NDAs, Non-Disclosure Agreements, are (in theory) one of the small protections afforded to entrepreneurs looking to protect an idea. However, most VC’s will refuse to sign them for a number of reasons.
Entrepreneurs wrongly assume that venture folk are the most trustworthy people alive. Under this assumption, the same entrepreneurs will gladly fork over the ‘secret sauce’ during a pitch in hopes of securing funding — this is a serious mistake. By not signing an NDA, a VC is simply making a weak promise not to disclose information. But, in actuality, VCs are the persons with the most reasons to steal your concepts of anyone you might speak to during the fundraising process. It is rare that a friend (think the Facebook situation) would steal a concept and run with it. It’s also doubtful that potential hire would have the drive or resources to compete against you. VCs on the other hand, are different. VC’s likely familiar with your space, better understand monetization potential, have access to money and – especially when dealing with technology – have portfolio companies who could benefit from new innovations.
But, VC’s also have reputations.
The other issue in disclosing all, is what I imagine being akin to the children’s game ‘telephone.’ A VC hears a great idea, decides not to invest for some reason, and then asks another VC about ‘his or her thoughts’ on the concept. If it’s a good concept, maybe 5-6 different persons (all with high IQs and motivated by money) learn of the concept and might indirectly borrow elements. TheFunded.com is worried about this sort of thing.
Bottom-line is that you shouldn’t ask a VC to sign an NDA because it’s an insult to the industry. At the same time, you shouldn’t go reveal everything at the first or second sit down.
** For those looking for an NDA template, here is a good resource.
