I agree with almost all of what you said. Your comment "It's simply a waste of paper and time in anything but M&A" I think could be a little overreaching. I think entrepreneurs should be diligent about requiring potential key hires, contractors and business/strategic partners (except vcs of course) to sign one. It does have the effect of letting the other party know that you take your intellectual property and the discussions seriously, especially where discretion may be important (and it often is). Having said that, I do recommend keeping the NDA simple, to 1 page (12 pt font) and making it mutual. I agree that enforcement is unlikely but that does not take away from the power of having someone promise not to tell in writing vs. informal promises to keep things confidential.

A few comments:

- Separate from your reasons, I think the underlying reason VCs don't sign NDAs is that they don't have to. They're the ones with the checkbooks -- simple negotiating power instantiated as a standard practice in the industry. ALL of us could claim your same reasons for not wanting to sign NDAs -- I don't like to sign them -- but I don't always have the negotiating power to say no. Witness your example with the big companies.
- Entrepreneurs shouldn't be talking with VCs about details that need to be protected by NDAs (you make this point generally). If the idea is technical and the entrepreneur plans on patenting it (for example), well, the VCs aren't going to understand those details and in any case it's not what they're really interested in hearing about - they want to know how you make money. If it's a non-technology idea, either one of two things is true: (1) nobody else has your idea, you've really come up with something new. In this case, you are WAY WAY WAY too early for VC money. (2) Seven other companies are working on it at the same time. Good idea, good timing! But it's not like there are any secrets here.

Plus, the key to a successful startup isn't the idea, its the execution. Entreprenuers shouldn't be worried about someone stealing their idea.. they should be worried about who's already executed on it or will outexecute them in the future.

We're going through due diligence right now. I did not ask for an NDA while explaining the idea pretty in depth. But they want a copy of the code to run a deep code review. Are you suggesting we don't need an nda?

I can't think of any good reason why a VC would need to do a "deep code review" before making an investment decision. I'd push back hard on this - what are they actually trying to accomplish? This seems like an unreasonable and overreaching request.

"the key to a successful startup isn't the idea, its the execution."

Nonsense. What good is perfect execution of a lousy idea?

"Entreprenuers shouldn't be worried about someone stealing their idea"

Of course they should be. Sometimes having a lead time over others of 6-8 months can make all the difference in the world, in terms of marketshare, mindshare, sale, funding, etc.

"they should be worried about who's already executed on it or will outexecute them in the future,"

BS. That's one trick VCs use to cheapen the value of having good ideas, as if having good ideas so easy. Just another tactic to devalue founder's value.

Just because VCs are condescending and have the upper hand in negotiations shouldn't mean that you should give away what you don't have to.

On the last post..

how do you know it's a lousy idea? - execute with a customer and that will tell you all you need to know

6-8 month head start - I agree with this... build it, take it to a customer and get them to validate it. Are they willing to pay for it. If yes - go meet with the VC's - if not - back to the drawing board

Value is created when you build something meaninful that solves a customer problem.

Underlying technology is good - having customers write you a check is a better problem to have than worrying about an NDA

I've been doing startups for 16 years. NDA's are good for M&A - the rest of the time they're a pain. Customers don't care about the tech - what they care about is can you solve their problem.

Start solving problems which customers are willing to pay cash for will get you serious mileage

I wonder if anyone has tried to break a patent by arguing that the idea was disclosed to VCs. (Pre-application disclosure invalidates almost all foreign patents. The US currently has a one-year-after-first-disclosure rule.)

The simplest explanation why VCs dont sign NDAs is that they have the money and they set the rules. Don't like it? Go somewhere else :)

"how do you know it's a lousy idea?"

You can discover "lousy idea" patterns by looking at all the companies/ideas VCs sunk money into that have miserabley failed just in the past decade, for example.

"Start solving problems which customers are willing to pay cash for"

Sure. But that's deceptive as well. You can have short-term success with a client, get excited about the "validity" of your idea, but then entirely miss a much greater opportunity because you rushed to get a paying customer now at any cost, mortgaging future potentialities. It's not always that clear what/where your eventual market opportunity is.

I'm not sure what any of this have to do with a VC refusing to sign an NDA, though. As an enterpreuner I would want to protect whatever advantage I might gain by denying free acces to my ideas/plans to my competititors facilitated by a VC. From my POV, I don't care that a VC is claiming that this complicates their life. Though.

It's a power play, nothing more.

Brad, I agree with this completely. I think there's another important point here that I believe is critical. If you think you have a really good idea with a potentially large market and have thoroughly thought through the shorter and longer term vision, then sharing the idea/initial plan can never harm too much because even if some VC/entreprenuer were to copy that idea, you still have a much deeper vision for it (though ofcourse it can be better-ed by the other guy) and it would take time for someone else, who is merely copying the idea, to reach to that level. And by then you would have executed, learnt more along the way and would be further along in the cycle.

Also, the other perspective is that its difficult to imagine that there are a lot of unique ideas that are being thought about/pursued by just one person. For (almost) every good idea, there have to be multiple people already thinking about it, so its meaningless to fret about the NDA. Once the idea is good, the success still depends on the execution (I guess this is was what one of the posts above meant, but it was taken in a different context).

One question I have is: Would you share your idea/upcoming feature plan with a potential partner, who may be an exit option for you...and considering that there is also a danger of them building it themselves? Would you do this without an NDA? Assume the partner is a public company and you are a nobody, but smart, startup.

As a growth and buyout stage private equity investor, I also find it difficult to sign NDAs. The only NDAs that we take seriously are the M&A ones also, as there is a point to signing one in that case. Someone said why not sign a simple one. What is the point then? A simple one page NDA leaves way too much room for interpretation and margin for errors when it really comes down to it. I symphathize with the entrepreneurs' logic that what they are working on is indeed the most important thing to them and deserves protection. But if I have to negotiate an NDA for even 1/3 of the deals that I look at, I would spend my days reviewing NDAs and have to have an attorney on staff full time. That is not practical. I have had to leave a couple of times because the company insisted on an NDA before they would even do the elevator pitch. I never found out if they were a billion dollar idea that I missed....

I suggest that one always do some level of due diligence anyway with the VC. What is their reputation? Have they funded companies in similar space? How do they work with the companies? Those are important questions to ask. After all, even though we are the ones with the checkbook (and on paper seems to have all the power), at the end, the CEOs are what makes it all work.....

Brad -- Prepare your own standard form NDA for dealing with entrepreneurs, take it or leave it. (Startups readily accept that approach from more established partners and customers. And they will especially appreciate that you made an effort to deal with their concerns. ) You can even put it on your website. You’ll never have to read it or keep track of it because it should reflect how you do business anyway.

There you have it , 'NDAs for VCs'. And we can argue later if it is less arrogant or more practical.

All I can see here is that, if you happen to have an idea that is worth protecting then do not go to a VC. An entrepreneur approaches a VC to try to make a vision real. Such is the case with me. I have yet to approach any VC’s, and won’t until the product is ready for consumption, and the theories prove themselves during an alpha rollout to a set amount of parties willing to sign a NDA. The relationship between an investor and a entrepreneur need’s to be one of trust. With the reputation that VC’s have how can that trust be gained with a reluctance to respect a potential entrepreneurs privacy.

In contrary, I do believe that ideas can be envisioned that have not yet been/being thought of. The technological domain is still very young as far as sciences go. A lot of ideas are not just technical. The business model is just as important as the technical part. That model is easily and rapidly duplicated. You may “think” that we have reached the limits of business model, or implementation model concepts that could take advantage of the long tail. But, you would be wrong.

A VC has many interests financially, and it’s quite easy to talk about an idea you heard from an entrepreneur and pass that on to one of your ongoing interests that could be a direct potential competition of the entrepreneur. Don’t talk about ethics. I know of a few entrepreneurs that got the royal pickle from a VC.

So with that, I ask this. Would it be appropriate for an entrepreneur to ask a VC for a list of their existing “active” profile? In an attempt to identify any potential conflicts of interest, before getting into any type of meeting?

If not, then it’s not a 2 way street after all…

It's completely reasonable to ask a VC what companies he's involved in. Many publish this openly on their web sites. Mine are all listed at either www.feld.com or www.mobiusvc.com. Also - whenever I think there is any potential for conflict, I immediately tell the entrepreneur so they can decide whether or not they want to share any additional information with me.

> It's completely reasonable to ask a VC what companies he's involved in.

Except that they shouldn't tell about their stealth companies.

Note that an NDA doesn't handle this situation either.

Full Disclosure: My cousin was a partner at a top-tier VC in Silicon Valley. Her boyfriend was funded by (arguably the top VC here. I've worked as a top exec (VP/C-level) for 4-5 VC-funded companies (none were dot-com), started one that got to funding with another top-tier firm (then blew up in a classic S.V. "how-to-get-screwed" story), and am doing another now with private investors. I have several friends who are VCs. So - I know a little bit about this stuff first-hand, too.

(A) I utterly agree with the original post. If I were a VC, I'd NEVER sign an NDA. (I don't have to, it does in fact create serious problems/issues - for the VC to track, and they DO look at lots of similar deals.

(B) I absolutely know, and have been told by VC friends, that your IP information is NOT going to be totally respected. VCs do and will hear pitches from many competing companies, and do and will fund one of them while still milking the others for information. ("We still have a few questions about the Feemster process....") It's not illegal, it makes sense, and it helps them help their portfolio to know what else is out there.

My personal advice is this: tell VCs what they need to know to get the next meeting. Carefully examine your crown-jewel nukuleer seekrits, and figure out how to disclose the benefits and results, rather than how you're going to do it. If you have a fundable model (and, it's (almost) always more about the team and plan than it is about the tech) - tease them, rather than open the kimono all the way. Make them ask for the details, and the next meeting - if they don't, your pitch isn't going to work anyway (or it's a bad pitch).

Think of it this way: if you were a VC, and you hadn't signed a damn thing, and you heard all kinds of top-secret stuff that competed with a company you eventually funded -- what's stopping you from sharing it? Honor? HAH! Lemme tell you 'bout a bridge I got for sale.... Here, just sign this NDA....

Andrew