Fear. Loathing. Non disclosure agreements and paranoid delusion.
“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.
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:
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.