Almost No One Will Sign Your NDA. Here’s Why
Some technology entrepreneurs want to sign everyone on a Non-Disclosure agreement. It's not going to work
Entrepreneurs often fear the moment when they have to disclose sensitive information. They ask the other party to sign a Non-Disclosure Agreement (NDA) but are often met with refusal. To the entrepreneur, this act can be seen as an abuse of power. Usually, it is not.
Investors are not the only ones to routinely refuse to sign NDAs. Consultants, lawyers, accountants, mentors, and other professionals who come into contact with multiple projects in their line of work may also refuse to sign them. These professionals know that at any moment they can hear about ventures similar to yours. In fact, they might already have. And they are not willing to expose themselves to a lawsuit.
Should you fear revealing your idea or technology without an NDA? I don’t think so. First, stealing an idea, especially one that has yet to become a reality, is simply not done in the industry. Try to remember the last time you heard about the theft of an idea at an early stage of a venture. It almost never happens. Why? Because stealing entrepreneurs’ ideas may risk your reputation, or worse, expose you to a lawsuit. Moreover, an idea that has not yet been tried and tested has a high probability of failing.
It’s also important to remember that investors are rarely interested in the ‘dirty’ entrepreneurial work. They’ve “been there and done that" and prefer to let their money work for them. Most funds and angels are busy dealing with a large number of projects at the same time. They don’t have the ability or the desire to focus on building a single project, and certainly not one "born in sin."
Unless your idea can be protected by a patent, it’s unlikely to have a high value in itself. Most of the value of your venture will be generated by what comes out of the idea. Even if someone were to steal your idea, they’d create it in a completely different way that will greatly affect its chances of success. In the end, if the way you turn your idea into reality is the one users like, you’ll win.
Even other companies operating in the same field have plenty of reasons not to risk stealing the ideas of the entrepreneurs they meet. In addition to the legal risks and the fear of damage to the company’s reputation, realizing an idea is simply not that easy, especially for large companies. While a young start-up can change direction with relatively minimal monetary risk, "real" companies are more organized, and their processes more complex. To test its luck on your idea, a company has to stop doing what it usually does or at least change focus, and risk resources. In the event of failure, the consequences for a big company are heavier. A company will usually prefer to wait and see if you can do what you promise. It will then either work with you or even buy you out further down the road.
It’s important to note that NDAs actually provide very little protection and are very difficult to protect in court.
That doesn’t mean you should give up on NDAs completely. Try to sign whoever you can. If the person or organization you’re in touch with is benefiting from your relationship right from the beginning they will usually sign.
Whether you sign an NDA or not, try to reveal as little as possible. You don’t always have to lay out every detail of your idea and you probably shouldn’t explain exactly how your technology works in initial conversations with investors or other potential partners. Be clear about your lack of transparency and explain exactly what you fear. Sometimes, what you’re willing to reveal will be enough to move things forward.
And don’t be lazy. Make sure that you perform background checks prior to disclosing sensitive information. What is their reputation in the market? Are they considered a serious investor? If it’s a company, are they known for "adopting" other people’s ideas? Consider too the importance of the connection for you. The bigger the donation from the person you’re considering disclosing information to, the more worthwhile the risk—and the smaller the danger to the venture of revealing that information.
The bottom line is that your window of opportunity to break out and succeed is very narrow and in most cases the right thing to do is to move forward as quickly as possible and talk to as many people as possible who can help you. Choosing to keep your cards close to your chest is rarely the right choice, patent-worthy technologies aside.
This post was originally published on TheOnlineStartup.
Adv. Zachi Zach is a lawyer and a mentor in the online industry, specializing in online gaming, adtech, ecommerce and other online related fields. Among others, Zachi serves as Of Counsel to the law firm of Pearl Cohen, an international law firm with offices in the US, Israel and the UK. Zachi is also the author of The Online Startup blog: www.zachizach.com.