Managing non-disclosure agreements in private equity and venture capital

Signing a non-disclosure agreement (NDA) is an essential step in any transaction. Without this agreement signed, deal teams are unable to access data rooms and therefore the essential information they need to review and evaluate investment opportunities.

Given the highly competitive nature of private markets, speed to signing is key. However, the increasing complexity of NDAs and prevalence of broader commercial restrictions can often make this much harder than it needs to be.

While this is a legal document, and key terms need to be agreed, there is also a level of pragmatism required. Taking a hard negotiating position might not be the best approach, especially when you consider how it could impact any future relationship or business partnership.

What is a non-disclosure agreement?

A non-disclosure agreement (NDA) is a legally binding contract that creates a confidential relationship between two or more parties. One side—the disclosing party—shares sensitive information, and the other—the receiving party—agrees not to share or misuse it. Also called a confidentiality agreement, a confidential disclosure agreement (CDA), or a proprietary information agreement (PIA), this NDA contract establishes a legally binding relationship between the parties involved.

In private funds, a non-disclosure agreement is one of the first documents you will encounter in any deal flow process. Whether you are evaluating an acquisition target, exploring a co-investment, or sharing fund performance data with a limited partner (LP), an NDA sets the ground rules for how confidential information is handled. Before a target company opens its data room or shares financial statements, the prospective buyer or investor signs an NDA to formalize confidentiality obligations. Without this step, the disclosing party has no legal recourse if the receiving party shares or exploits the information.

How does an NDA work?

Before any sensitive information changes hands, the parties negotiate and sign an NDA. The disclosing party identifies what information is confidential. The receiving party agrees to specific restrictions on how that information can be used and shared. Only after both parties execute the agreement does the confidential exchange begin.

NDAs serve three core functions in practice:

1. Classifying information: The NDA draws a clear line between what is confidential and what the recipient can freely discuss. This mutual understanding actually streamlines the working relationship by eliminating ambiguity about what you can and cannot share.

2. Creating legal obligations: Signing an NDA makes confidentiality enforceable under contract law. Any unauthorized disclosure—even accidental—generally constitutes a breach.

3. Preserving intellectual property: Public disclosure of a pending invention can void patent rights. NDAs protect companies and portfolio companies while they develop new products, technology, or proprietary processes.

Once signed, the NDA remains in effect for its stated term. Both parties should track their obligations, including any restrictions on how they use the information after the agreement expires.

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Types of non-disclosure agreements

Not every NDA works the same way. The type you use depends on who is sharing information and whether the flow of sensitive data goes in one direction or both. Fund managers typically encounter all three types across different deal scenarios.

Unilateral NDAs

A unilateral NDA is a one-way agreement where only one party shares confidential information, and only the recipient is bound by confidentiality obligations.

This is the most common form in early-stage deal sourcing. For example, when a portfolio company candidate shares its financial statements, marketing strategy, customer data, and growth projections with a private equity (PE) firm evaluating an acquisition, the PE firm signs the NDA as the receiving party. The target company is the only side disclosing sensitive material at that stage, and your fund signs a unilateral NDA agreeing not to disclose that information to competitors or use it for any purpose other than evaluating the acquisition.

Mutual NDAs

A mutual NDA—also called a bilateral NDA—is a two-way agreement where both parties share and protect each other's confidential information. Each side is simultaneously a disclosing party and a receiving party.

Mutual NDAs are standard in situations where both sides exchange sensitive information. If two firms are exploring a co-investment opportunity, for example, both may share proprietary deal flow data, portfolio analytics, LP relationships, and investment theses. Neither firm would agree to share that information without reciprocal protection, so a mutual NDA ensures neither party can use the other's proprietary information outside the scope of the partnership discussion.

You will also see mutual NDAs in joint ventures, strategic partnerships, and merger negotiations.

Multilateral NDAs

A multilateral NDA involves three or more parties. One or more parties may disclose information, and all receiving parties agree to protect it.

Instead of executing separate bilateral NDAs between every combination of parties in a syndicated transaction or consortium bid, a single multilateral NDA covers everyone. This reduces administrative overhead and ensures consistent confidentiality terms across all participants. For fund managers coordinating multi-investor deals, multilateral NDAs simplify the legal process significantly.

When do you need a non-disclosure agreement?

NDAs arise throughout the deal lifecycle. If you manage a fund, you likely encounter them on a regular basis. Here are the most common scenarios where an NDA is either required or strongly recommended:

• Deal sourcing and due diligence: Before a buyer or investor reviews a target's data room, business plans, financial data, or proprietary information.

• Mergers and acquisitions (M&A): Both buy-side and sell-side need confidentiality during negotiations, especially regarding transaction terms and pricing.

• Co-investment discussions: When you share deal details with co-investors or syndicate partners.

• LP relationships: When sharing fund performance data, investment strategy details, or portfolio company information with LPs.

• Portfolio company operations: When portfolio companies share trade secrets, business strategies, or customer data with potential partners, vendors, or acquirers.

• Hiring employees and contractors: Employees and contractors who access trade secrets, proprietary processes, or customer data should sign NDAs. These employment agreements protect the business both during employment and after the person leaves.

• Vendor and service provider relationships: When working with consultants, technology vendors, or service providers who access sensitive business information, NDAs set clear expectations about data handling and restrictions.

The most important timing rule is straightforward: Sign the NDA before any confidential information changes hands. Information disclosed before an NDA is executed may not be protected. Retroactive coverage is unreliable and difficult to enforce.

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What to include in a non-disclosure agreement

A well-drafted NDA addresses several key areas. Each clause shapes how confidential information is defined, used, and protected—and what happens when the relationship ends.

Definition of confidential information

This clause is the foundation of any NDA. The Confidential Information term defines what is covered by the NDA and what information you’re obligated to protect.

There are two general approaches. A broad definition covers all non-public information disclosed by the disclosing party. A narrow definition limits protection to information specifically marked as confidential. In deal contexts, broad definitions are standard because separating confidential from non-confidential information in real time is impractical.

The definition typically extends to derivative materials—analyses, summaries, or documents the receiving party creates based on confidential information. Common categories of protected information include:

• Trade secrets

• Financial statements and projections

• Business strategies and plans

• Customer lists and data

• Pricing data

• Proprietary technology and intellectual property

You can manage this though by placing guardrails around the definition. Examples could be to only include information disclosed after the NDA date relevant to the Transaction and excluding information already public or independently developed by you.

Exceptions and carve-outs

Because the definition of confidential information is often broad, NDAs must specify what is not covered. Standard carve-outs include:

• Information that is or becomes publicly available through no fault of the receiving party

• Information already known to the receiving party before the NDA was signed

• Information received from a legitimate third party not bound by confidentiality

• Information independently developed by the receiving party without using confidential data

These exceptions protect the receiving party from liability for information obtained through legitimate means. Without them, the NDA could unreasonably restrict how you operate your business.

Permitted disclosures and representatives

NDAs generally prohibit sharing confidential information with anyone outside the receiving party's organization. However, they include exceptions for representatives who need access to do their jobs. The Permitted Recipients list are the representatives that you can share confidential information with.

Representatives typically include attorneys, accountants, financial advisors, directors, officers, and employees with a need to know. In PE and venture capital (VC) transactions, a key negotiation point is whether the receiving party can share confidential information with financing sources—debt and equity providers—and co-investors. Buyers often need this permission to arrange deal financing, while sellers want to limit how far their information spreads. Unfortunately, in competitive bidding, sellers may impose restrictions here.

Disclosing parties often require that all representatives be informed of the NDA's confidentiality obligations and, in some cases, be bound by similar terms. In practice, this is unlikely to cover all the various entities and individuals that will need access to the information to allow you to fully analyze and execute the transaction.

Hard negotiation here is unlikely to get you very far, but you may get assurances that the restriction will be relaxed at a later stage of negotiations, which should help ensure there is a level playing field for all bidders.

Another common negotiating point is ensuring your representatives also adhere to the NDA. Sellers may want your parties to sign similarly restrictive NDAs, but this can be impractical. Given the restrictive covenants in most NDAs (such as non-solicits, standstills, and no-contact provisions), it’s unlikely third parties will agree to this. Instead, the practical approach is to agree to inform your representatives about the confidential nature and get their compliance on key points.

Limiting your liability is also important. NDAs often make you responsible for any breaches by the third parties you are working with. Push back by adding that our clients will only be responsible to the extent that our representatives haven’t signed a confidentiality agreement with the seller. Joinders, “back-to-back” confidentiality agreements, or separate NDAs with the seller are options to shield yourself from unforeseen breaches.

Term and duration

The term clause sets how long confidentiality obligations remain in effect. Most NDAs last one to five years from execution or from the last exchange of confidential information.

For PE deals that may take months to close, a two- to three-year term is common. Indefinite terms are sometimes used for trade secrets, but they can be harder to enforce depending on the jurisdiction.

Keep in mind that trade secret protection may survive the NDA's expiration as long as the information qualifies as a trade secret under applicable law. The NDA term and trade secret protection operate independently.

Return or destruction of information

This clause governs what happens to confidential materials when the NDA expires or the deal does not proceed. The disclosing party may require the return of all materials, or it may require their destruction with written certification confirming compliance.

Receiving parties often negotiate a carve-out for legally required retention—for example, backup copies maintained under compliance or regulatory obligations. This is a reasonable request, and most disclosing parties will accommodate it.

This clause matters in PE and VC because when a deal falls through, the buyer should not retain detailed financials or strategic information about a company it may later compete against or share with portfolio companies.

Governing law and jurisdiction

This clause determines which state's or country's laws apply to the NDA and where disputes would be resolved. The party with greater bargaining power typically selects the governing law.

In cross-border transactions, this choice can significantly affect enforceability. If you are reviewing an NDA, push for your home jurisdiction or, at minimum, avoid accepting a distant or unfamiliar venue that would increase the cost of enforcement.

Non-solicitation clauses

Non-solicitation clauses protect sellers from losing employees, customers, and suppliers to you post-transaction. This is totally understandable from a seller’s perspective, but it can be tough for fund managers to monitor, especially if you have an extensive network of affiliates in your portfolio that might be captured by this restriction.

A practical approach is to negotiate limits to this clause. Examples of this could be to restrict the clause to cover senior employees, or employees above a certain paygrade, or those with whom you have been directly interacting on the transaction.

Another route is to limit the customers and suppliers to a particular geographic location, and by stating that “you will not use the Confidential Information” to solicit such parties.

Most importantly, put a time limit on the restriction (12 – 18 months) and make sure it won’t apply to any third party Permitted Recipients. You cannot control the people your advisors might hire and, practically, this will make it harder to agree back-to-back confidentiality agreements with them if they also have non-solicitation restrictions to contend with.

Finally, always ensure that general solicitations and direct approaches are exempt.

Non-circumvention clause

A non-circumvent clause is another type of restrictive covenant. The goal is to protect intermediaries who introduce transactions. Without this clause, you could bypass these intermediaries and go straight to the seller.

This clause does impose obligations on you as a potential buyer and, instinctively, you would usually want to avoid any restriction of this nature. However, for a situation where this is relevant, the choice could be between accepting or not getting access to the confidential information.

However, there are ways to make this more reasonable:

• Include a clear definition of the “Transaction” that you are prevented from circumventing,

• Make the term as short as possible (no more than 12 months), and

• Negotiate carve outs for legitimate interest. For instance, where another third party independently approaches you in relation to the same or a similar transaction, you don’t want to be locked out simply because you’ve already signed an NDA with someone else.

Standstill clauses

Standstill clauses come into play when dealing with public companies, protecting them from hostile takeovers and disruptive bidders. During the standstill period, you’re typically prohibited from dealing in the company’s public securities, buying its assets, or influencing its management.

It is unlikely that you will be successful in deleting a standstill from an NDA that contains one as it is usually included for good reason. Instead, take a pragmatic approach to secure the most flexible terms. This not only saves time but also sets a positive tone for your relationship with the seller.

What happens if someone breaks an NDA?

Breaching an NDA means disclosing or misusing confidential information in violation of the agreement's terms. While NDA litigation is less common than many assume—parties often tolerate a degree of risk rather than pursue costly enforcement—a clear breach can carry real legal consequences. The aggrieved party—the disclosing party—can pursue several remedies:

• Injunctive relief: A court order that immediately prevents the breaching party from further disclosing or using the confidential information. This is often the most important remedy because it stops ongoing damage while litigation proceeds.

• Monetary damages: The injured party can sue for financial losses caused by the breach—lost revenue, diminished competitive advantage, or costs incurred from the unauthorized disclosure.

• Breach of contract claim: A lawsuit for violating the NDA's terms.

• Additional claims: Depending on the nature of the disclosed information, parties may pursue related claims—such as breach of fiduciary duty, copyright infringement, or other intellectual property violations. In cases where the breach also involves trade secrets, parties may separately pursue claims under the Defend Trade Secrets Act (DTSA)—though trade secret protections are a distinct legal framework and not relevant to every NDA breach.

Although generally considered off market, some NDAs include liquidated damages clauses that set a predetermined penalty for breach. These clauses can simplify enforcement because the disclosing party does not need to prove the exact amount of harm suffered. When trade secret cases do go to trial, juries have awarded more than $716 million in actual damages and $510 million in punitive damages between 2023 and 2025, according to LexisNexis data.

When an NDA may not be enforceable

NDAs are powerful tools, but they have boundaries—not every NDA holds up in court. Understanding these limitations helps you set realistic expectations and draft stronger agreements:

• Scope: NDAs only protect information explicitly defined in the agreement. If the definition is too broad or too vague, courts may refuse to enforce it. You cannot retroactively add information to an existing NDA's scope.

• Time: Many NDAs have expiration dates. Once the term ends, the recipient is released from confidentiality obligations unless the agreement specifies ongoing protections for trade secrets.

• Jurisdiction: Enforcement varies across states and countries, adding a layer of complexity to compliance. Some states limit NDA enforceability in specific contexts—for example, several states have restricted the use of NDAs in settling harassment claims. International NDAs face additional complexity around governing law and cross-border enforcement.

• Public information: If confidential information enters the public domain through no fault of the recipient—for example, through a court subpoena, regulatory filing, or the discloser's own actions—the NDA's protection typically no longer applies.

• Whistleblower protections: NDAs cannot prevent employees from reporting illegal activity to government agencies or law enforcement. Federal whistleblower statutes and the DTSA explicitly protect individuals who disclose trade secrets in connection with reporting suspected violations of law.

The most common reasons an NDA fails include:

• Overly broad or vague language that does not clearly define what is confidential

• Lack of consideration—the receiving party received nothing of value in exchange for signing

• The information was already public or became public through no fault of the receiving party

• The NDA asks the signing party to conceal illegal activity

• Unreasonable duration or scope that a court deems excessive

Precise, specific language is the single most important factor in enforceability. Vague terms like "proprietary information" without further definition weaken the agreement and make it harder to pursue a claim.

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How to review a non-disclosure agreement

When you receive an NDA to sign, a structured review helps you catch potential issues before they become problems. Here is a practical checklist:

1. Determine whether the NDA is unilateral or mutual. If you will also share confidential information, push for mutual protection.

2. Confirm that the correct legal entity—your fund or management company—is the signing party, not you personally.

3. Check that the definition of confidential information is reasonable and does not capture publicly available data.

4. Verify that standard carve-outs are present: public information, prior knowledge, independent development, and third-party receipt.

5. Confirm you can share information with your representatives, financing sources, and advisors as needed.

6. Watch for inappropriate restrictions that go beyond confidentiality, such as non-compete clauses, non-solicitation provisions, or co-bidding restrictions.

7. Review the term to ensure your obligations are not indefinite.

8. Check the governing law and venue to avoid distant jurisdictions that would increase enforcement cost.

This checklist is a starting point, not a substitute for legal counsel. For high-value transactions, have your attorney review the NDA before you sign.

How Carta helps manage confidentiality in deals

Managing, negotiating, and executing NDAs is typically a time-consuming exercise for in-house counsel. Your deal teams need the contract signed quickly, but you don’t want to accept an uncomfortable level of risk that might come from using tech-only solutions or having junior paralegals or deal team members negotiating them themselves.

Managing NDAs is part of a larger deal workflow. Carta's Deal CRM helps fund managers track deal flow from first contact through closing—including which NDAs have been executed, which are pending, and where each opportunity stands in the pipeline.

For NDA review itself, Carta Law offers AI-powered contract review and redlining services that help you move through agreements faster without sacrificing thoroughness. Rather than waiting days for outside counsel to turn around markups, you can accelerate the review process and keep your deal timeline on track.

When confidentiality and compliance are built into your fund management workflow, you reduce the risk of information slipping through the cracks—request a demo of Carta Law to see how NDA review streamlines your entire deal workflow.

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Frequently asked questions about NDAs

Can you share NDA-protected information with financing sources?

It depends on the NDA's permitted disclosures clause. Many NDAs allow sharing with financing sources, but some require prior written consent from the disclosing party. Always check the representatives and permitted disclosures sections before sharing deal information with lenders or equity providers.

What is the difference between an NDA and a confidentiality agreement?

The terms are functionally interchangeable. Both refer to legal contracts that restrict disclosure of sensitive information. "NDA" is more common in business and deal contexts, while "confidentiality agreement" appears more often in employment and healthcare settings. Regardless of the name, the legal effect is the same.

How long do NDAs usually last?

Most NDAs last one to five years. For PE deals 2 years is considered market standard. The duration depends on the type of information being protected and the nature of the transaction. Trade secret protections may extend beyond the NDA's stated term under applicable law.

Can you create your own NDA without a lawyer?

You can draft an NDA without a lawyer, but for deal-related agreements involving significant financial information, legal review is strongly recommended. A poorly drafted NDA may be unenforceable or expose you to unnecessary risk.

Do investors sign NDAs?

It depends on the context. In deal processes, buyers routinely sign NDAs before accessing a target company's data room. Venture capital investors, however, often decline to sign NDAs because they evaluate many similar companies simultaneously and want to avoid potential conflicts or accusations of sharing ideas between portfolio companies.

Can you get out of an NDA?

NDAs can be terminated by mutual written agreement between the parties, expiration of the stated term, or a court determination that the agreement is unenforceable. Courts may void an NDA due to overly broad language, lack of consideration (something of value exchanged between parties), or a provision that attempts to conceal illegal activity.

Are NDAs enforceable?

Properly drafted NDAs are legally enforceable in most jurisdictions. Key requirements include a clear definition of confidential information, reasonable scope and duration, valid consideration, and signatures from all parties. NDAs that are too broad, lack specificity, or attempt to restrict legally protected disclosures—such as whistleblower reporting—may be struck down by a court. Work with legal counsel to ensure your NDAs meet enforceability standards.