I came to comment on that exact same question - so not only will VC's not sign confidentiality agreements, but they can ask something like this? I'm curious if there are instances of this happening?
So the right answer to that is "because you are a professional and honorable business man, and not a sleazy bastard". ;)
I'd say the right answer is something like this : 'Because if you do that we will kick that other team's ass and you will regret it. We are the best people for this project and we will kill ourselves to make this product the best in the world.' I guarantee you he would invest in us at that point. :)