Many entrepreneurs are scared.
They have the most brilliant idea and are scared that it gets stolen. Sure, ideas get stolen every now and then and you don’t want that to happen to you.
Many entrepreneurs see the NDA as the golden solution to this problem. ‘If I can get somebody to sign my NDA, my idea will be safe’. Although that might be partially true, sending out NDA’s usually is a bad idea.
What is an NDA?
NDA stands for non-disclosure agreement. It’s a contract which states that the receiver will not use or share the mentioned information with others.
Why you shouldn’t send an NDA
There are multiple reasons why you shouldn’t send NDA’s, especially not too investors.
- You look like an amateur
It’s generally known that investors and VC’s (venture capitalists) don’t sign NDA’s. If you do decide to send an NDA it shows that you have little experience and which makes you lose credibility.
- It puts too much focus on the idea
Yes, it sucks if your idea gets stolen. But the idea isn’t the most valuable asset of your company (if that’s the case, you got some work to do). Your team, experience and traction should be more important than simply the idea.
By focusing too much on the idea, you create the impression that the idea is all you got.
- Investors don’t have the time to steal your idea
Investors are often experienced and/or retired entrepreneurs. They have some cash in the bank and want to be involved in fun and profitable projects. There is no way these investors are changing their lifestyle back to the 60 hour workweeks of an entrepreneur. Investors are investors, and it’s unlikely they will go back to being an entrepreneur.
- It’s not necessary to discuss everything
Instead of asking for an NDA and coming out with all the (sensitive) information you got, you can also tell about your company without revealing the sensitive information.
- It annoys investors
Investors don’t like signing NDA’s for various reasons. The main reason is that your competitors might have similar ideas. The investor doesn’t want to be limited to only you.
- They don’t hold up in court
Unless you are willing and able to spend lots of money in court, you’re most likely going to lose in court. Investors and VC’s have lots of resources and will put the best lawyers in place. When your company raises $300.000,- it would be a shame to allocate $80.000 to lawyers for a case like this.
When you should send an NDA
Of course there are a few scenarios where you should send an NDA. If the potential investors wants an external party to dive into the technical specifications of your company, it’s not strange to ask for an NDA.
In the case you don’t trust the other party you can also ask for an NDA. However, if you don’t trust the other party you should ask yourself if you want to do business with him or her anyway.
The damage of sending an NDA is usually greater than the benefits it can bring. Be careful with sending NDA’s. If you consider sending an NDA, please consider alternative options before you ultimately decide to do so.