An Investor or Buyer Wants Me to Sign Their NDA First. What Should I Watch For?

Whose information needs protecting?

In a sale or investment, most of the confidential information flows from you to them. The NDA should therefore protect you as the disclosing party. A buyer's template is sometimes mutual in name but drafted around the buyer's concerns, with narrow definitions of what counts as your confidential information and broad exclusions. Check that the definition covers everything you will share, including oral information and data-room documents, without requiring you to mark every page confidential.

Use restriction: only for evaluating the deal

The key protection is a clear purpose limit. The recipient should only use your information to evaluate and negotiate the proposed transaction. Without it, a strategic buyer or a competitor-backed investor could use your pricing, customer insights or roadmap in its own business.

Who else can see your information under a deal NDA?

Buyers share information with advisers, lenders and co-investors. That is normal, but the NDA should limit disclosure to representatives who need to know for the transaction, who are bound by confidentiality, and for whose breaches the buyer is responsible. Be cautious about wording that allows sharing with portfolio companies or affiliates generally.

Non-solicitation of employees and customers

During due diligence, a buyer meets your team and learns who your key customers are. A non-solicit clause stops the buyer from hiring your employees or approaching your customers for a period, often 12 to 24 months, if the deal does not happen. Buyer templates often omit this or limit it narrowly. It is one of the most valuable protections for a seller.

Standstill clauses for public companies

If your company is public or has public securities, a buyer's NDA may include, or you may want, a standstill clause preventing the buyer from acquiring your shares or making a hostile approach for a period. This is specialist territory and worth legal advice.

Which securities and antitrust rules affect a deal NDA?

If the company sharing information is public, securities law is one reason buyers are asked to sign an NDA first. Regulation FD, 17 C.F.R. § 243.100, generally requires a public company that discloses material nonpublic information to certain market professionals or shareholders to make that information public. One exception covers disclosure to a person who expressly agrees to keep the information confidential (§ 243.100(b)(2)(ii)). A signed confidentiality agreement lets the company open its data room without triggering a public announcement. Anyone who receives that kind of information should also expect insider trading rules to restrict trading in the company's securities.

If the buyer competes with you, antitrust law matters too. Sharing competitively sensitive information, such as current prices, customer-specific terms, wages or future plans, can be treated as evidence of an unlawful agreement under Section 1 of the Sherman Act, 15 U.S.C. § 1, if the deal falls through or even before it closes. For deals large enough to require a filing under the Hart-Scott-Rodino Act, 15 U.S.C. § 18a, a buyer that starts controlling the target before the waiting period ends, known as gun jumping, can face daily civil penalties.

FTC guidance on pre-merger information sharing recommends practical safeguards: share only what each stage of diligence actually needs, use a clean team that excludes people responsible for pricing or strategy in markets where you compete, and aggregate or redact customer-level data. A seller's NDA can build these in by limiting who on the buyer's side may see which categories of information.

None of this replaces specialist advice on a real transaction, but knowing the rules helps explain why sophisticated buyers propose clean team clauses and staged disclosure, and why you can ask for them too.

Duration and return of information

Deal NDAs commonly last one to three years, with trade secrets protected for as long as they remain secret. At the end of talks, the recipient should return or destroy your information and confirm that in writing, with limited exceptions for backup systems and legal retention obligations.

Residuals clauses

Some buyer and investor templates include a residuals clause allowing them to use information retained in the unaided memory of their people. For a strategic buyer in your market, that can undo much of the protection. Strike it or narrow it.

What if an investor will not sign an NDA?

Many venture capital firms decline to sign NDAs at the pitch stage. They see many similar companies and cannot risk claims that they used one founder's idea in another investment. This is normal, not necessarily a red flag. Manage it by sharing only what is needed for early conversations, saving detailed financials, customer names and technical details for later stages, and asking for an NDA when you reach due diligence, when many investors will agree.

A worked example

Sam's software company is approached by a larger competitor about an acquisition. The buyer's NDA protects "information marked confidential" and contains no non-solicit. Sam shares customer data and introduces his engineering leads. Talks end, and within six months the buyer hires two of his engineers and approaches his largest customer. A 12-month non-solicit and a definition covering all information shared in the data room would have given Sam grounds to act.

Sample wording you can propose

"Recipient will use Confidential Information solely to evaluate and negotiate the Transaction. For 18 months, Recipient will not solicit for employment any employee of the Company with whom it had contact or of whom it became aware through the Transaction, or solicit any customer of the Company identified in the Confidential Information, other than through general advertising."

Common mistakes

• Signing a buyer's template without checking whose information it protects.
• Relying on marking requirements that you will not follow in practice.
• Missing a non-solicit for employees and customers.
• Allowing broad sharing with affiliates or portfolio companies.
• Sharing sensitive detail too early with investors who have not signed.

Quick checklist

• Is the NDA mutual or in your favour?
• Does the definition cover oral and data-room information?
• Is use limited to evaluating the deal?
• Are representatives limited and bound?
• Is there a non-solicit for employees and customers?
• Is there a residuals clause?
• Do return and destruction obligations apply at the end?

Key terms explained

These terms appear in most deal NDAs.

• Disclosing party: the party sharing confidential information.
• Purpose clause: the permitted use of information, such as evaluating a transaction.
• Representatives: advisers, lenders and others who may receive information.
• Non-solicit: a restriction on recruiting staff or approaching customers.
• Standstill: a restriction on acquiring shares or making unsolicited offers.
• Data room: a secure space where deal documents are shared.

What should you share at each stage of a deal?

A good practice in any sale or raise is to disclose in stages. Early conversations need a high-level story: the market, the product, headline metrics. Detailed financials come once there is serious interest and a signed NDA. Customer names, contract terms, source code and employee details come last, often only to a buyer that has signed a letter of intent, and sometimes only to its advisers in a "clean team" arrangement if the buyer is a competitor.

Clean team arrangements limit competitively sensitive information to a small group, often outside advisers, who are not involved in the buyer's day-to-day commercial decisions. They are common in deals between competitors and help reduce both commercial and antitrust risk.

Remedies that matter in practice

Buyer NDAs sometimes waive or limit injunctive relief, or require you to prove actual damages before seeking a court order. For a seller, the most useful remedy is usually an injunction stopping misuse quickly, because damages from lost customers or staff can be hard to prove. Keep a clause acknowledging that breach may cause irreparable harm and that you may seek injunctive relief.

Sample email to a buyer

"Thanks for sending your NDA. Before we share our financials, we would like three changes: a clear purpose limit to evaluating the transaction, an 18-month non-solicit for our employees and customers, and removal of the residuals clause. We are happy to make it mutual. Let us know if you would like our proposed wording."

Governing law and disputes

Check which state's law governs the NDA and where disputes must be brought. A buyer may choose its home state. That is often acceptable, but if you would need to enforce the NDA quickly, a forum far from you adds cost and delay. Ask for a neutral or local forum if it matters.

Protect the information you are about to share

A deal NDA is signed quickly but matters most if the deal fails. If an investor or buyer has sent you their NDA, upload it and have the definition, purpose, non-solicit and residuals terms checked before you open the data room.