Some people seem to miss the touchy-feely part of engagement between entrepreneur and investor. They insert the dark menace of a Non-Disclosure Agreement (NDA) in the space between the first handshake and a cup of coffee. Just when you want to attract an investor, you raise his hackles.
From the entrepreneur’s perspective, it’s important to protect yourself from the risks of disclosing the ‘crown jewels’ of your technology. This particularly applies where you meet people who are previously unknown to you. Disclosure to people other than lawyers and patent attorneys unless within the terms of an NDA may also prevent you from later securing a patent.
Some people have an overdeveloped view of what constitutes confidential information and thus come across as overly secretive and even shifty when asked simple questions. It’s not a healthy start to a relationship. By putting an NDA in front of a potential investor, you are asking for a legal commitment at a very early stage and risk scaring him off.
Now think about it from an investor’s perspective. We really don’t want a drawer full of NDAs, especially as we are scouting in a pool of technology investment prospects that may overlap. So we (a) follow a written ethical code, (b) follow professional practices and (c) generally only sign NDAs at Stage 3 (technology and market due diligence) in our investment process. We really don’t want to know anything secret at these early stages. We’re primarily interested in what makes you stand out from the crowd – the commercial impacts of your whizzy technology rather than the essence of your invention.
So what’s the resolution? Spend a few minutes considering our evaluation process, and considering what public domain information you can release. This may then be included in the marketing information and business plan. Confidential information available on exchange of an NDA can be listed in the business plan and released for the purposes of due diligence at a later stage.
This all has a practical effect. In the past year, I have refused to bring four businesses into our evaluation process simply because the founders wouldn’t provide sufficient detail for a Stage 1 evaluation.