Sitemaps
Are We Growing or Just Getting Fat?
Let's Get Back to Our Why
Does Startup Success Validate Us Personally?
How We Secretly Lose Control of Our Startups
Should Kids Follow in Our Founder Footsteps?
The Evolution of Entry Level Workers
Assume Everyone Will Leave in Year One
Stop Listening to Investors
Was Mortgaging My Life Worth it?
What's My Startup Worth in an Acquisition?
When Our Ambition is Our Enemy
Are Startups in a "Silent Recession"?
The 5 Types of Startup Funding
What Is Startup Funding?
Do Founders Deserve Their Profit?
Michelle Glauser on Diversity and Inclusion
The Utter STUPIDITY of "Risking it All"
Committees Are Where Progress Goes to Die
More Money (Really Means) More Problems
Why Most Founders Don't Get Rich
Investors will be Obsolete
Why is a Founder so Hard to Replace?
We Can't Grow by Saying "No"
Do People Really Want Me to Succeed?
Is the Problem the Player or the Coach?
Will Investors Bail Me Out?
The Value of Actually Getting Paid
Why do Founders Suck at Asking for Help?
Wait a Minute before Giving Away Equity
You Only Think You Work Hard
SMALL is the New Big — Embracing Efficiency in the Age of AI
The 9 Best Growth Agencies for Startups
This is BOOTSTRAPPED — 3 Strategies to Build Your Startup Without Funding
Never Share Your Net Worth
A Steady Hand in the Middle of the Storm
Risk it All vs Steady Paycheck
How About a Startup that Just Makes Money?
How to Recruit a Rockstar Advisor
Why Having Zero Experience is a Huge Asset
My Competitor Got Funded — Am I Screwed?
The Hidden Treasure of Failed Startups
If It Makes Money, It Makes Sense
Why do VCs Keep Giving Failed Founders Money?
$10K Per Month isn't Just Revenue — It's Life Support
The Ridiculous Spectrum of Investor Feedback
Startup CEOs Aren't Really CEOs
Series A, B, C, D, and E Funding: How It Works
Best Pitch Decks Ever: The Most Successful Fundraising Pitches You Need to Know
When to Raise Funds
Why Aren't Investors Responding to Me?
Should I Regret Not Raising Capital?
Unemployment Cases — Why I LOOOOOVE To Win Them So Much.
How Much to Pay Yourself
Heat-Seeking Missile: WePay’s Journey to Product-Market Fit — Interview with Rich Aberman, Co-Founder of Wepay
The R&D technique for startups: Rip off & Duplicate
Why Some Startups Win.
Chapter #1: First Steps To Validate Your Business Idea
Product Users, Not Ideas, Will Determine Your Startup’s Fate
Drop Your Free Tier
Your Advisors Are Probably Wrong
Growth Isn't Always Good
How to Shut Down Gracefully
How Does My Startup Get Acquired?
Can Entrepreneurship Be Taught?
How to Pick the Wrong Co-Founder
Staying Small While Going Big
Investors are NOT on Our Side of the Table
Who am I Really Competing Against?
Why Can't Founders Replace Themselves?
Actually, We Have Plenty of Time
Quitting vs Letting Go
How Startups Actually Get Bought
What if I'm Building the Wrong Product?
Are Founders Driven by Fear or Greed?
Why I'm Either Working or Feeling Guilty
Startup Financial Assumptions
Why Every Kid Should be a Startup Founder
We Only Have to be Right Once
If a Startup Sinks, Founders Go Down With it
Founder Success: We Need a Strict Definition of Personal Success
Is Quiet Quitting a Problem at Startup Companies?
Founder Exits are Hard Work and Good Fortune, Not "Good Luck"
Finalizing Startup Projections
All Founders are Beloved In Good Times
Our Startup Culture of Entitlement
The Bullshit Case for Raising Capital
How do We Manage Our Founder Flaws?
What If my plan for retirement is "never retire"?
Startup Failure is just One Chapter in Founder Life
6 Similarities between Startup Founders and Pro Athletes
All Founders Make Bad Decisions — and That's OK
Startup Board Negotiations: How do I tell the board I need a new deal?
Founder Sacrifice — At What Point Have I Gone Too Far?
Youth Entrepreneurship: Can Middle Schoolers be Founders?
Living the Founder Legend Isn't so Fun
Why Do VC Funded Startups Love "Fake Growth?"
How Should I Share My Wealth with Family?
How Many Deaths Can a Startup Survive?
This is Probably Your Last Success
Why Do We Still Have Full-Time Employees?

Why Investors Don’t Sign NDAs

Wil Schroter

Why Investors Don’t Sign NDAs

There’s a popular misconception amongst first-time entrepreneurs that sharing an idea without signing a non-disclosure agreement (NDA) will lead to some version of The Social Network, where Mark Zuckerberg, played by Jesse Eisenberg, steals the Facebook idea and becomes a billionaire.

The mythology sounds horrifying, but the reality is much different.

In short – investors don’t sign NDAs. They won’t sign your NDA. Asking them to will make you look like you don’t know what you’re doing, and there are a few reasons for that.

No One Wants Your Idea

You may have the world’s most amazing idea. It may be a complete pile of rubbish. Either way, it’s not about ideas.

Investors want entrepreneurs, not ideas. Anyone can come up with a great idea, but very few can actually pull them off.

It’s not that Mark Zuckerberg just happened to steal an idea for social networking. It’s that he was the most capable person to actually pull it off. It’s not like he was the first (Friendster, anyone?), or the first to be successful (Myspace, anyone?).

A clever idea may pique an investor’s interest, but that isn’t worth getting ahead of yourself and demanding a NDA. You’ve got plenty of other hurdles.

Don’t Make Life Harder

On average investors see 20 deals per week. That amounts to over 1,000 deals per year. Signing a NDA could potentially prevent them from having a meaningful discussion with any potential investment after yours.

Should they choose not to invest (and most won’t) they would be stuck with the liability of a legal contract with you that prevents them from finding more deals. There are literally no benefits for the investor to sign a NDA.

Now imagine you’re an investor looking at hundreds of deals. You find one that looks interesting and you reach out. The startup responds by saying you need to sign a NDA.

Do you go through the hassle of signing a NDA or do you just move on to the hundreds of other startups who aren’t asking for a document that no one ever signs? You can probably guess.

It’s hard enough to get an investor to pick you among hundreds of other deals. Don’t make your life harder by insisting on them signing a document that they don’t need to.

You Can’t Enforce It

The power of any legal agreement is proportionate to your ability to enforce it. Do you plan on suing investors in the near future? Do you think the power of the document you’ve asked them to sign will give you adequate grounds to enforce that suit?

Probably not.

Focus on what you can control, which is what information you show them and what aspects of the business you are willing to share.

Share The Cookie, Not The Recipe

If your idea is so easily stolen that just hearing the concept is enough to allow anyone to replicate it and launch it better than you, then you’ve already lost.

There is little protection in just a concept, so unless you’ve got a secret recipe behind it, signing a NDA doesn’t do you much good anyway.

You should be able to openly share the concept idea with anyone, since as soon as you launch everyone will have a taste of it anyhow. If there is a secret recipe behind the concept, then by all means don’t share that until you’ve gotten to know the investor better.

Very few ideas have a secret recipe, however, and you’re more likely to be explaining why you can defend this concept once it’s launched.

What To Really Worry About

All of that said, there are some things you should consider protecting as you shop your idea around to investors.

Investors who have investments in similar companies to yours could present a challenge. You are essentially providing them with competitive information that they are free to share with their other portfolio companies. Most investors will decline meeting based on those grounds in the first place.

The other thing to worry about is the dissemination of your information. Pitch decks and business plans can get shared incredibly easily. It’s helpful to have a method to grant and revoke access online if possible, or to only present the key documents in person on your own laptop.

If you’re going to worry about anything, worry about actually getting a meeting with an investor. You’re going to have plenty of challenges in attracting investors, don’t make forcing them down the NDA path one more reason to not get a pitch to begin with.

If you have some specific questions about using an NDA with investors, tweet at @Fundable and we’ll try to answer them.

Find this article helpful?

This is just a small sample! Register to unlock our in-depth courses, hundreds of video courses, and a library of playbooks and articles to grow your startup fast. Let us Let us show you!


OR


Submission confirms agreement to our Terms of Service and Privacy Policy.

Already a member? Login

Michael Kull

This is an interesting assertion. As someone who has had ideas stolen, I wonder what research has actually been done to support this claim? It seems to me that the problem lies with the fact that most people with ideas and few funds have a difficult time actually going after someone who does behave unethically and gets away with it. So an ethical investor should understand this and be willing to do his or her pro forma due diligence just as he or she would expect the management team to do theirs. Would you invest in a company that had not asked its members to sign an NDA or non-compete clause? Highly unlikely. So I advise my business students, on either side of the table, to just do it. Makes everyone feel better even if they don't get enforced often, or often enough.

Reply5 years ago

Start a Membership to join the discussion.

Already a member? Login

Create Free Account