Why Entrepreneurs Shouldn't Worry about NDA's

I've been working with entrepreneurs and their startups since 1979: for ~20 years as their lawyer, the next 12 as a VC at Mayfield and, currently, in my "Sherpa" capacity.  Seen a lot of movies.

I'm wondering if it's just me, but I've noticed a trend recently, both in the startups for whom I'm a Sherpa (for the investors to whom I introduce them), and those who approach me to see whether my Sherpa role is a fit, towards asking for (in some cases insisting on) an NDA.

For a couple of reasons, I think this is a mistake.

First, VC's normally won't sign them, as a matter of prudent policy (under severe pressure on a very competitive deal, some will).  Why?  VC's see lots and lots of business plans.  In the 12 years I was a VC, I never saw one that, really-honest-to-God, was unique; that is, I never saw one that didn't have at least one other (frequently more) startup(s) doing something similar, if not the same thing.  So, for the VC, it only invites trouble to sign an NDA.  For the startup and its entrepreneurs, it's a head fake.  Litigating and winning a case alleging breach of an NDA is very difficult, expensive and a huge distraction from what you should be doing (see below).

NB., that is not to say that VC's routinely violate the "spirit" of NDA's.  I don't think they do.  Although urban legends of this exist (and maybe it's even happened), I've never seen it myself.

But, second, even if they did, I've come to believe that it doesn't matter.

After all this time working with entrepreneurs and startups, I now believe that almost all success stems from the following three things:

• good idea addressing a good market (but no one I've ever met had a unique good idea);
• killer team; and
• great execution (including the ability & courage to pivot when the originally proposed idea for the business isn't working -- which may be the hardest thing for an entrepreneur to do).

Note that the four basic food groups of intellectual property, patents, copyrights, trademarks and trade secrets, are not mentioned (Part of this stems from the areas in which I invest: digital media, ecommerce, interactive entertainment, consumer internet, online and mobile advertising, etc., are not the areas in which IP matters much.  My rule may not hold in other areas, especially semiconductors and communications equipment, where patents can actually be valuable).

That said, I can honestly assert that, from my experience, an awesome idea, adequately covered by available IP protections -- but with crappy execution -- never wins.

So, my advice to entrepreneurs and their startups: don't sweat the nondislosure stuff.  No need to publish your business plan on the front page of the NYT, WSJ or FT (although, if you did and someone else read it there and outfoxed you in terms of success -- you didn't deserve to win), but focus on ruthless analysis and testing of your core idea (including pivoting if you weren't aimed in the right direction), recruiting a killer team (hard in these exuberant times!) and executing like a sonofabitch.

If you do, your chances of success will be maximized.

 

Comments

[Angelinvestor8]

Entrepreneurs should always perform due diligence in all they do, but should not be overly anxious about NDAs, particularly if the angel investor in question has an outstanding track record, and is reputable.

[DanielJoe]

As a developer, being pressured to sign NDAs constantly whenever I meet up with a new company is very annoying. In my career, I've only seen a handful of somewhat unique ideas, and I would not be in a position to copy anything from a friendly initial meeting where I have no access to any source code. It puts meetings in a negative tone to be forced to sign some paperwork that you have to analyze to see what it says right away. Success online is found through execution and marketing, not ideas, and thats why all kinds of Facebook marketing agencies listed at http://www.buyfacebookfansreviews.com are emerging and becoming more and important. Entrepreneurs should focus more on execution and marketing and business stuff and not on drowning people in useless NDAs that make you seem annoying and increases tension.

[Ari Massoudi]

As consultant, I am tired of entrepreneurs who make me sign a NDA, but after 10 emails exchanged, I still don't know what is their idea, and what they want to do! Of course, they send me their financial forecast in an Excel doc, and ask me to give my thoughts about their projections!!!