Will Investors Sign an NDA When Considering Investing in Your Business?

If you are a startup or fledgling business, and you need cash in the form of investors, you may find yourself in a conundrum:

On the one hand, you need investors, and investors want to know what they are investing in—which necessarily entails that you give investors some of the “secret sauce” that makes your business (or potential business if it is a startup) what it is.

On the other hand, you don’t want these potential investors taking what you tell them, and making it public—or worse, sharing it with competitors.

So how do you do this? How do investors get the information they need to determine whether they want to invest, all while you protect the things that are most secret about your business?

Signing an NDA

You could get or at least ask investors to sign a nondisclosure agreement (NDA). But most every investor who invests routinely, will object. An investor hardly needs the liability that could come with signing an NDA, just to hear your pitch. The investor can just move onto the next startup, that doesn’t require the investor to sign anything.

And because investors often may invest in multiple businesses, investors don’t even want the appearance that they are violating an NDA.

Many investors are also savvy businesspeople, and will never sign a document like an NDA, without legal counsel—and they aren’t going to spend the money attached to a legal review of an NDA, just to hear your business pitch.

So, for most investors, your proposed NDA is most likely a nonstarter.

Pitch Without Protected Information

Your best bet? Create a business pitch that doesn’t require the disclosure of any protected secrets. Yes, you can make a meaningful pitch to investors, and get them to invest, without jeopardizing your trade secrets, and if you don’t have such a pitch, it’s time to create one.

You should be able to give a pitch for the business that details more what your business is, than how its run, how it operates, or how it is developed. You can tell investors about your idea, without telling them how it is made.

There must be some part of your business that isn’t protected, or which isn’t so private that it constitutes a trade secret. That is where your focus should be. Not on explaining to an investor how your business operates, or the ingredients, recipe, technology, or processes related to your new or proposed business.

Later NDA

If there is information that is sensitive and protected, which you feel must be shared, save it until the end of your pitch, or in later meetings, when investors have shown an interest in investing.

Establish a relationship with investors, and wait until they have an interest in potentially investing, when they may be more amenable to signing an NDA.

Call the West Palm Beach business lawyers at Pike & Lustig today for help with your startup business.

Source:

nytimes.com/2014/07/03/business/smallbusiness/why-more-start-ups-are-sharing-ideas-without-getting-legal-protection.html?ref=business&_r=1&module=ArrowsNav&contentCollection=Small%20Business&action=keypress&region=FixedLeft&pgtype=article