NDA · Startups

When to hand out the NDAs?

Caroline Helper Brand Manager, Quintessential Wines

November 16th, 2015

I'm still very much in the development phase and I'm at a point where I'm looking for all the help I can get. We have a solid very clear idea but we haven't built anything yet. Our idea really is completely new... no one is doing what we're trying to build so it's very important for me to protect it and not give it away in my pursuit of advice. When is it appropriate to start handing out the NDAs? Will I offend people I'm asking for advice and help if I send them an NDA before our conversation?

Steve Grigory Self-starter specializing in new and disrupted markets

November 16th, 2015

I'll be blunt. Requiring people to sign NDA's when you only have "an idea" or are very early in your business is a total rookie move and will be perceived as one (and thus you will be perceived this way) when you place one in front of someone. 

If you talk to a large company, they will refuse to sign it as policy. 

So, spend your time developing your idea and getting your business moving forward. Don't spend another ten seconds thinking about this. 

Andra Keay Director at Silicon Valley Robotics

November 16th, 2015

Often you haven't seen something similar because the idea didn't work. Insisting on NDAs can slow down your pursuit of important information including finding out if there have been other similar product attempts. If you have no strong technical IP edge and lawyers to back it up, then no amount of NDAs or IP will protect you from a larger company with better dev and marketing. Use discretion but give your idea away freely to people who might help you but don't have the time/resources to try to build it themselves. Take care if dealing with a well resourced company or individual who is likely to be in competition with you. Most people are too busy with their own ideas to want to steal someone else's.

Dimitry Rotstein Founder at Miranor

November 17th, 2015

To demonstrate how meaningless NDAs are, I will now "violate" the only NDA I've ever signed (long ago, when I was a total rookie, and that other guy was even worse).

His idea was to slap tiny LCDs on top of every key on a computer keyboard that will display in real time what truly happens when you press the corresponding key. This is very convenient for people who type in several languages (you can write a whole paragraph before looking at the screen and realizing you forgot to switch the languages and you've been typing gibberish all this time). It also reduces the learning curve for keyboard-heavy programs like Photoshop. And more.

As you should be able to see, the NDA was completely meaningless and even detrimental, at least for the following reasons:

1. This idea has been around since at least 1930s, it's been patented back and forth, top to bottom, and there have been many application attempts, most of which failed, but a few had a limited success, one of which was actually making headlines at the time this poor fellow thought he was being original.

2. I know all this because I came up with the same idea long before him and made a market research (and realized that this idea is impractical). Moreover, I've known others who thought of it too, so many, in fact, that I was 90% sure that this was his idea before signing that NDA. If anything I had more grounds to sue him for stealing my idea than the other way around :-)

3. Here, I just explicitly "violated" this NDA (hardly for the first time too). What are you (or anyone else) is going to do about it? That guy will definitely do nothing - he abandoned that idea ages ago, he may never find out what I just did, and he may not even remember any of this, let alone having a copy of that NDA.

Needless to say, I don't ever intend to sign any more NDAs just to hear the gist of an idea. To find out the intricate details, the true know-how behind the idea, perhaps. In this example, the really important details include the answers to the following questions:
How do you protect the LCDs from being touched by fingers (that will render the LCDs inoperative within weeks) without affecting the tactile experience?
How do you connect LCDs to the computer? Wires that go through the keys will not survive long under these conditions, regular keyboard connection can't transfer the required information, and so forth.

The idea itself is worthless without these kind of technical details, which you don't have to disclose just to tell people about your idea. If they are truly interested in all the details, then, and only then, you may offer an NDA, but a better solution, if your idea is truly worth protecting, is to file a patent, and then you don't need any NDAs at all.

Brad Schy Ticket Maestro at Musical Chairs Ticket Service

November 16th, 2015

Read Guy Kawasaki "Art of the Start"   Ideas are a dime a dozen.  The one who executes is the one that wins. 

Rob G

November 17th, 2015

@ Caroline; by now you should have an appreciation for what a hornets nest this subject is. There are other threads on this subject on FD so search around. You've receive advice from both extremes "never sign NDAs..." and "it's a rookie move..." to "just file a provisional patent...". Like most things, the answer isn't black or white, it's gray.
1. "never ask anyone to sing an NDA - it's a rookie move and you'll be seen as a rookie...just go build...": Be smart about it. Don't ask VCs or angels. They will almost universally tell you they don't sign NDAs. You are way to early to seek funding anyway so there's no reason to be disclosing your secret sauce to a VC or angel investor... so don't ask. Yes, asking a VC or experienced angel investor will most often raise eyebrows. I have only asked on experienced investor to sign an NDA - they did. If you are in fact not a rookie then asking others to sing NDAs won't turn you into one. Never have i been turned down when i've asked someone to sing an NDA. I have had large companies propose their own NDA, but no one has ever said 'no, i won't sign it'.

2. Use your head. Understand what an NDA is for and use it accordingly. An NDA is not the proper method to protect all of your IP - neither is a provisional patent application or a pending patent application for that matter, but i'll get to that in a second. The information you cover under an NDA does not have to be patentable IP, it can be anything you consider confidential. You can't patent your pricing model or list of distribution partners or budget, but you can identify this information as confidential and cover it under an NDA (properly constructed NDA).An NDA is NOT GOING TO PREVENT OTHES FROM DISCLOSING YOUR CONFIDENTIAL INFORMATION. An NDA is an Agreement Not to Disclose information that you identify as confidential. If you don't trust the individual or the individual signing on behalf of the company then DON'T DISCLOSE your confidential information to them, period. Only ask people you trust.

3. " just file a provisional patent": Again, be sure you understand what a provisional patent application is and does and more importantly, doesn't do. A provisional patent application doesn't protect squat other than a date. A provisional patent application is simply a date stamp on an idea you THINK is unique. Patent "priority dates" used to be based on date of invention not filing date. Now the key date is filing date. Don't file a provisional and think your IP is protected. It's not. There is a long road from provisional to issued patent. Your patent application may never issue - turn into a real patent. In the 365 days from the date you file your provisional application you may not be able to afford to file your complete application, then what? You can't file continuations (i don't believe) on provisionals so if you don't file your complete application within 365 days your provisional is abandoned. Then what? Let's say you go around telling everyone you are "patent protected" by your provisional. You disclose you secret sauce. Others think it's interesting. Then you file your complete application. These days patent applications are published - now anyone can have complete access to all the details of your "PATENT PENDING" IP - still no patent. That pending patent may never issue. A patent, which is different from a patent application, won't prevent others from making, using or selling your patented IP and a pending patent application or a provisional sure as hell won't. A patent just gives you a legal basis upon which to sue someone who is making, using or selling your PATENTED IP. Likewise, an NDA won't prevent someone from disclosing your confidential information. When in doubt, don't disclose. If you do disclose and the signer or his/her company discloses or uses your confidential information then what? Are you prepared to sue?

4. SEND A MESSAGE: others may disagree, but i use NDAs primarily to set the stage for partnering discussions and to send a message. I"m not going to carry around a pocket full of NDAs and ask some guy at a meetup to sign before we can start talking. NDAs don't make sense until you've talked long enough to know that BOTH parties are interested in more detailed discussions and WHY they are interested. I only use "mutual" NDAs - NDAs that cover the confidential information of BOTH parties. i do not sign or ask others to sign one-sided NDAs. The message is, "we've talked long enough to know that we are both interested in exploring a possible business relationship. Our future discussions may include information we feel is confidential and you may disclose your confidential information to us. We trust you and you can trust us enough to keep each others confidential information confidential".

5. "I already knew that": Dimitry highlights a good point about people "stealing" ideas. The vast majority of people you talk to don't have the time, knowhow, inclination or resources to run with your idea. Maybe, but highly unlikely. You should have done your homework ahead of time anyway and you now know not to go into your secret sauce in these discussions. That said, NDA's are far from meaningless. A well constructed NDA will have a provision to address the "what if i already knew that" scenario. If Dimitry already had the same idea or knows about someone else who was working on the same idea then fine. It is highly, highly unlikely that Dimitry will be working on your same idea, but if he is then he can prove that he has already been working on it and thus the NDA does not apply to this "previously known" information.

6. NDA's have value beyond the current discussion: If down the road you find yourself in a M&A transaction you will be glad you have signed NDAs and a policy for their use, especially if you also have patents. Let's say you follow a pretty typical startup path: you have an idea, you find a couple of co-founders to help execute (after talking to a bunch who didn't work out), you build a great product (maybe outsourced to a contractor or 2) and then BigCo's attorney calls your attorney and they want to discuss an acquisition. One of the first things on the buyer's due diligence list will be IP and who owns the IP (patented or otherwise). If that programmer you hired to build the MVP didn't sign at least an NDA and preferably an IP assignment provision (in your development agreement) then that's not good - rookie mistake. If every co-founder has a signed NDA on file that's good. If every potential co-founder you disclosed the secret sauce to has signed an NDA, that's good. Showing your buyers that you take your IP and confidential information seriously is good. showing the buyer that "we never ask for NDAs cause it makes us look like rookies" is, well, rookie.

so, in summary, yes, it can be seen as a 'rookie move' to ask others to sign NDAs, but if you don't have enough experience to know whom to ask and when and why and to use the right kind of NDA then your rookiness will be obvious long before you ask for the NDA. Everyone is a rookie at some point. If you have patentable IP then file for patents, but be sure you understand what you are and are not protecting at each stage. Use a well written NDA and use it with the right people for the right reasons.

Linda Plano Life's a pitch. Make yours amazing!

November 20th, 2015

I am a service provider: I've coached about 600 entrepreneurs, mostly in high tech startups, on their investors pitches. I have never signed an NDA - doing so would dramatically limit my ability to take in new clients (for fear of the appearance of violating an NDA) and pretty much impossible to track.

No pitch that I have helped develop has required an NDA to be viewed and/or heard.

So the innovator's dilemma is:
  • No investor will sign an NDA (for the same reasons as mine) and, as others have said, you will appear naive in the extreme if you do.
  • You have to say enough about your "secret sauce" in your initial pitch to get their interest. 
The approach that works best in my experience is to talk about *what* your innovation does and not *how* it works. How it works is the proprietary stuff; what it does can not be. 

If explaining what it does means giving away all the IP you have, then you have no chance in the marketplace - once you enter the market, anyone who sees what your innovation does will be able to reproduce it. Unless you can patent what it does in that case, it's not an investable idea.

Having an original idea is challenging and can take years of work. But so is making the prototype, selling the initial products, building the team, executing your business model, managing growth, etc., etc. That's why people say that ideas are cheap (I don't agree, really good ideas are rare IMO): *everything* about building a successful company is hard.

So: be able to express what your innovation does to solve a specific and important problem in a way that no one else is doing it. If you need to consult with a technical person to solve a technical problem, or you've moved beyond the first couple of meetings with the investors, then you need an NDA. 

Before that, your best NDA is not to mention anything that would be critical to a disclosure.  I know you can do it; after all, I've made a living doing it for 10 years! 

Good luck!

Georgia Reash Growth and Improvement Consultant, Sustainable Community Developer, Artist and Minister

November 16th, 2015

Caroline, I've been working with start up for 12 years and NDA usage runs the gambit.  On one hand, it protects you legally but unless your information is truly deemed "intellectual property" - or is trademarked - it is hard to fully protect ideas.  I've used them for my own product development and, all in all, I believe it has helped me appear more established and sound.  On the other hand, I recently asked a successful business man if he wanted me to complete an NDA before looking at his materials and his response, "I've got a thousand NDA's stacked on my desk and I'm using them as kindling for fires".  Basically, his implication was that they are overused and only as good as the intentions of the person who provides one.   All in all - if your idea truly is original, an NDA gives the professional polish, but isn't really necessary if no one else can do what YOU do.  Just don't give the recipe away in ANY of the your documents public or otherwise; just tell them you can cook a really mean apple pie unlike anyone else and what makes you qualified to do so.


November 17th, 2015

Do NDAs matter?

A little company met with Google. Google signed their NDA. The company did the demo. Google said it wasn't interested. A few days later, Google engineers reverse-engineered the idea and started using it. The little company found out. They sued.

Google was obligated to pay a billion dollars.

Yes, even Google steals ideas.

So... Caroline: hand out those NDAs. Keep the signed documents. Ignore anyone who says NDAs don't matter or shouldn't be used.

Jason Evans Director of Product & Managing Director, NYC at Fastly

November 16th, 2015

Almost never, especially with just an idea - everyone's got their own stuff to worry about and idea is just that. Established companies talking to others about their roadmap plans is a different story, but until you get to that almost no one will be willing to sign an NDA.

Braydon Moreno Co-Founder/CEO at ROBO 3D

November 16th, 2015

I think Steve Grigory hit it on the head. At the idea stage, you will most certainly look like a rookie (trust me, I have been there before and someone shut down even talking with me because I asked for an NDA to be signed). Being blunt, ideas are not really worth anything. Executing is the name of the game. 

I would figure out a way to explain it clearly without giving away the "secret sauce" if you will. Throw the hook out there, engage the interest, and then further develop that interest with a partner before you get into how it works and NDA's. Honestly, I share all of my best ideas with anyone and everyone because I know that at the end of the day, they are going to come to me if they want to pull it off. 1 in a billion chance your ideas get taken by someone you know and they go and turn it into the next facebook. 

Go crush it! Work hard! Execute and people will come to you wanting to help- leverage will be in your hand rather than the other way around.