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Hi, I’m Brad Feld, a managing director at the Foundry Group who lives in Boulder, Colorado. I invest in software and Internet companies around the US, run marathons and read a lot.

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Question Regarding NDA’s

One Comment

NDA’s (Non-Disclosure Agreements) seem to be floating around this weekend.  I guess whoever leaked the rumor of Google’ acquisition of Youtube hadn’t signed one.  I got the following question from a reader:

We have a partner that we want to work with. They have both overlapping technology but also crucial technology and knowledge that would take a great effort and time to acquire. We know for sure that this company has recently been or is in the process of being acquired. (by a top 10 media & technology company). Our partnership has never entered into a formal agreement but we are now at a point where we want it to be formalized. They want us to sign an NDA to continue the process, which in any other case would be totally normal. However, things have changed slightly and we’re not dealing with a startup anymore but a major media & technology company. Is there a way we can agree to sign an NDA and at the same time protect ourselves from the lawyers from their acquirer if (potentially) our technology, product or business models is conflicting with theirs? They don’t know that we know the details of the acquisition.

Feeling lazy tonight, I passed it on to Jason who provided the following answer.

Let us start by saying that you should definitely consult your attorneys on this.  That being said, here are some things to consider.  Since you already have a relationship with this company and you both realize that you have some overlapping technology, it wouldn’t actually seem unreasonable for you to explicitly limit the NDA to your partner’s company and not its successors.  This shouldn’t tip any hat that you know about the potential acquisition, as it would be a standard thing to ask for given your current relationship.

Where you may run into a problem is if your partner has their attorney review the NDA in light of the potential acquisition.  They’ll want the NDA to run to the acquirer.  In fact, them signing an NDA without running to an acquirer would not be wise for them to sign, but in our experience, most companies do not use legal counsel to review NDAs, so you might have an easier time at this than you think. 

Now if this isn’t possible, then your best fallback position is to limit information pertaining to the NDA to information given to you by certain individuals of the company (so that acquirer employees aren’t covered) and to keep the time limit as short as possible.  This is clearly a sub optimal solution, as the acquirer is still acquiring the rights under the NDA, but at least it is limited post merger.

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