Fear. Loathing. Non disclosure agreements and paranoid delusion.

“Someone is GOING TO TAKE MY STUFF.

“You’ve gotta sign this because this project IS GOING TO CHANGE THE WORLD”  (and make tons of money).

Welcome to the paranoid road trip that is riddled with fear and becomes a path to loathing: The NDA.

Look – the NDA (Non Disclosure Agreement) is a perfectly respectable document when looking at a proprietary algorithm, equation or schematic. But a business plan? Don’t be daft. 

Any seasoned funder or entrepreneur knows that it’s the team and execution that brings the startup to life. You bet on the jockey… not the horse.

Earlier today I heard a friend of mine, who runs a pretty huge fund – which has done over 30 serious investments, exhale a heartfelt sigh at meeting an entrepreneur who wanted funding – but needed an NDA signed.

Enter: The NDA – fear and loathing in non-disclosure land. 

It’s a terrible way to start a conversation with someone you’re asking for funding from. Why? …Because this is what you are actually saying:

  1. You have nothing better to do than steal my idea;
  2. I don’t trust you;
  3. You could very well be a person that steals ideas;
  4. I am deluded enough to believe that you have the time to steal my idea and that you have never seen anything similar
  5. I am a terrible judge of character

When you go see a VC fund, know this: They have several partners who probably each see 5-10 deals that claim they will change the universe on some quasi-quantum, inter-dimensional level. (more like inter-dementia). It shows distrust, desperation and a lack of experience.

Remember: YOU’RE THE ONE ASKING FOR FUNDING. 

If you have trust issues with the funder, should you be speaking to the person in the first place? Either you’re not a good judge of character (not a god sign for an entrepreneur who will be using that money to enter into deals and hire talent) OR, you shouldn’t be speaking to the person at all – which means you’re desperate.

Rest assured: an angel or VC is not going to steal your idea. At any rate: they want to meet the person who can execute the idea so well, that they aren’t worried about disclosure.

I have come across one exception: once I was called into a VC that had just funded a competitor with a sizeable chunk of cash for growth and acquisitions. This is what I call a fishing expedition. There are only 2 reasons for that kind of chat: Either they want to know what you’re up to in order to learn from what you are doing well (in which case there will be a lot of ego pampering) or they are looking to acquire you.

Even then, an NDA is not really worth bothering with.

WHY? – simple: You shouldn’t be spilling your beans at the meeting. Talk 20% of the time and let them talk the rest. Just listen and get as much info as possible (credit: thank you to my mentor and friend: Mark Macleod @startupCFO for this fine lesson in life).

Also, these conversations are all “He said, she said” in a court of law. You also just don’t have the time and money to take it to that level. REMEMBER: You’re supposed to be building a startup, not burning cash and time in court. So, once again: It’s not the NDA that’s the problem: it’s you.

Here’s 3 take-aways on the NDA.

  1. Don’t take meetings with people you can’t trust
  2. NEVER ask a funder to sign an NDA – it’s insulting
  3. NDA’s are unrealistic. Difficult to prove and too costly to pursue
When is the NDA useful/ appropriate?
  1. A scientific breakthrough
  2. A medical breakthrough
  3. Equations
  4. Algorithms
  5. A view of incredibly sensitive proprietary intellectual property
What it’s not for:
  1. Business ideas
  2. Business plans
  3. Vapourware
  4. raising 90% of business’ funding requirements.
If you get funded – you’re chained to the funder for 3-5 years. Start it with a keen eye for who you should be speaking to (aka: cherry picking) and open arms. Trust.

 

Eran Eyal
Eran Eyal
Eran is the founder of StartupHat, Springleap, Evly (acquired), iDea (acquired), eSquared (acquired).

1 Comment

  1. P.Herz says:

    While I agree with most of what you said and found it amusing — when you have more than 3 years in development of a difficult product (not mere ideas or vapourware) and 20k+ in R&D costs you don’t mess around with trusting or not trusting people you hardly know as family or a close friend you might. Even good friends named Steve Jobs and Gates should have known better but you’re right there ultimately they both were successful by execution and learning some early hard lessons; Zuckerberg was not close to Winklevoss bros, but effectively they won with an IP contract and it proves they’re not entirely couched in paranoia as much as you believe with execution and seizing opportunities being truly what make or break things covered by NDAs. There’s been many times I perhaps would have ripped off a piece of software or project’s idea I had worked on if it were not for the NDA and working contract I signed.

Leave a Reply

Your email address will not be published. Required fields are marked *

Share This