It’s
easy to think of Non-Disclosure Agreements as a staple of
entrepreneurship, a prerequisite to any transaction or agreement.
Everyone wants to protect their brilliant idea, trade secrets or
intellectual property, so it seems like a no-brainer to have witnesses
sign NDAs so no one will nab it and run off to become a billionaire.
But
NDAs aren’t always needed. In fact, they are a pretty good way to
antagonize and scare away potential investors. Generally, investors
don’t sign NDAs because of the hassle they introduce by potentially
preventing investors from seeking out future investments. The
implications sting even more if investors choose not to invest, leaving
them bound to a legal contract with a single entrepreneur that tramples
upon their ability to engage in future deals.
From an investor’s standpoint, it’s a lot more fruitful to forego
backing any project that involves NDAs in favor of the hundreds of
startups out there that don’t require one. Doing so gives the investor
more freedom and comfort to review anything of interest that comes
across the desk, especially considering that a mere statement, comment
or suggestion could be construed as violating an NDA. That only leads
to more money and time spent on litigation, and investors don’t want
that.
Doesn’t this mean, though, that the investor listening to your idea
could steal it? Theoretically, yes, but the cold truth is that
investors care little for ideas themselves in the grand scheme of
things. What they care about is results from someone who can execute
and deliver on an idea. Plus, if the mere mention of an idea or concept
is enough for it to be stolen, then it probably wasn’t a very airtight
idea to begin with.
This doesn’t mean NDAs are never appropriate. In certain cases, an NDA
may be critical for both parties, especially if a business meets
investment parameters and specific detailed information is needed for
due diligence. Sharing such detailed information, however, should never
be the default approach to early discussions with investors. A better
solution is to share broad details that are just juicy enough to wet
investors’ appetites. The important thing is that one not leave a bad
first impression by introducing an NDA to investors right out of the
gate.
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Business Plans
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Angel, Private Investor, Venture Capital, or Institutional |
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