Why Asking Investors to Sign NDAs Is a Big No No
Before I became an angel investor and venture capitalist, I worked for nonprofits and Political Action Committees in Washington D.C.
Nonprofits and Political Action Committees rely heavily on beneficiary donations, so as you can imagine, a huge part of my job was pitching.
Having been on both sides of the table, I know how it feels to have a great idea and so feel protective of it, that you’re actually a little bit worried about putting it out into the world.
While on the one hand, you’re desperately hoping that people will like it, on the other you’re scared that people may copy it and claim it for their own.
If these feelings resonate, chances are you’ve considered asking investors to sign non-disclosure agreements to prevent them sharing your business idea with others.
Asking an investor to sign an NDA will kill your chances of securing any kind of investment from them.
Want to know why?
Click the link below to find out!
WHY ASKING INVESTORS TO SIGN NDAs IS A BIG NO NO
I'm Kelly Keenan Trumpbour, angel investor and venture capitalist, and in this video I'm going to tell you why it's a big no-no to ask investors to sign an NDA. Before I was the person listening to everyone else's pitches, I used to pitch people. It could be anything. Sometimes it was an article, an event, a production, but I know what it's like to have a great idea, something that you really treasure, and being a little frightened about putting it out in the world.
Not only are you worried about what other people might think, you're worried about it getting out there and somebody listening to your pitch but then stealing it. What do you do if you're afraid of putting your idea out there? Should you ask people to sign NDAs? Not if you're in the business world, especially if you're going to pitch investors. It's essential that you are open enough with your idea to share it because good things will come if you do.
This may seem counterintuitive but it's actually not in your best interests to have investors sign a NDA. A non-disclosure agreement is limiting who can talk about your idea, but investors know each other. They talk about all the cool companies that they're seeing, and you want that to happen. When investors talk, they're building up a bandwidth of investors who might back your company. If you put the quash on that, you can't get investors excited about your idea, and half the battle is getting the buzz. You want them to be open and able to talk about your idea whenever they're talking to their colleagues.
Also, if you ask investors to sign an NDA, you're really limiting what they can learn about your company in due diligence, and due diligence is essential to the investing process. That's where we go behind the scenes and find out what's happening in your company, who works there, and if we don't ask those questions we can't figure out if the investment is a good idea for us. But if you won't let us even find out that information, we're not going to go forward with any kind of investment. The other thing to keep in mind is that many investors are aware of how much hard work, sweat equity you have put into this. They want to protect you.
If you go to an established angel group or venture capital firm, the whole process of
pitching to them is protected. You will see in many meetings and disclosure forums for these groups that there's a confidentiality clause. The members or the partners who are involved are restricted from talking to anyone who isn't an investor about your idea, or sharing it with startups who might be in your competitive space. We are looking to protect you and keep your best interests in mind.
Here's the other thing about asking people to sign an NDA on your behalf. What are you doing when you do competitive analysis? Every other company that's out on the market has information available. That's how you tell us why you're better. When you ask an investor to sign an NDA, what you're basically doing is saying, 'Don't talk about me. Don't let other people know about this secret thing I've developed'; but that's kind of disingenuous if you've gone and found all the information about your competitors just so you can prove to us why you're the best pick. It's natural for this information to be out there. Don't run away from it.
Long ago, I received a great piece of advice and it applies to anything. Whether you're in business, if you're a creative. I had a mentor tell me, 'If you've only got one great idea, you're in the wrong business.'; Basically what he was telling me was there's nothing really new under the sun and everything is a riff on what's already been created. That's okay. That's exactly what's needed in the creative process, whether that's business or artistic. Just go with it. As investors, we're here to take great ideas and see them grow, not steal them, not pass them off to your competitors. You have to be open and willing to trust us enough so that we can look into your company and see if we trust you enough to give you our money.
Believe it or not, asking investors to sign NDAs is a little bit like depriving the idea of oxygen. You want people talking about it. It fans the flames, it gets the buzz going, it brings heat to your idea. Asking them to stay quiet is ice cold water on that idea. It won't let it grow, it won't let it become what it could be. You want people talking, you want the buzz. An NDA absolutely stops that in its tracks.
Are you interested to know what I might think of your big idea? Head on over to
SeeJaneInvest.com/investmentpotential, and take the free quiz or click on any of
Until next week
Miss last week’s post? Check it out here: 7 things I look for in the person behind the startup