Should prospective investors sign non-disclosure agreements (NDAs) to keep your ideas safe?


1

Do you think it is important to ask Angel investors or VCs to sign a NDA before disclosing the details of your product ?

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asked Oct 15 '09 at 20:35
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Anup
547 points
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4 Answers


6

"The market price [of an idea] is less than the inconvenience of signing an NDA. " - Paul Graham

Paul Graham also has an article somewhere which basically says that instead of keeping your ideas secret, you should be telling everybody, because it's easy to miss something or fool yourself into believing some flawed idea is great. By telling others they will point out the problems with your idea and you can either resolve these problems or spend your time doing something a little more worth while. Although I personally don't have the guts to follow his advice on telling everybody, I don't know if I'd ask a potential investor to sign an NDA.

answered Oct 15 '09 at 21:20
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John Mac Intyre
1,086 points
  • Great point. The risk of your idea being bad is greater than the risk of someone stealing it. Demonstrate courage/leadership/confidence by telling people what you're going to do and then doing it. – Denis Hennessy 10 years ago

3

Angels will do as they see fit... Some will sign NDAs, some won't.

VCs will never sign an NDA before the due diligence process starts. They see lots of companies in a particular field, and they cannot afford to limit themselves or get into legal problems. They will be willing to sign NDAs when the due diligence part, because then they need to know the companies secrets, and they want to invest in the company.

That being said, it does not mean that you should not talk with VCs. If word comes out that they stole someones idea, they are finished in the industry, which means that any respectable VC would never consider doing it.

In hwijaya's example, they would not need to see the secret sauce, which in Colas case is a trade secret... They would need to taste it, and then decide if they want to invest. If you have a secret, find a way to talk about it without giving it away. You can say that you have an algorithm that does the needed calculations in half the time it takes the competition without showing them the algorithm. If they think that its not important, they will tell you without having you spill the beans. If they want proof that the algorithm works, show them it works without showing the code.

The benefits of getting feedback from VCs, and the potential investment from them outweighs the risks in sharing information with them if you keep focused and don't say what you don't want them to know.

answered Oct 16 '09 at 02:41
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Ron Ga
2,181 points

3

Personally, i never see (nor heard) any angels or VCs that would sign NDA. Asking them to sign usually is a sign of inexperience.

Having said that, unless you have a super secret sauce (like Coke's recipe), maybe they'll sign it.

answered Oct 15 '09 at 20:49
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Hendro Wijaya
1,408 points
  • +1 And to expand on the Coke referrence; Apple has been very successful at keeping their products secret until launch. But Apple asking an investor to sign an NDA is a bit different. – John Mac Intyre 10 years ago

1

Perhaps less than an NDA, you could just ask them to agree to a verbal FriendDA. I don't have any experience in the area, so it might even be 'understood' in the community. Prefacing your presentation with a "We don't want to bother with the hassle of NDAs, but we would appreciate it if you would agree to a FriendDA, saying you won't screw us by going off and developing it yourself."

answered Oct 15 '09 at 23:09
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Tom Ritter
191 points

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