A non-disclosure agreement sounds like a very good thing when you are a startup looking for help building your business. Yet, many investors, including VCs, have no intention of signing one.
Can you trust a VC, then, to not tell the world about your product or service? How do you know your investment strategy, pitch deck, and needs are not going to be shared with competitors?
Why They Won’t Sign Your NDA
It’s not common to find a VC that’s willing to sign your disclosure statement, even if they think you have a pretty amazing product or service. Their reasons can be numerous, but typically it’s because they don’t feel there’s risk.
Most of the time, founders believe their idea is a brand new invention, something no one else has thought of or developed. Many times, that’s not always true, and VCs know its more common for founders not to be the first with their idea, making an NDA worthless anyway.
It’s Also Not the End of the World
If you can’t get a VC to sign your NDA, don’t panic. Most of the time, this is not what does in a founder or startup idea. It’s usually the timing, the market, or even the amount of experience you have that will hurt your chances of success. Considering that, don’t put to much time (or heart) into getting that document signed. It could cost you an opportunity with a fantastic investor who can help you overcome the odds.
Why They Care So Much About Not Signing It
It’s important to you — that’s clear. Yet, venture capitalists are always talking to new founders and entrepreneurs. It’s likely they will come across someone else that has an idea that’s somewhat like your own. While most investors would never share your secrets, they may find themselves stuck.
Let’s say you have an idea for a business. The VC decides not to move forward working with you. However, in a few months, you learn about their investment in a company that offers something like your own. Did they steal your idea and run with it?
Most likely, that’s not what happened. Rather, they probably found another entrepreneur with a model they liked better, for whatever reason, and invested in that company. By avoiding the NDA, there’s no risk the VC has to walk away from a better idea that’s similar to your own. No VC wants to put themselves into a position where legal problems are likely.
What About Protecting Your Rights?
It may sound like VCs are not interested in protecting your business and rights. To a degree, that’s true. However, you can still raise funds from investors while staying in control of your pitch deck. That’s the key. You want to be able to share your information in a safe manner, avoiding the risk of sharing too much.
Remember this big mistake. If you try to force a VC into signing an NDA, they will walk away without a second thought. There’s always another founder vying for their attention! Instead, seek out an investor you can trust and document any sharing of information with them.
Originally published at https://www.investorintelligence.io on October 24, 2019.