should potential investors sign my NDA?

searcher profile

March 27, 2019

by a searcher from Dartmouth College in Allentown, PA, USA

I am a self-funded searcher who uncovered an attractive opportunity. The transaction requires me to raise $6-7MM in equity capital. I believe I can raise the bulk of this capital from a group of potential investors that I've been keeping warm during my search. QUESTION: is it okay for me to ask these potential investors to sign an NDA before I share information with them about this target company?

More context: This deal is direct sourced (i.e., no brokers or bankers). I've signed a strict NDA with the sellers that allows me to share information with my "agents, lawyers, accountants and financial institutions"; however, the NDA does not mention potential investors. The amount of capital required for this raise necessitates me soliciting funds from a few folks that I know but haven't worked directly with in the past (i.e., I have limited knowledge of their integrity). I believe this deal is attractive and want to ensure that anyone in this "extended" investor group that I share the opportunity with does not attempt to pursue it themselves - i.e., that's why I want the NDA in place.

I know asking a potential investor to sign an NDA is amateurish and always unsuccessful in a VC context. However, does that same logic hold true with this sort of private equity investment opportunity? The target is an established, profitable business with a 40+ year track record.

Thank you for any thoughts, ideas and/ or feedback. 

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commentor profile
Reply by a searcher
from Harvard University in Minneapolis, MN, USA
In this context I think it is appropriate to request an investor to sign an NDA. Additionally, you'll want to ensure the NDA has a non-circumvention clause in it.

If it was a marketed deal it would be a different story but since this is proprietary an NDA is prudent.
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Reply by a professional
from Georgia Institute of Technology in Atlanta, GA, United States
in this case always sign a NDCA. I've heard of horror stories from searchfunders getting their deals circumvented by well established and large funds. It never hurts to be extra cautious. By the way, the ones with the good conscious never mind signing an NDA.
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