A letter of intent (LOI) often kicks off serious negotiations, and those talks usually require sharing sensitive information. For startups, the confidentiality clause is not optional. It is the guardrail that lets founders disclose enough to move a deal forward without accidentally giving away the company’s competitive edge.
What the Confidentiality Clause Should Cover
At a minimum, the LOI should define what counts as “Confidential Information.” Many parties use a broad definition that treats all non-public information exchanged during diligence and negotiation as confidential unless it is clearly marked otherwise. That approach is common because it reduces ambiguity and prevents a later argument about whether a specific spreadsheet, metric, roadmap, or customer list was protected.
Standard Exclusions That Keep the Confidentiality Clause Reasonable
Most confidentiality provisions include carve-outs so the obligation is realistic and enforceable. Typical exclusions include information that becomes public through no fault of the receiving party, information already known before disclosure, information independently developed without using the confidential materials, and information received lawfully from a third party. LOIs also usually address legally compelled disclosure, such as a subpoena, by requiring prompt notice and reasonable cooperation so the disclosing party can seek a protective order.
Confidentiality of the LOI Terms and the Negotiations
Beyond protecting shared documents, parties should decide whether the terms of the LOI and the existence of the negotiations are confidential. For startups, keeping deal talks quiet can matter because rumor can distract employees, spook customers, or move competitors. If the parties want secrecy, the LOI should state that the LOI itself, the negotiations, and any term sheets or drafts are confidential, subject to limited exceptions such as disclosures to professional advisors and potential financing sources who are also bound by confidentiality.
Duration and Survival After the LOI Expires
The confidentiality obligation should survive the end of the LOI, since diligence often continues and the parties may walk away without a definitive agreement. Many LOIs specify a fixed term, such as one to three years, while trade secrets are typically protected for as long as they remain trade secrets. The key is to avoid a clause that quietly expires the moment the LOI terminates, which can leave a startup exposed right when the relationship ends.
Practical Handling: Access, Use Limits, and Return or Destruction
A good clause limits use of confidential information to evaluating the transaction and restricts sharing to people with a need to know. It also helps to address practical steps: whether information must be marked confidential, whether summaries and notes are covered, and whether the receiving party must return or destroy materials if talks end. Even a simple statement that the receiving party must protect the information with at least reasonable care can improve enforcement and set expectations for how diligence will be conducted.
In practice, the best LOI confidentiality clauses are specific enough to prevent misunderstandings and simple enough that both sides will follow them. If you are a founder, treat confidentiality as a first-order issue, not boilerplate. If you are the counterparty, clear confidentiality terms make diligence smoother and reduce friction later.
Ryan RobertsStartup Lawyer
Ryan Roberts is a startup lawyer with more than two decades of experience advising on venture financings and M&A transactions totaling more than $1 billion. He is the author of the Amazon bestselling startup law book Acceleration.
