Model NDA that a Reluctant VC Fund May Sign (Before the Term Sheet is Finalized)

Joseph W. Bartlett, Special Counsel, McCarter & English, LLP

VC Partners LLC - Confidentiality Agreement

It is well known that venture funds are extremely reluctant to sign non-disclosure agreements ("NDAs") prior to the negotiation and execution of a term sheet with a company the fund is considering as a potential investment opportunity. Various techniques have been developed to minimize this problem, including a hold back by the company of particular sensitive information and/or the deposit of trade secrets with, for example, an independent consultant who will sign an NDA and report to the fund as part of the due diligence process.

Some professionals have worked at developing a model NDA which is non-threatening to the fund, in the sense that it can minimize the danger the disclosing company will, if disappointed, make a nuisance claim that its information has been misused by some other company in the fund's portfolio


This agreement ("Agreement") will confirm the interest of Newco, Inc. (the "Disclosing Party") in disclosing information to VC Partners, LLC (the "Receiving Party"). Because the Disclosing Party considers certain information which it will disclose or provide to be proprietary and wishes to have such information held in confidence, the Disclosing Party proposes that the disclosures be made by the Disclosing Party and be received and used by the Receiving Party on the following terms and conditions:

1. "Confidential Information" means all information disclosed in writing or in other tangible form and designated in writing as confidential, or if disclosed orally or visually, identified at the time of disclosure and confirmed in writing within thirty (30) days as being confidential, except any portion thereof which:

(a) is or becomes known publicly through no fault of the Receiving Party;

(b) is learned by the Receiving Party from a third party entitled to disclose it;

(c) is already know to the Receiving Party before receipt from the Disclosing Party, as shown by the Receiving Party's records; or

(d) is independently developed by the Receiving Party as shown by the Receiving Party's records

2. The terms of confidential information under this Agreement shall not be construed to limit any party's rights to develop independently or acquire products without use of the other Party's Confidential Information. The Disclosing Party acknowledges that the Receiving Party may currently or in the Future be developing information internally, or receiving information from other parties, that is similar to the Confidential Information. Accordingly, nothing in this Agreement will prohibit the Receiving Party from developing or having developed for its products, concepts, systems or techniques that are similar to or compete with the products, concepts, systems or techniques that are similar to or compete with the products, concepts, systems or techniques contemplated by or embodied in the Confidential Information provided that the Receiving Party does not violate any of its obligations under this Agreement I connection with such development. Further, the residuals resulting from access to or work with such Confidential Information shall not be subject to the confidentiality obligations contained in this Agreement. The term "residuals" means information in non-tangible form, which may be retained in the unaided memories of persons who have had access to the Confidential Information, including ideas, concepts, know-how, or techniques contained herein. A person's memory is unaided if the person has not intentionally memorized the Confidential Information for the purpose of retaining and subsequently using or disclosing it. neither party shall have any obligation to limit or restrict the assignment of such persons or to pay royalties for any work resulting from the use of residuals.

3. The Receiving Party shall exercise reasonable care to prevent the unauthorized disclosure of Confidential Information received by the Disclosing Party for a period of one (1) year from the receipt of the Confidential Information and shall not use Confidential Information received from the Disclosing Party for any purpose other than as set forth in this Agreement without the Disclosing Party's prior written approval. Confidential Information belonging to the Disclosing Party may not be disclosed by the Receiving Party to ant person or entity without the written consent of the Disclosing Party; except that the Receiving Party may disclose the Confidential Information to its affiliates (other than XYZ, Inc.), employees, consultants, and advisors that are bound by written agreements as protective of the Confidential Information as the requirements of this Agreement. Notwithstanding any other provision of this Agreement, the Receiving Party may disclose any Confidential Information that it in good faith believes is required by law (including by subpoena, judicial or administrative order or otherwise); except that, if permitted by law, the Receiving Party shall give written notice of such requirement to the Disclosing Party.

4. This agreement will terminate one (1) year from the acceptance by the Receiving Party, unless extended by mutual written agreement or terminated by either party upon thirty (30) days' prior written notice from the other party. Termination of this Agreement will not relieve the Receiving Party from the obligations of this Agreement with regard to Confidential Information disclosed hereunder prior to termination hereof. At Disclosing Party's request after termination of the Agreement, the Receiving Party shall return to the Disclosing Party (or certify to the Disclosing Party the destruction of) all originals, copies and summaries of all writings, drawings, diskettes, models and other materials in any tangible form constituting Confidential Information disclosed according to this Agreement in the Receiving Party's possession or control, except that the Receiving Party may retain one (1) copy for its legal files.

5. This Agreement represents the entire understanding between the parties hereto with respect to the subject matter hereof. No contemporaneous or prior, written or oral agreement shall be construed to alter, repeal, or modify this Agreement.

6. This Agreement shall be construed under the laws of the [City/State], without regard to its principles of conflicts of laws. The sole and exclusive jurisdiction and venue for any litigation arising out of this Agreement shall be an appropriate federal or state court located in [City/State], and the parties agree not to raise, and waive, any objections or defenses based upon venue o forum non conveniens.

Agreed and accepted:


By: ____________________________



By: ____________________________