To NDA or not to NDA. That is the question. An NDA (Non-Disclosure Agreement), also known as a Confidentiality Agreement is a document used to protect confidential information.
Confidential information may be in the form of images, software code, financial information, recordings and even ideas and concepts. The agreement can be in several forms: it can be a short email version right up to a full-blown detailed agreement. It can protect confidential information going one-way only or both ways, with confidential information exchanged between parties.
Some people use NDAs to protect their business and business ideas. Others do not bother!
Recently I read an article by James Altucher, who is a somewhat controversial business writer and blogger, claiming that he believes that asking an investor (or anyone) to sign an NDA is “the sign of an amateur”.
Here’s an alternative point of view.
Last week I was contacted by a client who was very upset …
He has spent 2 years developing an App which is based on the data provided by the various States and Territories around Australia. Part of this process was getting permission from the various Government divisions to use their data. One of the States, Victoria, required him to sign a detailed agreement which included paying them for the data and paying royalties on downloads of his App.
Since then, the Victoria Government has released a competing version of his App, with almost exactly the same functionality!
Our client did not ask the Government department to sign an NDA (and he has not registered his App for any IP protection). He didn’t think an NDA was required with a Government division. After all, it was the Government. Who would have thought they’d go into competition with him.
So James Altucher might think an NDA is “amateur” but real world experience shows otherwise.
You have to evaluate what your idea or concept is worth and how much it is really worth to you. The time and effort you’ve put into the idea, as well as it’s potential payoff. If you want to protect your investment, you need to ensure you insist on some form of confidentiality, however short and informal it may be. You may not think someone will use your idea, but in some instances it is done unintentionally and other times people just take advantage when an opportunity presents itself.
Don’t be fooled by any pushback by venture capitalists or investors. They know they have the upper hand and can hold an entrepreneur at ransom in exchange for their investment. They want to keep their “options” open and not lock themselves into any one opportunity. They also cannot all be trusted to keep your idea to themselves.
And you have to question why anyone who is truly interested in your business venture would not agree to keep it confidential. Ask yourself: once they have invested, will they not insist on any further discussions with outside investors or parties be covered by an NDA?