Friday, September 19, 2014

The parade of NDAs

Non-disclosure agreements have been a regular part of my practice because so many of my clients have technology at the core of their businesses. Lately, however, it seems like I’ve been dealing almost daily with clients who are haggling over NDAs. Maybe it’s a sign that the entrepreneurs I work with are in an active state of deal making and wanting to engage in other strategic conversations – or maybe it’s just a sign of increased paranoia!

The interesting thing about this trend in my inbox is that it runs counter to a broader trend. A decade ago (or more, at the risk of showing my age), NDAs between entrepreneurs and potential investors weren’t that unusual. Today, in Silicon Valley and elsewhere, many (if not most) sophisticated investors refuse to sign them. 

While it is unusual for an investor to steal an entrepreneur’s idea (although allegations of theft are sometimes made) and the anti-NDA trend may not be ideal for individuals trying to protect their trade secrets, it is a reality they face. Investors claim they don’t want to expose themselves to potential risks because they may see “related” deals; they also claim that the lawyers (why does everyone always blame the lawyers?) get in the way and stall the dealmaking.

So what’s an entrepreneur to do? Well, you can’t just clam up and not talk about what you’re up to. You need to figure out how to talk about your business, the opportunity, and your technology. It’s about finding a way to talk about what’s interesting about the business and the opportunity without revealing the “secret sauce” that you’ve got.

Finally, remember that potential partners and investors are likely more interested in you and your team than they are in your idea. I’m not claiming as some do that your ideas have no value, but I do think that most investors are concerned more about the team and the “execution risk” than they are about the idea.

A decent idea with a great team is always a better investment than the best idea ever with an average team.

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