A Non-Disclosure Agreement (NDA) can be a useful tool to protect your business secrets from being leaked by employees, investors, vendors and anyone else who might be privy to confidential information. That said, many people you do business with will be reluctant to sign an NDA—others will outright refuse to sign one.
You want to protect your ideas and secrets, but you also don't want your NDA request to discourage people from wanting to do business with you. Use the following advice to determine whom you should ask to sign an NDA.
Investors or venture capitalists
Don't bother. In most cases, they will refuse to sign one, and if you force it, they could walk and take their money with them.
Most investors sit on numerous boards and work with any number of clients. The chances of them coming across similar products or business models during various pitches are high. Even if your idea is incredibly unique, the next person they meet could have the same grand idea. Investors simply don't want to put themselves at risk for a breach of contract now or down the road.
Furthermore, your NDA could keep them from pursuing promising investment opportunities with people who have similar ideas as yours—and no investor wants to limit earning potential. An investor who signs your NDA but chooses not to invest in your business would still be liable to the terms of the contract. Ultimately, you're competing with business owners who don't request NDAs, and investors will find it easier to forget about you and work with those people who don't bring the hassle of an NDA.
Best bet: Forgo the NDA and instead disclose only enough information needed for them to understand what your product or service will achieve and keep any secrets of the process private. In other words, share the idea or invention but not the steps it will take to make it come to life.
Consider why it would even be necessary to ask a client to sign an NDA. It's likely that you aren't sharing very sensitive information with clients. Plus, any information you provide about the inner workings of your business during the sales process will likely be shared with other clients, making it public information.
If you still think issuing an NDA to a client is a good idea, think about this: When you first connect with clients, you have a small window to build rapport and hook them with a sales pitch. If you spend those initial moments of contact focusing on an NDA, you won't engage the client and could lose the business.
Even if the client is willing to entertain the idea of signing an NDA, it takes time to review it. The client will need to read the document and perhaps have a lawyer look at it. The client could ultimately ask for revisions, which could lead to a good amount of back-and-forth between the two of you. It will delay the sale—and the lead could turn cold.
Bottom line: Growing your business is priority one, so don't hurt your potential by requesting a contract that doesn't really do you any good.
If employees will have access to extremely sensitive information, or if they may learn business secrets over the course of their employment that no one outside the business has access to, you can issue an Employee Non-Disclosure Agreement. Just make sure that you do it upon hiring employees.
If you throw confidentiality agreements at employees after they have been employed for a while, they may refuse to sign it because they worry that they unknowingly breached the agreement prior to you issuing it. Many may decide to quit rather than risk legal action.
Best bet: Issue an NDA if you have good cause, but ensure that you train employees to know exactly what is covered under the agreement and provide a time frame that the contract covers. Examples of information to protect include customer lists, business plans, methods and strategies, research and discoveries, financial information or product launches.
If you plan on granting service providers access to sensitive information, such as financials, mergers or acquisitions data, chemical formulae, customer information, programming codes, technical plans or details, or some other hard information, it is a good idea to issue a Unilateral Confidentiality and Non-Disclosure Agreement. For example, accounting firms will have access to your financials, and IT firms could have access to your entire customer database and more, so you will want to take the extra precaution to avoid a third party from sharing confidential information.
Best bet: Issue the agreement, but also opt to work with highly respectable service providers that assign you a small team to work with. The fewer people who have access to your data, the more secure it is. In the case that your proprietary information is leaked, discovering the culprit will be more difficult if you’ve shared the information with a larger group of people.