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A VC wants me to talk to one of her companies ... should I be worried about my IP?
We're a startup using machine learning to improve a particular space in e-commerce.
We have a VC who seems genuinely interested in investing in us, but there's one problem.
She's invested in a company applying somewhat similar machine learning techniques in a different domain (the founders of that company are supposedly machine learning experts and they're from academia), and although she didn't say it, we obviously came to the conclusion that she wants us to meet with them to see if we check out.
We had a short call yesterday and after chatting with the founders for a little bit and showing them our MVP, I realized two things: (1) they have some of the same challenges we have and (2) they want to know very specific things about our engine.
We have another longer meeting coming up, in which we're supposed to dig deeper into our technology with them.
If the founders were from the firm, I'd be less worried, but in a world where startups pivot all of the time, I'm very worried about openly discussing the specifics of our engine with them, especially given that we've had to solve some challenges that I don't know that they've solved at their company.
Added to that, in our first call, the founders made the meeting like an interview, which felt a bit awkward to me, because I'm not interviewing to join their company ... I just want to give them a good idea about what we're doing, so that we "check out".
I want to call the following meeting off and move on, or bring this up to the investor, but I'd love to hear your thoughts, FD!
Diego Basch Entrepreneur
Holder of Self-Referential Title
You obviously know what things you don't want to disclose to a potential competitor. It's perfectly fine to say: "I'm not at liberty to discuss those details, but here's what I can tell you..." or "sorry, I'm afraid I cannot answer that question because it involves confidential information."
If that makes you not "check out," you did not want that investor on board.
Anthony Miller Advisor
President & CEO at millermedia7
Run for the hills!
Rob Gropper Entrepreneur
Director at PetHero, SPC - Member at Eastside Incubator - Principal at Tuxedo Technologies Group
set ground rules and expectations up front. Ask questions until you are sure you understand their objectives and be clear about your expectations for the next meeting. Of course they made the first meeting like an interview - they want to see how you think on your feet. Investors want to invest in smart people and it is smart not to put all your cards on the table. It's perfectly OK to push back or, as Diego mentioned, simply let them know that you aren't prepared to disclose certain details.
Richard Ramirez Entrepreneur
Director at Zumbox
Trust your instincts ... If there is other money interested in your company ... Move on, if you have enough cash on the Balance Sheet to keep seeking investors, do so .... Trust you gut ... If you have some doubts ... Seek out portfolio company that has exits from that VC and ask about their behavior ... The partner you are dealing with specifically ... Trust your gut. Sent from my iPad
Tom Maiaroto Entrepreneur • Advisor
Full Stack Consultant
As you know, VCs definitely will refer you to others they know, work with, or even have invested in to do their due diligence. So I wouldn't typically be too concerned.
In fact, it may even feel like an interview because those other founders know exactly why you're talking to them. So they may feel pressure to ask questions in a particular manner to appease the hand that feeds.
However, I'm not sure how much of a "deep dive" should be going on in these conversations. I've never had such a deep dive myself when I was sent through the gauntlet so to speak. You should be able to talk about high level concepts and that should be enough.
By high level I mean something like - "I built this ANN to do this" or "I'm using this naive bayes classifier on this set of training data to classify this" and it should be plausible enough. You aren't proving technical theories. This isn't a college course (and maybe it's just their academic background driving that). It's a discussion that should help assess viability in your technical approach. Period. Nothing more.
All they need to be able to do is to turn around and tell the VC is, "yea, they seem to know their stuff and yea they can use that math to draw those conclusions for their product." Period. That's it. If they are asking how you solve very specific problems then I do start to worry.
You should absolutely ensure there's an NDA with that company. VCs won't sign an NDA of course - but these other guys should have no problems with that and you should make sure they do.
If they do have an issue with that, then that's another red flag as far as I'm concerned.
If you feel the conversation is heading in a direction you don't like, try to steer it back. You can throw it back at them and say just what you said here - "seems like you have some of the same challenges; maybe there's ways for us to work together."
NOT you work for them, but "together" as in they "need" you too.
Or "...you guys may even be interested in licensing what we have because we can break it out to provide technical solutions across multiple domains, but our product isn't even close to what you're doing so I see no conflict there if you like." if you want to be a little more bold or to the point. They'll get it.
You want them to like you of course, but at the same time they need to respect you. Remember they are going to report back to the VC.
In this particular case with this particular VC due to what they have invested in, you may have a different option available to you. They may be interested in your tech and team. It might lead to a smaller, earlier, acquisition option for you. Depends on what you want to do though. You might not want that early exit. It won't be as large (most likely), tech plays like that never are...But it's a lot less work!
What round is that other startup in? That might shed some light on the situation. If it's later on, they might be looking to diversify and acquire smaller companies and IP.
So don't be too quick to feel that they are looking to just get free info. There could simply be something else they are all interested in that may or may not be in line with what you're thinking or wanting.
John Berg Advisor
Privately Held Semiconductor Company
Daniar Hussain Advisor
Founder & President at American Patent Agency and American Pioneer Ventures
Bring is up to the investor! This is an obvious answer. Why work with an investor U can't even feel comfortable bringing up these normal questions? If u don't feel comfortable -- RUN -- not walk - from this investor ASAP! Good luck in your journey! I'm excited for you!
Peter Weiss Entrepreneur
President at American Outlook, Inc.
Assume they are smarter than you both in terms of technology and in terms of interviewing.
A good interviewer learns much more from the interviewee than the interviewee has any idea he/she is saying.
Garland L. McLaughlin (The Consultingguy) Entrepreneur
Digital Marketing Professional
Have the investor sign a mutual non disclosure agreement.
Lane Campbell Advisor
Time to have the investor sign a letter of intent with a personal guarantee that they will invest but include an exit clause that charges them to walk away without investing. Make it hurt. If they try and walk away from you without investing after you divulge this information you should get paid. If you are seeking $1.5M charge them $1.0M to walk away with nothing. Use that to fund your business.
Don't discuss anything else with this company until you have that in hand and an attorney signs off.
If you need a lawyer call Sentient Law http://www.sentientlaw.com
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