NDA’s and Investors don’t mix
I recently read an interesting post over on The Startup Laywer explaining why asking an investor to sign an NDA will at best get you laughed out the building. I particularly liked this part…
“Asking a VC to sign a NDA is tantamount to splitting 10’s at the blackjack table. You just don’t do it.”
It’s an interesting quandary, on one hand you want to protect your idea but on the other hand you want to impress your potential investor at your knowledge of how the pitching process works.
The problem is that any good VC or Angel sees hundreds of proposals every week, if they were to sign every single NDA before hearing about the proposition they would leave themselves open to legal action if they decide not to invest in one company, but then do invest in another company with a very similar idea. As Ryan from Startup Laywer quite aptly put it…
“If VCs maintained the practice of signing NDAs for each submission they received, only two groups would benefit: lawyers and paper companies. Lawyers would benefit because they would get to draft, edit, and negotiate each NDA.”
This whole NDA issue interests me. A couple of weeks ago I went to the Startup Show in London, one of the main reasons for attending was to gather some competitive intelligence. One of my competitors in the Entrepreneur to Investor matching sector, who out of professional respect will remain nameless, encourage their users to submit full business plans for investor consideration.
I raised the whole question about non disclosure agreements with them and they assured me that every investor signs an NDA before being able to use their system. Of course they could of just said this thinking that they were putting a potential clients mind at rest, however as their business is based on submitting business plans to investors it is most probably the case.
Edge Venture’s position on NDAs
With Edge Venture, I have tried to keep things as simple as possible. I have always been concerned with the whole privacy issue that submitting business plans over the internet brings. Hence why with Edge Venture we recommend that you withhold business critical information at these early pitching stages and concentrate on the core areas of the pitch that help you attract interest from investors.
Non Disclosure Agreements do have their place, for example when talking with suppliers or when hiring employees with access to business data such as client lists, financial data, future business strategy etc. But as far as in the early stages of pitching for investment, it’s better to attract and stimulate interest with a summary overview rather than insisting on an NDA before submitting full business plan information.
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