The Pitfalls in NDAs That Can Hinder Deal Flow—and How to Avoid Them

For large capital providers focused on attractive, high-return investments, NDAs are often the required starting point of the process.  Getting an NDA executed can sometimes seem like a mere box-checking exercise before the “real” deal work begins—but they can also be a source of unnecessary friction. Overly restrictive or poorly drafted NDAs can slow down negotiations, inhibit future opportunities, and create bottlenecks in the deal process. Here are some of the key pitfalls and how to navigate them effectively:

1. Overly Restrictive Confidentiality Clauses

NDAs often impose broad obligations that go beyond protecting sensitive information, such as:

• Excessive durations that bind parties long after information loses relevance, and indeed
  can contain backdoor confidentiality obligations extending to perpetuity.

• Overbroad definitions of “confidential information” that include public or independently
  developed data or information that the recipient already possessed on a non-confidential
  basis.

• Prohibitions on sharing with critical advisors or analysts or other representatives without
  prior written consent, which can slow decision-making.

• Residual knowledge clauses that stifle the ability to leverage insights for future deals.

How to avoid it: Narrow the scope of confidentiality terms to protect critical information while
enabling operational flexibility. Tailor durations, refine definitions, and ensure terms allow for
reasonable collaboration and strategic growth.

2. Vague Definitions of Parties

In complex deals, ambiguity around which entities—affiliates, subsidiaries, representatives— are
protected by the NDA can lead to disputes and unintended compliance risks.
How to avoid it: Clearly define all entities covered by the agreement. Avoid coverage of generic
affiliates and third-party representatives to better ring-fence the information covered and protect
against unintended restrictions on future opportunities.

3. Hidden Exclusivity Pitfalls

NDAs can inadvertently limit future opportunities through disguised exclusivity provisions or overreaching restrictions on soliciting employees, vendors, or other partners.

How to avoid it: Scrutinize terms that could constrain your ability to pursue other deals. Reject
non-compete provisions that go beyond the scope of the transaction with the specified entities,
ensure non-solicitation clauses are narrowly tailored regarding the persons covered, the time
period of the relevant restrictions and the relevant exceptions, and avoid vague “non-
interference” types of provisions.

Keep Your Deals on Track

NDAs should protect the confidential information of the disclosing party without stalling
progress or limiting future opportunities for the recipient. By addressing these pitfalls—overly
restrictive clauses, vague party definitions, and hidden exclusivity traps—you can maintain
agility, build trust with counterparties, and ensure smooth, scalable deal flow. For capital
providers, the goal is clear: provide counterparties with reasonable assurances regarding the confidentiality of their information while creating the flexibility to pursue growth and maximize
returns.