Protecting your startup's proprietary technology from copycat competitors is an issue for many entrepreneurs, but before you ask everyone around you to sign a non-disclosure agreement (NDA), take a breath. You could be sending the wrong message to potential investors before you even sit down with them.
The practice of asking venture capital and angel investors to sign NDAs is nowhere near as common today as it was 10 years ago, The New York Times reports. Part of it has to do with the fact that startup backers are looking at more deals than they used to, and don't have time to jump through the legal hoops that come with signing NDAs.
Before meeting with Kleiner Perkins Caufield & Byres, Andy Moeck asked the VC firm to sign an NDA so it couldn't share information about his mobile gaming startup Moeo with Zynga, one of Kleiner's portfolio companies in the mobile gaming space. Kleiner refused, but Moeck met with them anyway, and continues to pitch other VCs even though none have agreed to sign NDAs.
While doing away with NDAs favors VCs and not entrepreneurs, Thom Ruhe, vice president of entrepreneurship at the Kauffman Foundation told the Times, it's rare for an investor to steal an idea and bring it to market, he says.
Another factor could be the growing sentiment within Silicon Valley that patents in their current form are becoming obsolete. Just last month, Tesla founder Elon Musk announced he was sharing his company's patent portfolio with the world. Why? Open sourcing the technology behind electric cars is much more likely to encourage greater adoption of the technology, Musk says, rather than lead to a competitor using the patents to challenge Tesla's position.
As reported in the Times story, here are four reasons NDAs may soon become a thing of the past:
1. NDAs are overused.
You really only need a NDA when you have a truly unique idea. Just because you think your product is innovative doesn't mean you need to bring in legal protection.
2. NDAs are hard to enforce.
Assuming you're able to prove your proprietary information was disclosed only under a NDA--which is a challenge in and of itself--proving that someone then stole your idea, and that you're experiencing losses as a result, is incredibly difficult. It can also cost more in legal fees that many small businesses can't afford.
3. Some VCs won't sign NDAs.
Signing NDAs can lock investors out of a specific business segment and increase the chances that a competitor will beat them to the punch. The legal work involved also delays conversations, which can add up to a lot of lost time if VCs are busy signing NDAs every time they take a meeting.
4. Success is about execution, not ideas.
While you may have a great idea that you want to protect, your ability to execute is what's really valuable, not your idea. "I'll take a bad idea with brilliant execution any day over a brilliant idea with terrible execution," Brian Cohen, head of the New York Angels investing group, recently told Inc. columnist Scott Gerber.
So before you get the lawyers involved in your pitch meeting, consider whether asking investors to sign on the dotted line will do more harm than good.