However, an investor who commits to investing might sign an NDA for subsequent meetings.

Key Clauses in a Founder NDA

An NDA for founders and early employees should include the following:

• The parties’ names
• Descriptions of protected information
• A non-disclosure clause
• The applicable duration

NDAs may also include non-use clauses to block misappropriation or misuse of any confidential company information.

How to Draft an Effective NDA

The key sections of the NDA describe the restrictions imposed and the information being protected. These clauses should be written specifically for the information and the role. For example, an NDA with a founder might require company approval for media interviews.

At the same time, NDAs must be reasonable in time and scope. Thus, it’s important not to write overly broad restrictions.

Common Founder Mistakes to Avoid

Some common mistakes to avoid when implementing NDAs include:

• Using general or ambiguous language
• Signing mutual NDAs when you don’t receive information from the other party
• Forgetting to set a duration
• Including illegal restrictions

State and federal laws restrict the information protected in an NDA. For example, the Defend Trade Secrets Act prohibits NDAs that prevent employees from reporting legal violations. Similarly, the Speak Out Act and state laws prohibit NDAs that suppress reports of sexual abuse or harassment.

Use ConsumerShield’s Resources for Your Startup

Startups risk everything when they fail to bind founders and early hires with airtight NDAs. Explore all of ConsumerShield’s non-disclosure agreement templates to find the right NDA for your venture.