Entrepreneurs are constantly seeking out ways to capitalize on trends and introduce exciting new ideas to the market. Understandably, they are generally quite sensitive when it comes to sharing their ideas. After all, the ideas could ultimately end up being worth billions of dollars, and some entrepreneurs believe that sharing their ideas could potentially leave them vulnerable to having them stolen. When working with venture capitalists, some entrepreneurs may become worried due to the mistaken belief that they have enough money to steal their idea. While some entrepreneurs think that they should not share their ideas with venture capitalists without a non-disclosure agreement (NDA), most investors will not actually sign one. While this refusal may make entrepreneurs hesitant to share their ideas, venture capitalists have good reasons for foregoing an NDA. The following are some key points to keep in mind:
1. NDAs often don’t hold up in court
Whilepeople may think that NDAs are a fail-safe, they are actually quite difficult to uphold in court. With a signed NDA, you will need to prove that the person you are accusing actually violated the contract. In other words, you will need to demonstrate that no other means existed by which the person could have obtained the information, which is basically impossible when it comes to publicly available data. Also, you will need to submit evidence that the violation was done maliciously. Another point to consider is that pursuing an NDA violation in court is extremely expensive, and you will need professional assistance, as the laws pertaining to these agreements vary between states. With all of these factors taken into consideration, NDAs actually have very little value and require an incredible amount of time and money to enforce should a problem arise.
2. Ideas are only rarely completely novel
Entrepreneurs naturally want to believe that their ideas are completely novel. However, this is generally not the case. Venture capitalists will often look at thousands of pitch decks and talk to hundreds of entrepreneurs, which means that they have likely heard something at least somewhat similar to your idea. Venture capitalists often avoid NDAs because they do not want to leave themselves open to legal action if they happen to fund a similar company in the future and not because they want to steal the idea. Also, some NDAs prohibit investors from listening to pitches from other companies in the same category, which can create a complicated situation for them as they seek out the ideas that they think have the most merit. You should not be surprised if a venture capitalist does not want to sign such a prohibitive NDA, as it could limit future investment opportunities.
3. Investors are not creating companies
When it comes to NDAs, an important point to keep in mind is that venture capitalists have generally already done the hard work of building a company, and they do not want to have to do it again. By investing money, they can make their money do the work rather than doing it themselves. Most venture capitalists have several different businesses on their plate, so they simply do not have the time to build a company. They do not have the time or desire to do anything with the ideas. Instead, they are looking for entrepreneurs with drive and passion who can launch their company, as they provide guidance from a distance. While it is possible that venture capitalists could feed their idea to another entrepreneur, this would not make sense when considering the value of passion, which would not exist for someone pursuing another person’s idea.
4. Entrepreneurs can protect themselves in other ways
Since NDAs are not as effective as many entrepreneurs believe, there are better ways that you can protect yourself. First, do you homework. Make sure that the person you are talking to is a venture capitalist with a reputable background. Also, you may want to consider an NDA if a deal involves information that is not public knowledge, such as if an investor wants to see the code for a program that you wrote from scratch. In addition, you can use platforms to share pitch decks that track sharing. Generally, sharing is good, as it generates excitement about an idea.