The Tension of Confidentiality

I’m a huge believer in TAGFEE. But I also respect confidentiality. Every company approaches this differently and it’s important to recognize which context you are in. Following is an example from an email I got (on the all@ list) from a company I’m on the board of (and yes – I checked to make sure I could post this.)

You know what they say about flattery, right? That’s an idea worth keeping in mind when someone is talking to you about what we’re doing here at as friendly compliments and questions mask an effort to obtain confidential info.

We’ve talked as a group about this frequently, but it merits another mention because we’ve seen a marked increase in the number of people that have various approached members of the team with questions that quickly get to the heart of our core technology. They pay compliments, they smile, they flatter, etc., but they’re looking to understand details that should never be discussed with outsiders, even if there is a NDA in place. As is often the case with being at a hot tech company that’s pushing the envelope on various fronts, it’s a double-edged sword. We’re doing cool stuff and people love it, but some of the attention we can do without.

So, another reminder–be wary and keep what we’re doing in house. If you’re in doubt about how to answer sensitive questions, it’s easy–don’t answer. Instead, ask for their contacts and forward them on to me.

I’m seeing this more and more from all directions. The most challenging are from VCs who have a competitive investment – it never surprises me how shameless some are about milking entrepreneurs about what they are up to when the VC has zero intention of investing. It’s also pervasive with journalists and tech bloggers who are always looking for a scoop and an angle. It’s always been something big tech companies do with startups in the guise of “business development”, but I’ve seen a few situations recently which clearly crossed a line of “wow – that wasn’t appropriate.”

So – be careful out there. Respect the power of TAGFEE but also respect when things should be kept confidential. And remember that most people out there will be asymmetric with information if you let them, especially if they use this information in their line of work.

  • Rob

    Confidentiality seems to me to be a huge double edged sword. If you are a startup in a competitive space and the market is clearly defined, then it is a good idea to be open and communicate to push the space forward but what if you are creating a new space? Quite often the truly great ideas are simple and easily mimicked and to out that before you have some market traction is crazy.

    The real nefarious point that Brad brings up is that VC’s present under the guise of “we don’t do NDA’s” which to some illustrates an implied trust. You don’t fuck me and I won’t fuck you. But as Brad points out this goes on a lot.

    Startups should have the benefit of being copied once they are out in the market and not during the fundraising process pre-launch. VC’s have too much to gain by taking recon meetings to bolster their under-performing portfolio companies by stealing your ideas.

    Anyone who tells you ideas are worthless are probably trying to steal some of yours.

    • http://www.feld.com bfeld

      I agree with everything but your last sentence. I think many entrepreneurs overvalue their ideas – especially in contrast to execution.

      In many cases, I don’t think the VCs are trying to specifically “steal ideas” but they are trying to get whatever info they can to better understand the market dynamics, potential products, and potential competition. That’s different than “stealing ideas”, but not necessarily any better in the context of being disingenous about investing.

      • Rob

        Yes agreed. What I mean by ideas is the intellectual capital of the founders which manifest as tangible actionable ideas and the thought process of the landscape. One begets the other.

      • http://petegrif.tumblr.com/ Pete Griffiths

        For them it is ‘market research.’ No problem with that. It’s just that (a) there is no necessary upside for the discloser, and (b) people receiving information in such contexts often quickly forget quite where they heard it and can subsequently be indiscrete not for Machiavellian reasons but just in process of exchanging the currency of the business – ideas. (incidentally – it is exactly the same in most other businesses e.g. investment banking, journalism and movies)

        • Rob

          A new definition of “ideas” needs to surface. If we are talking about ideas as some abstract notion with no plan on how to manifest it then they are fairly worthless. Example – I have an idea for an online auction marketplace = worthless without execution.

          To me an idea is the execution. Example – I have an idea for a microblogging service and here it is how it works – use our prototype. This is an idea without product/market fit but worth loads more than the previous example.

          This is where you need to be careful with confidentiality.

          • http://www.feld.com bfeld

            “To me an idea is the execution.” I’d suggestion that by saying this, you mean pretty much the same that I do, namely the magic is in “the execution of an idea”

          • http://www.kineplay.com/ben Ben Milstead

            With respect to NDA’s (in my industry, games), an “idea” can be even the most basic concept (a gameplay mechanic, for example) and doesn’t need anything resembling execution to be “confidential information”. It’s common for the “idea” to be treated as if it’s the Higgs boson confirmation, even though we all know where the real value/magic is. Most NDA’s are so utterly pseudo.

          • http://www.feld.com bfeld

            Pseudo is such a nice word for “NDA”.

          • http://daleallyn.com Dale Allyn

            Is that “bovine pseudo”, “equine pseudo”, or just plain ol’ pseudo?

            ;)

        • http://petegrif.tumblr.com/ Pete Griffiths

          Perhaps one of the tricky elements of discussing this topic stems from the fact that we often talk about ‘ideas’ in the context of ‘an idea for a business.’ But ideas can absolutely be about how you are pursuing that idea and in this context for a competitor to learn about it is normally described as ‘intelligence.’ States and companies pay a great deal of money to obtain intelligence for a reason – it is valuable. So ideas can have real value and they can have such value even at a relatively early stage in a company’s life. If you have found a pot of gold, why shout about it? :)

          • Rob

            @Pete. Ideas are soft and abstract and the tentacles they form are the basis of a great idea which leads to the execution. These little insights are what are more important to a discerning copycat than the concrete execution. In other words, defining where the puck is going.

          • http://petegrif.tumblr.com/ Pete Griffiths

            I think there is a great deal of truth to that. And Imho that is what is meant by ‘intelligence.’ As in ‘military intelligence’ or ‘market intelligence.’ Those kind of insights can be critical.

          • Rob Simo

            @pete yes. Intelligence is the perfect word. What say you on the dissemination of intelligence @brad?

          • http://www.feld.com bfeld

            I tried to follow this all but am struggling to process the whole argument and why “intelligence” is a better word than “idea.”

          • Rob

            I guess the point is do you think it is ok for VC’s to disseminate the intelligence of a founding team to another team?

            Remember that sometimes people don’t pivot as a result of new information in the same space but can do a complete reboot if the idea is viable and easy to copy.

          • http://www.feld.com bfeld

            I don’t know what “disseminate the intelligence of a founding team” means. Sorry for being dense, but I think the precise words mean a lot here. For example, a lot of founders get a lot of “intelligence” from me – should they be prevented from disseminating this “intelligence” to other people?

          • Rob

            It depends. If it’s secret sauce does it not deserve to be kept confidential? I would say if someone has disseminated secret sauce information to a VC regardless of whether or not the VC thinks it is secret sauce, that info should be respected. Is that not what the article is about?

          • http://www.feld.com bfeld

            Since my world is software / Internet, let’s use that as the domain for “secret sauce.” I don’t think I have EVER needed to hear any “secret sauce” to make an investment decision. More importantly, I don’t think that secret sauce matters that much in software. Things shift so quickly on the innovation curve that the long term vision and the short term execution is what matters. And neither of these are “secret sauce” nor do they need to be.

          • Rob

            Fair enough but I thought this article was about doing recon under the guise of bizdev on other companies and not how investment decisions are made.

            I agree with you on long term vision but short term execution can be secret sauce. Not in the patentable sense but in the race to get the highest amount of traction. In the case of a social network, one of the most important elements is how fast you can get to scale and a new distribution strategy certainly qualifies in my book.

            Information flow is rarely symmetric. Maybe in quantity but rarely in quality.

        • http://www.justanentrepreneur.com Philip Sugar

          This is exactly right. It has to be a two way exchange of value. Just because somebody asks you a question you don’t have to answer it. You might decide to answer just to be “friendly”, “pass it along” or to “give thrice before you expect to receive” that is totally great and I do it all of the time but you should realize that is what you are doing.

          And your second point is spot once you learn information you assimilate it and turn it into your own base of knowledge. Again no problem.

  • http://petegrif.tumblr.com/ Pete Griffiths

    I agree. This is closely allied to the overblown ‘Ideas are worthless, what matters is the execution’ meme. (my feelings about that here: http://petegrif.tumblr.com/post/3746011811/is-the-what-matters-is-execution-argument-valid)

    Ideas big and small can be extremely valuable. Discretion can be important. Timing does matter. IP does matter. Generalizations about the iniquity of software patents are just as one-sided.

    Sadly, these memes can lead inexperienced entrepreneurs to disclose information best held tightly. So thanks for the public warning.

    • Rob

      I read that linked article and couldn’t agree more. The meme is definitely pervasive due to the fact VC’s sit there all day listening to the latest group-buying/check-in app and don’t get that Eureka moment at the idea level all that often. So they are left with looking for the Eureka moment in the team or execution level of the not so great idea.

      You can’t blame for having this bias as it’s a result of listening to many agonizing pitches but what you can blame them for is the “inadvertent” slipping of ideas and saying they’re not sure where the idea came from … “it was just in my head”

      • http://www.feld.com bfeld

        Remember that the VCs aren’t the ones actually doing much here other than being an information conduit to other entrepreneurs.

        • Rob

          Isn’t “information conduit” another word for “disclosure” which is the whole point of non disclosure agreements? In the absence of an NDA you have an implied DA.

          • http://www.feld.com bfeld

            Not really. NDA agreements are incredibly weak documents even when drafted correctly. And they are often not drafted correctly so they end up either being totally useless or overreaching, which is also useless.

    • http://www.feld.com bfeld

      Pete – thx for weighing in. I wish I could comment on your blog post but comments don’t seem to be open so I’ll try to comment here a little (to this, and the post you link to on your blog.)

      I am a strong proponent of the “ideas don’t matter, execution does.” To actually have a discussion about this, let’s only focus on “great ideas”, of which I believe there are a lot of. However, many people have similar versions of these great ideas (there are very few truly unique great ideas in my experience). At the same time, very few people can actually execute on a great idea. So – again in my experience – it’s relatively easy to have a great idea, but extremely hard to execute on it.

      In the specific case of “software”, my argument is that the notion of patents simply is an invalid one. There’s a long history around this and we are currently in the the end-game of the mess that was started in the early 1990s. It’s unclear how it will resolve, but it’s going to get a lot worse before it gets better.

      • http://petegrif.tumblr.com/ Pete Griffiths

        Brad – tks for your take. We agree on a lot (a) execution matters for all ideas. (b) it is common for multiple people to have closely related ideas at much the same point in time (c) there are few great unique ideas. I think our difference is largely one of perspective and ‘tactics.’ The key difference between the entrepreneur and the VC is that whilst the VC sees your idea as one of many and execution dependent this is the only idea in the entrepreneur’s life and how much is disclosed to who is part of that execution. The entrepreneur therefore has to CONSCIOUSLY manage how much is disclosed to who under which circumstances. My concern has been that a one-sided ‘it’s all about the execution’ combined with an ideology of ‘disclose to everyone so you can get as much feedback as possible as soon as possible’ can result in inappropriate disclosures and leaks which result in competitive disadvantage. That is why I applaud the original post, because the management in question is conscious of this danger and is managing it.

        On the topic of software patents – it’s a mess. But here too I don’t agree with the dominant ‘let’s toss it all away’ meme. However, we have crossed swords on this before :) Best discussed over beer.

        • http://www.feld.com bfeld

          And a healthy sword crossing at that! I learn from all the different perspectives and they are helpful – I appreciate you continuing to weigh in even when we disagree.

          • http://petegrif.tumblr.com/ Pete Griffiths

            :)

  • http://abdallahalhakim.tumblr.com/ Abdallah Al-Hakim

    This is an excellent rule and a warning to those super excited about their technology or idea that they reveal too much. I can’t claim that I am not guilty of talking too much sometimes but I learned a long time ago to know what I am talking to and do my homework about them.

  • Jason Keck

    Great post. I have read at least 5 articles in Inc. and Entrepreneur magazine in which a start-up stole their idea from a business plan competition or VC pitch.

    • http://www.feld.com bfeld

      I think the phrase “stole their idea” is a dangerous / overreaching one. I’m a strong believer that the idea doesn’t matter than much and in many cases the “idea that was stolen” was already an idea that was out there. This isn’t about “stealing ideas” as much as it is about asymmetric information exchange (e.g. people using you but not giving you anything back).

      • http://abdallahalhakim.tumblr.com/ Abdallah Al-Hakim

        I just watched vooza.com video which is a hilarious spoof on startups. It got me thinking that it proves your point about the super importance of execution and the over emphasis on ‘stole their idea’ concept.

  • http://blog.kwiqly.com/ James Ferguson @kWIQly

    I would like to call out the opposite for the record. – Credit where it is due.

    I met over the wire with Matthew Garrett and Jason Matlock at Battery Ventures http://www.battery.com/ late last year in order to start lining up some dots for our upcoming seed round.

    They were about to close their recent round into http://CleanUrbanEnergy.com who are possibly our nearest competitor. Its a very big market with only a handful of credible solutions worldwide and some very closely guarded technology – heck I keep myself from knowing what I’m doing half the time :)

    Now while our tech at http://kwiqly.com is obviously miles ahead and can knock their solution flat on its ass (perhaps I am biased – we expose very little of the solution on the site), I must give 100% props to Matt and Jason.

    These are stand-up guys – AS SOON as it appeared to them that there was significant conflict of interest and tech. overlap they closed me down and stopped listening. I was actually amazed they joined the dots as fast as they did, but I see now the round is public the call was clear and correct.

    I would recommend any entrepreneur to contact them and feel safe they would be handled with the greatest integrity at Battery Ventures. Anyone who knows Matt or Jason say I said hi – stand them a beer and commiserate with them on the one that got away – who knows maybe after the first beer they may join me for “A round” !

    Finally – a word to the wise ( and a tip to VC ) – check European Investment options if you are looking Greentech / Cleantech before you throw your money down the toilet – Europe has been doing energy efficiency since the stone age – In the US it started earlier this millennium with a bunch of execs flying by private jet to a fireside chat about the motor industry:)

    • http://www.feld.com bfeld

      That’s a great example of good behavior – thanks for calling it out and listing the guys at Battery by name. It makes me happy whenever VCs behave well on this front.

    • http://blog.kwiqly.com/ James Ferguson @kWIQly

      Minor typo – Recent round was http://www.cleanurbanenergy.com/ – I don’t imagine VC fund themselves (but hey I would loeto see them pitch themself :)

  • Afzal Amijee

    As an entrepreneur, confidentiality is always my concern, but as Brad re-emphasized, its almost always all about execution. Nonetheless it can sometimes be hard to determine how much to share, so below is my approach:

    Do your homework: Before I speak with a VC I will do my homework, I will spend time reading about their portfolio companies and try to understand better if they have competitive investment.

    Be direct: I will ask straight up, do they have any portfolio companies that may be a direct competitor. If yes, then I will continue with some caution. And never be afraid to stop the meeting, if it becomes awkward. This in itself is already a bad sign!

    Its a Date: I am never ready to tell all on my first date. Second like any good date it has to be a two-way information flow.

    I am sure there must be other/better approaches out there….and I am always learning!!

    • http://www.feld.com bfeld

      Very good approach, especially the notion of stopping a meeting if it becomes awkward. I will often do this as the investor – if someone is telling me something that potentially conflicts with something else I’m involved in, I’ll stop the conversation, explain my potential conflict, and let them decide if they want to keep going.

  • http://www.justanentrepreneur.com Philip Sugar

    I think you buried the best thoughts in the last paragraph. Didn’t you give Fred a hard time for that :-)

    It is so true that most people will be asymmetric with information and with value exchange.

    • http://www.feld.com bfeld

      I sure did – good memory! I prefer to think of this case as “the conclusion” but you are correct that I accidentally buried the lead.

      • http://www.justanentrepreneur.com Philip Sugar

        Yes. The important point is that it is an affliction of smart people. All of your life you have been rewarded for showing how smart you are.

        I have been amazed at how much information engineers will give out at a trade show booth to people that they don’t have a clue about. I have always had to work with people to make sure we give out enough information but that we are getting back the same amount.

        Its like tennis, you should be asking a question for each question served. If the other person doesn’t want to answer your questions, you know you are getting used and should provide them the same treatment.

  • http://daleallyn.com Dale Allyn

    This is a great reminder, Brad, especially for those who may be new to the business world. Team members, employees, everyone with access, must understand the importance of the control of information in business. Transparency is good, but timing and control are important.

  • http://freepository.com John Minnihan

    Over the past few years, I’ve been experiencing the inverse of this: C-level friends share confidential stuff w/ me in private conversations. Sometimes it’s ‘hey, what do you think?’ and other times it’s ‘here’s what’s going on’.

    I have no trouble keeping any of that close, because holding business secrets is a huge part of what I do (Freepository, Amazon, WMDC, Oracle, Juniper, SAS, etc). When I’ve pointedly asked ‘why are you sharing this w/ me?’, the invariant response is ‘I feel like I can trust you’.

    Not sure if this is *the* norm, but it’s certainly become the norm for me.

  • RBC

    Hey Brad, great post and great to see discussion taking off to near Fred levels! Seriously, the quality of the posts recently has been outstanding and I’m trying to find that MAKER switch inside of me!

    • http://www.feld.com bfeld

      Thx – yeah – as I rush around less I have more time to think and write more deeply. And I like that.