Tips for Pitching without an NDA
John Babcock, a partner of Rustic Canyon (http://www.rusticcanyon.com/), explains tips for pitching without an NDA. In some cases an NDA isn't nessessary and can actually complicate things.
- Understand the differences between IP types
- Figure out alternative methods of describing your business
It comes up a lot. We have entrepreneurs in our offices everyday pitching new companies. And one of the things we’ll hear from someone is, “Oh, I want you to – I can tell you about my company but I need you to sign an NDA.”
And you’ll find it, almost universally a venture capitalist won’t sign an NDA for a first meeting and the reason for that is the fear that – of getting sued for not funding somebody and funding someone similar who does it. And so, the idea of, “Hey, I’m going to sell books online,” ten years ago wasn’t something they have signed in for which you would protect with an NDA. It’s a good idea but really executing it is where the value is.
So, I guess for entrepreneurs, I think the first thing to do is to understand intellectual property enough to understand whether something is a trade secret, whether it’s a patentable idea or whether it’s just a plain old good idea. And so, if you think about Google, they did have patentable ideas in the page rank formula. And they have patented it and they have defended that patent. But the idea of we’re going to build a better search engine using our own algorithms doesn’t require an NDA to explain it and telling someone about it doesn’t give them a competitive advantage against you.
So, you have the business idea and you think it’s noble. It’s really important to think about how can you describe your idea in a way that doesn’t require an NDA. What you’re doing may have some secret parts about it but you should also have a business that generally can be described to people. And if you don’t – if pursuing your business requires that what you’re doing remain secret, I’d suggest you don’t actually have that compelling of a business. It’s the same way in computer security, if how you’re providing it needs to be kept secret, it’s not really a secret.
I would encourage entrepreneurs to not be afraid of moving forward for a first meeting without an NDA. As you get in and have follow-up meetings with investors and really get close, it’s fair to demand an NDA that is narrow in its scope and protects some real secrets for your business. But to start off in the business, that has to remain secret, probably isn’t that compelling of a business because eventually, it has become clear what you’re doing because you’re going to be doing it.
It’s an area where I think that the biggest harm it does to entrepreneurs is it communicates on naiveté to investors that you don’t really understand how you’re going to go out and compete in the world if everything needs to be kept secret from the word go.