NDA

When should you sign an NDA?

Julie Krafchick Digital Media Professional: Design, Marketing, Startups

January 30th, 2014

Would you sign an NDA with a founder of a startup that currently has a first prototype, 4 part-time employees and no funding? All he has told me so far is that it is a networking app. My hesitations lie in the fact that I will be legally bound to broad ideas that will limit me from doing other similar types of projects. Thoughts? is this a concern? The founder currently gave me a one way NDA. If people know of others that are more favorable for both parties, please let me know as well.

Ahmad Zahran Non-Linear Thinker | Strategist | Entrepreneur

January 30th, 2014

I've learnt the hard way that any entrepreneur asking for an NDA is probably inexperienced. A good entrepreneur trying to bring someone on board would excite them about the idea, not put red tape around it. If the entrepreneur is inexperienced which it seams like they are, there are some big questions that you should be asking. 

Detrick DeBurr

January 30th, 2014

http://onstartups.com/tabid/3339/bid/189/Startup-Reality-Distortion-3-The-Fallacy-Of-the-Non-Disclosure-Agreement-NDA.aspx

Shobhit Verma

January 30th, 2014

Ask for a fees to sign the NDA.
Explain that there is potential opportunity cost. 
Generally founders who ask for NDA are doing businesses where barriers to entry is pretty low. I would only consider talking to them if I am getting paid to provide some services to them. If they are just shopping around service providers then I would ask them to pay something up front before I sign the nda , not only if they actually hire me

Rob G

January 30th, 2014

interesting discussion.  will you be a contractor, employee, partner?  The anticipated nature of the relationship matters. first meeting and high-level discussion probably not necessary, but could be.  If they are a first mover in what they think is a new market then it could be a reasonable request if the NDA is mutual.  I would ask for a mutual NDA.  if they balk then i would respectfully decline to talk further.  If you will be digging into their business as a potential employee and need to evaluate their tech and business model then you should be talking about confidential info (if i am considering you as an employee i expect you to ask probing questions) and it is reasonable to expect that info to not be disclosed by you to others without the company's permission. an NDA is about Non Disclosure. Our standard NDA is a mutual NDA that addresses public info, info you learn about from others, etc. It imposes the same restrictions on both parties. i've never had anyone decline to sign.  I've not asked someone i don't trust to sign it.  The purpose is to set the tone of discussions and convey to the signer (and the company's future investors) that the company takes its confidential/proprietary info seriously.  It is extremely difficult to prosecute on an NDA as connecting the dots is difficult. don't disclose to anyone you don't trust. Let me know if i can help.  Happy to share a copy of our mutual NDA. 

Michael Brill Technology startup exec focused on AI-driven products

January 30th, 2014

@Jorge @Bill et al... while I understand where you are coming from and agree with the philosophy, you cannot assert that an NDA is a bad idea... because by extension you are saying that no company should try to protect its IP. If I were working on IP that I planned to patent then why would I invalidate all that work by *not* requiring an NDA?

Rob G

January 30th, 2014

... ya gotta love the smell of napalm!  So back in the late 90's small co. A was founded.  VCs and angels all told the founder, "don't worry about patents, just get to market quickly".  The founder filed patents anyway. Said founder took notice of the increasing importance of patents in the past few years - it appears that Mr. Zuckerberg learned about patents just prior to his IPO - damn amateur!  Little co. A was recently acquired by big company B, a publicly traded company in the social networking space based in the bay area.  The NDA signed between the two companies prohibits me from disclosing details.  Big Co. B was very interested in Co. A's IP.   Big co B's law firm, has a name that rhymes with Wilson Sonsini - they didn't come across as amateurs or inexperienced, but that's just me.  When conducting their due diligence Big Co B wanted to be sure little Co. A had adequately protected its IP.  It looked like this could be a deal killer, after all, many small companies don't "do NDAs".  The second item on their DD checklist was a request of copies of any and all NDAs executed by employees, contractors, the company dog, etc. Small Co. A dug through their old files and produced a box full of signed NDAs, you know, the old paper kind, dating back prior to the formation of the company. Big co. B smiled, their lawyers smiled, the founder smiled, little co. A's attorneys smiled - damn he was glad he had those NDAs. They even laughed at the fact that the founder had an NDA with his patent attorney. The deal closed. The deal would not have closed without big co.B's lawyers having a warm fuzzy that they could tell their client that little co. A had been prudent in protecting its IP. 

Frederic Laruelle Founder & CEO at inkWire, inc.

January 30th, 2014

I wouldn't sign an NDA at this stage of the conversation.
Not for legal reasons, but because it shows lack of confidence.
The likelihood that someone can replicate someone else's idea and execution path is next to zero.
An idea is very far from a business.

Paul O'Brien

January 30th, 2014

depends on the technology but if software/internet, no.  In innovations that evolve overnight, concepts of IP and needing to legally protect an idea from your clearly evil intent to put them out business, are misplaced.  In my experience, they drastically stifle success by preventing the engagement of advisors, consultants, and even early evangelists who can make or break a venture.

A networking app?  You can't have a conversation in your startup community without running into someone else who has a networking app.  The NDA puts YOU at great risk for that reason alone... burden of proof that you did not share, anything, ever, falls to you - how can you do that?? Especially when networking apps are a prevalent as lawyers :)  You will have a conversation, unwittingly perhaps, with someone they consider a competitor/threat and you can't be accountable for what is OK to share and what's not.

Grain of salt.  Unless, they are completely clear and detailed in the agreement about what you can't discuss.  Not "financials" but specifics so that only when that information is public, is a question of your confidence appropriate.

Frankly though, the whole idea just sets the wrong tone and prolific startup ecosystems have largely abandoned them.  They are essentially saying, we don't trust you, so sign this so you are legally accountable to us for anything that you say.  Why would you want to work with that??  More importantly, what do they have to hide?  Ideas are WORTHLESS, and only building and discussing them can create scale.

Don't misunderstand me, I'm not saying you don't have to earn their trust and that they shouldn't have an expectation of it; and I'm certainly not saying you want to avoid an NDA so you can go blab to the hills.  Rather, it shouldn't be needed and it only creates risk, for you.

Why did I start by asking about the technology?  Like I said, software/internet moves FAST.  I'm sure, no matter how brilliant they are, there are 10 other ventures around the world building essentially the same thing and tomorrow there will be 10 better ideas.  There's your risk.  When one of those emerges, is known, how do you prove, with the extensive network you have, that you never said anything to anyone, resulting in the traction of those others???

Not so true though of hardware or health related ventures in which there is long lead time to bring ideas to market, or industry validation/certification that has to occur.  In those cases, NDAs make some sense.

Jeremy Stanton CTO / Co-Founder at Kali, LLC

January 30th, 2014

Ideas are easy.  Execution is hard.  If they aren't to market yet, don't have any obviously patentable bits, and have nothing a competitor couldn't replicate in around 3 months it's just not worth it.  It's been my experience (with a very recent exception) that NDAs are a conceit the naive or paranoid use to make themselves feel important.  They cuff your options and you'll get nothing in return.

Bill Hludzinski

January 30th, 2014

Nowadays if you are hiding your idea and doing NDAs, you will be less successful than the team that is aggressively getting their idea out there, pitching, getting feedback and pivoting appropriately. You need hyper-feedback to move fast enough. See if this person is even doing any surveys (e.g. AYTM) or Google AdWords to get feedback for idea validation. If not, then they've got a LONG slow road ahead before the get to customer acquisition. Bill