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When should you sign an NDA?

Would you sign an NDA with a founder of a startup that currently has a first prototype, 4 part-time employees and no funding? All he has told me so far is that it is a networking app. My hesitations lie in the fact that I will be legally bound to broad ideas that will limit me from doing other similar types of projects. Thoughts? is this a concern? The founder currently gave me a one way NDA. If people know of others that are more favorable for both parties, please let me know as well.

42 Replies

Jacob Kojfman
0
0
Jacob Kojfman Entrepreneur • Advisor
Experienced technology and corporate lawyer, focusing on SAAS
Hi Julie, You can try to limit the NDA to the prototype and any trade secrets he tells you/shares with you, and specify that you are not prohibited from pursuing other projects in that space. If you're that concerned about it, consider taking it to a lawyer. You
Umed Latifov
1
4
Umed Latifov Entrepreneur
New Ventures
Yes. As long as it's reasonable and just relates to info that the business discloses to you or which arises during your work/interaction w the business and info that is not public (NDA would not cover public info anyways).
Detrick DeBurr
4
0
Detrick DeBurr Entrepreneur
Co-Founder at Game Time Giving
http://onstartups.com/tabid/3339/bid/189/Startup-Reality-Distortion-3-The-Fallacy-Of-the-Non-Disclosure-Agreement-NDA.aspx
Lawrence I Lerner
1
0
Lawrence I Lerner Entrepreneur • Advisor
Digitalization and Transformation Coach
Without knowing the particulars of why they are disclosing confidential information, it's hard to give an informed answer. Most VCs will not, I and I do not, sign an NDA just to have a discussion. It doesn't matter what level of maturity their business is in.

Have the founder keep it at a "lost my presentation on a bus" level. If there is really something proprietary and compelling you may consider it. If it is that unique, then they would have likely filed a patent and the NDA goes out the window.

You can and should always get advice from your lawyer.

Cheers
Travis Workman
1
0
Travis Workman Entrepreneur • Advisor
Founder/President at Cognisoft
I have given up on signing NDA's primarily because I do some Angel investing. Here is my feeling on these things. If you sign an NDA you contribute to that idea as well however you have no recourse in getting them to not use your idea's that could make their product better even if the company fails then starts back up a year later or they do some other sneaky kind of deal like make it an empty company while they move the assets to a profitable company leaving you out. The short and the long, I don't believe anyone seeker a founder/co-founder/investor should make them sign an NDA. Thanks,
Shobhit Verma
4
0
Shobhit Verma Entrepreneur • Advisor
building an adaptive recommendation engine
Ask for a fees to sign the NDA.
Explain that there is potential opportunity cost.
Generally founders who ask for NDA are doing businesses where barriers to entry is pretty low. I would only consider talking to them if I am getting paid to provide some services to them. If they are just shopping around service providers then I would ask them to pay something up front before I sign the nda , not only if they actually hire me
Frederic Laruelle
3
0
Frederic Laruelle Entrepreneur
Founder & CEO at inkWire, inc.
I wouldn't sign an NDA at this stage of the conversation.
Not for legal reasons, but because it shows lack of confidence.
The likelihood that someone can replicate someone else's idea and execution path is next to zero.
An idea is very far from a business.
Steve Koch
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0
Steve Koch Entrepreneur
Consulting Architect
I agree with Lawrence. At this point he should not be revealing anything that would require a NDA. In fact, nothing that is confidential should be revealed until you are an employee. If you were to join the team than a NDA would be a reasonable request as you may then have access to "secret sauce" that they would not want made public.
Paul O'Brien
3
0
Paul O'Brien Entrepreneur • Advisor
Tech Economic Development and VC CMO
depends on the technology but if software/internet, no. In innovations that evolve overnight, concepts of IP and needing to legally protect an idea from your clearly evil intent to put them out business, are misplaced. In my experience, they drastically stifle success by preventing the engagement of advisors, consultants, and even early evangelists who can make or break a venture.

A networking app? You can't have a conversation in your startup community without running into someone else who has a networking app. The NDA puts YOU at great risk for that reason alone... burden of proof that you did not share, anything, ever, falls to you - how can you do that?? Especially when networking apps are a prevalent as lawyers :) You will have a conversation, unwittingly perhaps, with someone they consider a competitor/threat and you can't be accountable for what is OK to share and what's not.

Grain of salt. Unless, they are completely clear and detailed in the agreement about what you can't discuss. Not "financials" but specifics so that only when that information is public, is a question of your confidence appropriate.

Frankly though, the whole idea just sets the wrong tone and prolific startup ecosystems have largely abandoned them. They are essentially saying, we don't trust you, so sign this so you are legally accountable to us for anything that you say. Why would you want to work with that?? More importantly, what do they have to hide? Ideas are WORTHLESS, and only building and discussing them can create scale.

Don't misunderstand me, I'm not saying you don't have to earn their trust and that they shouldn't have an expectation of it; and I'm certainly not saying you want to avoid an NDA so you can go blab to the hills. Rather, it shouldn't be needed and it only creates risk, for you.

Why did I start by asking about the technology? Like I said, software/internet moves FAST. I'm sure, no matter how brilliant they are, there are 10 other ventures around the world building essentially the same thing and tomorrow there will be 10 better ideas. There's your risk. When one of those emerges, is known, how do you prove, with the extensive network you have, that you never said anything to anyone, resulting in the traction of those others???

Not so true though of hardware or health related ventures in which there is long lead time to bring ideas to market, or industry validation/certification that has to occur. In those cases, NDAs make some sense.

Michael Barnathan
0
0
Michael Barnathan Entrepreneur • Advisor
Co-Founder of The Mountaintop Program, Google Alum
I personally tend to pass on startups which don't provide me any information about the company's industry from the outset, as this approach will also hinder the company's ability to attract future investment and talent (most VCs won't sign NDAs, period, and in the white-hot tech market, people who waste technical candidates' time will lose talent to those who get candidates excited about what they're doing from the get-go). When they want to share trade secrets or screenshots of the prototype, that's when the NDA should come out. Not before they tell you anything at all about the business.

IMHO
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