To NDA or not to NDA – The Relevance of Non Disclosure Agreements

In my career, I have probably read over 2000 business plans from entrepreneurs seeking their first round of investment capital. I tend to cringe (as do all venture investors) a little bit when folks ask me for an NDA simply to hear their idea. As a general rule, I believe the entrepreneurs who are taking this approach have been given bad advice and often tend to be putting too much focus on the idea itself. They are often hunkered down holding onto the belief that their idea is proprietary, when in reality, what will make them successful is their ability to execute on that idea. This has more to do with the team, key business relationships, intellectual property, etc. An NDA is really more appropriate if you are trying to protect specific information such as a trade secret, real financials (i.e. historical), etc. or to protect your core information as part of a formal relationship with a service provider. However, if you ask for an NDA just for someone to hear your pitch, you may create a negative first impression. Very few repeat or serial entrepreneurs will ever ask for an NDA as a prerequisite to hearing their idea, mostly because they know that their competitive advantage lies in their unique ability to execute.

The advice I always give to entrepreneurs is to tell everyone what they are doing, because it can lead to important discoveries, new resources and/or learning about a well financed competitor who has a significant head start. I can promise that it’s better to know this information before making the decision to quit your day job. If you are starting a new business, resign yourself to the fact that someone has the same idea and instead focus your energy and resources on winning the execution game. As a prominent venture capitalist once said at a conference I attended “We don’t consider ideas proprietary, we consider execution proprietary.” Make sure that you focus your business on the “how we do” as much as the “what we do”.

Leave a comment

Your email address will not be published. Required fields are marked *