Why Requesting An NDA Is An Indicator And A Warning To Investors
Don’t Be Afraid To Share Your Idea
Hardly anyone these days has an original idea — especially early stage startups. It’s already difficult to pitch an investor before proof of concept so why would you require them to sign a nondisclosure agreement (NDA) before providing any form of feedback? Your ability to grow as a founder and startup corresponds to the amount you’re willing to share — and execute. For some investors, the NDA indicates a possible or impending danger.
An NDA, often referred to as a confidentiality agreement, is a legal contract between two parties that signifies a confidential relationship exists between those involved. The confidential relationship often refers to information that is to be shared between the parties, but not be made available to the general public.
It’s an indicator and warning when a person wants an NDA signed. It also shows a lack of confidence in your ability to execute. Mary Kay Ash, the Founder of Mary Kay Cosmetics, stated, “Ideas are a dime a dozen. People who implement them are priceless.” A startup’s ineptitude to carry out a course of action will result in the idea not going anywhere. Most startups aren’t successful because of their inability to execute. Additionally, they aren’t collaborative or willing to open up and share.
NDAs are a false sense of security and welcome a veil of opacity. We don’t sign NDAs for this purpose. Instead, consider the following:
- How can you be different in a crowded market that makes you stand out?
- If what you’re doing is making a difference, then you won’t have to worry about a defensible position. You want to invent markets not necessarily technology.
- Move fast, build a product and practice it.
- Live in a customers worldview, not a competitors worldview.
- Believe that no one else will be able to recreate what you have built.
- Be aware of people’s time and levels of commitment. You see one VC, they see 20 CEO’s.
Product builder, KP Frahm, has received so many NDA requests that he’s created a boilerplate response:
Oh, I’m afraid I can’t do that simply because there is a big chance that stuff you consider “proprietary information” is already part of my (unpublished) thinking.
You could then sue me for my own ideas that happen to be yours as well. That just doesn’t make sense to me. In my view, protecting ideas and concepts only works in theory because it’s talent and commitment that rule.
Of course, ideas have value, too, and it’s fair to state their ownership. But there’s probably more value in sharing ideas without the risk of lawsuits, and possibly generating even better ideas together.
Needless to say, I’m happy to join your thinking and share mine in a spirit of openness, and I hope you understand my concerns.
Signing NDAs may be applicable to certain industries or high profile startups with trade secrets, but more often than not you don’t need an NDA to protect you. The person on the otherside of the table matters more than the piece of paper between you two. David Cohen, Co-Founder and Managing Partner at Techstars, once said, “Opportunities will often emerge out of long-term relationships that you’ve developed over time.” If requesting an NDA is your idea of a good first impression, then you probably won’t earn their trust with an investment. Don’t be afraid to share your idea. Otherwise, you won’t be able to receive constructive criticism to improve upon your product.
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