Confidentiality Clauses: Boilerplate or Binding?

The confidentiality clause (NDA) is a contractual obligation preventing parties from disclosing or misusing sensitive information shared during negotiation and due diligence. Unlike most of the term sheet, it is typically binding from the moment you sign.

Why It Matters

For founders: Safeguards your IP, business plans, financial projections, customer details, and strategic information. Without it, your proprietary data risks being misused or disclosed to competitors.
For investors: Assures them their involvement won't be prematurely disclosed, protecting their reputation and other dealings.

Key Variations

Definition of Confidential Information: Push for a broad definition covering all written and oral communications — not just "written only" or solely "trade secrets."

Permitted Use: Information can only be used to evaluate the investment. Investors should be prohibited from using your insights for competing ventures.

Duration: Typically 1–3 years. Aim for 2–5 years for general confidential information; longer for core trade secrets.

Third-Party Disclosure: Limit who the investor can share information with — employees, legal counsel, advisors on a need-to-know basis, all bound by the same obligations. The investor should be responsible for any breaches by third parties.

Binding Nature: The confidentiality clause is one of the few binding provisions in an otherwise non-binding term sheet. You are legally obligated from the moment you sign.

Evolv's Recommendations

Define confidential information broadly — including the existence and terms of the negotiations themselves.
Limit permitted use explicitly — prevent investors from using your insights for competing investments.
Control third-party disclosures tightly.
Where investors also share confidential information, push for a mutual NDA.
Always have experienced legal counsel review the term sheet before signing.

Have questions about your fundraise or credit structure? Get in touch →