When to Ask for an NDA
Disclaimer: I am not a lawyer and none of this is legal advice.
Every entrepreneur wants to protect their Intellectual Property, and for good reasons. You don’t want to let potential competitors under the hood of your technology, especially before you’ve secured patent protection.
But asking for an NDA prematurely (or, depending on the situation, at all) can make you look naive and inexperienced, especially to investors.
Every month or so I get a team that asks for a meeting then, once I agree, sends a follow up email with an NDA. Apologies for the heavy-handed dating metaphor, but: that’s essentially like asking someone out on a first date for coffee, then once they agree, asking them to sign a contract stipulating they will date you exclusively.
(Also, for the teams that ask if I’m going to invest before we’ve even met, that’s equivalent to asking “DTF?” before going on a first date. Stop doing that.)
From our perspective, we interact with hundreds of companies a year and not only would it be a giant legal hassle to sign and track all those NDAs, we often talk with multiple companies trying to solve the same problem.
If we signed an NDA with one team that was trying to build a hoverboard and later decided to invest in a different team that was building a hoverboard (because they were further along, had more experience, were better funded, whatever) then it would create a lot of legal issues for us.
So how do you have a conversation without giving up any proprietary information?
Talk about what you’re doing, not how your tech works
This is pretty applicable when talking to investors in general. Most don’t care about the specific details of how technology works (i.e. all the stuff that’s patentable), at least initially. They just want to know about the problem you’re solving, the size of the market, and that you have some form of competitive advantage in your technology, IP, team, or otherwise.
Most investors can’t be technical experts in everything they invest in. They generally know their market, and if you convince them you’re solving a real problem with a big enough market, and they think they want to invest, they will hand you over to the lawyers and technical experts that will work with them to validate everything you’ve said so far is true. This is the one point where it might be acceptable to ask for an NDA. Just know most investors still won’t sign one, and your ability to enforce it is still probably close to zero.
Times to ask for an NDA
So when ARE appropriate times for an NDA?
- When talking to a potential customer
- When talking to a potential hire
- Working with consultants/contractors
- When talking with a potential partner about collaborating (aka a big company who could just copy you)
- When working with a manufacturer
- When bringing on a new board member
- And of course: when talking to a company that is considering buying your company.