Social Icons

 

Sunday, August 30, 2009

Asking an Investor to sign an NDA - Good Idea or a Bad One

When we just started EyeView and were looking to raise an investment we were very concerned about sharing all our ideas with other people. Since at that point all we had is a team and an idea it seemed like anyone can steel our idea and execute on it if he had enough funding. From that reason, exposing our ideas to a VC looked like a major risk. "If the VC likes the idea, what stops him from getting any other guy, giving him some funding and having him open the startup" we said to ourselves. No wonder, that when we first went to a presentation with a potential investor, we sent him an NDA to protect our rights.
After gaining some experience, I can say that this wasn't the brightest move and showed how inexperienced we were. There are a few reasons why asking an Investor to sign an NDA is a bad idea. Here are a few.
First, the value of startup ideas at this early stage is not that high (Maybe even worthless) so it's hard to believe anybody will want to steel them. Starting a company takes a lot more than just an idea (you can read more about it in this post) and most companies go through several rounds before they find the winning idea.
If we look at this from the Investor side, he probably meets with 10 new companies each month. If he had to sign an NDA with each startup he will never be able to invest in anything. The VC business is confidential by nature and does not require a legal contract to enforce it.
More than anything, sending an NDA is a bad idea is because it reflects a way thinking that will not allow you to succeed. The best way to improve your ideas and plans is to tell them to more people, get feedback, digest it, improve your ideas or learn to defend them and then tell them to more poeple. You will not be able to succeed without this repetative process and investors know it.
Needless to say, the investor that we tried to sign on an NDA never invested and soon after we stopped sending NDAs to investors. I advise that you do the same.


9 comments:

  1. I agree with you regarding potential investors. However regarding potential customers (which you intreview for your start-up), most of them don't care to sign it, so why not.

    ReplyDelete
  2. most of them don't care to sign it, so why not.

    ReplyDelete
  3. Great and very insightful posting. Awesome list of recommendations.Thanks a lot for this.Write really good, I feel so cool to see the next time you see your new article.

    ReplyDelete
  4. This comment has been removed by a blog administrator.

    ReplyDelete
  5. This comment has been removed by a blog administrator.

    ReplyDelete
  6. This comment has been removed by a blog administrator.

    ReplyDelete
  7. This comment has been removed by a blog administrator.

    ReplyDelete
  8. radiology technician schoolsNovember 10, 2010 at 12:21 AM

    This comment has been removed by a blog administrator.

    ReplyDelete
  9. This comment has been removed by a blog administrator.

    ReplyDelete