Forums: Discussions for entrepreneurs and small business.

Today we solicited the help of a potential rather large investor. This gentleman is a good friend of an associate of mine who has been very successful and he is extremly wealthy. We also know each other but I would not consider his a close associate. When asked about signing a NDA he responded that he does not sign them. His position is that if he signs our NDA if he decides not to go forward with our project it could keep him out of similar projects in the future. He see`s 10 to 20 deals a week so I understand his reluctance. I talked to my associate and he does think the gentleman has more than enough money and is really busy with other projects and is confident he would do an end around. But he could not guarantee it.

I would be curious to get some opinions from the community, especially those who have worked with other high net worth angels where this may have been a concern. Hopefully one of the Sloan brothers can chime in.




-------------------------

<A HREF="http://www.AuditAuctions.com">Get ISO Certified</A>

The best advice I could see would be to speak with your attorney and establish your own personal guidelines on what your procedures are and what will keep your business / ideas safe in the early stages.

If he doesn`t want to play inside those guidelines (whichever way you decide) then you should find somebody else that will. Careful not to demand to much to have it your way or nobody will want to play with you and you might as well take your ball and go home.

Also most ideas are rarely earth shattering enough or different enough to warrant the initial talks to be under an NDA. What you could do is present to him, if you can get his time so that you may peak his interest enough to want to go further down the rabbit hole, requireing the signature of an NDA at that point. If his concerns are that you would limit his future ventures have your attorney put specific wording in that allows for his risk to be reduced but still keep his mouth shut.

Seems to me we`ve heard a number of times that among the top reasons a small business fails is their false perception of secrecy. I have to concur with nGenuity, that it`s really rare to see an idea that`s "earth shattering."

Weigh the options: is your secrecy worth more than the money to get the business started? What would happen if this investor suddenly decided to take time off to open a business doing your idea? Would you totally lose out, or would there simply be an increased public perception of the new idea, and a larger customer base?

Talk with an attorney.

I`m not clear from the above statement whether your associate beleives the "investor" is likely to take your idea and start on his own or if he is too busy to do it.

It`s fairly typical for Venture firms to refuse to sign NDA`s because of the volume of input. Some very active angels may be in the same situation. Other`s may just feel that the "safe" position is to not sign any.

What I advise my clients is the following:

1. Be clear as you what needs "protecting".  Is it technology, process , or ? then determine the optimum way to protect it

2. Be able to move the discussion forward without disclosing the above. You should be able to determine whether there is mutual interest before you disclose your core intellectual property.

Robert Johnson

Robert Johnson

-------------------------

Business Growth Masters, LLC -
Capital Catalysts for Entrepreneurs
Home of the Scalable Business Plan and QuikStart Capital Programs
http://www.bizgrowthmasters.com
info@bizgrowthmasters.com

Yup, if you already have applied for a patent the NDA is pretty much worthless, if the patent is granted he`s out of the market, if it is not and others think your product/service worth imitating the moment you go public with your idea others will too.

A gentleman`s agreement ought to suffice in this situation.

Good luck.

Great questions above, and this was a great answer. You just taught me something, and it will help me rethink further product structures.

Was just reading The Art of the Start by Guy Kawasaki. Highly recommended. He talks about this in the chapter about raising capital.

He says any investor who would sign a NDA for a first meeting is not someone you even want to do business with.

He has some advice for anyone who would ask an investor to sign a NDA to merely discuss a business idea.

-------------------------

That may be true with the US.  In some countries such as China, IP law enforcement is practically zero.  Even in the US, it takes an average 3 years to get a patent issued.  Fast operators can make and launch a product in no time, sell it massively and retire in the Bahamas within that time frame.  Of course most products take much longer time to penetrate the market and become high volume items, in which case IP protection is useful.

Investors typically don`t care for running a business - their money already makes money for them thru startups.  I`d say don`t worry too much about NDA when talking to professional investors.  On the other hand, beware of a manufacturer posing as investor.  Always have them sign NDA.






-------------------------

Go Green and put more money onto your bottom line with award-winning LED-based light bulbs PearlLED. If you manage a good sized store/business and want to boost the bottom line, call us!

In some countries such as China, IP law enforcement is practically zero.

Actually having a patent issued to you in the US only grants you market protection within the US. (Even this is not so, all a patent does is give you the right to sue, but we wont go there today)  If you want protection in China you must also apply for and be granted a patent there, ditto for all other nations.

Do you know of anyone that has done this? Create a product, sell it massively, and then just leave?

Absolutely, couldn`t agree more. That being the case, if somebody was to manufacture and massively sell your product while you are waiting on the patent being issued, wouldn`t he have in reality created a `market` for your product? In effect saving you the trouble of product introduction? Not only that, but since a patent is in effect from the moment it is applied for, not from when it is issued. Wouldn`t that person be liable to you for patent infringement on every sale? That being the case, you could make your introductory price five times greater than the market would pay, for about a month. Then simply pass them the bill when the patent infringement case is resolved.

So, anybody that knowingly did this would spend money in creating a market for you, make himself liable to any markup you choose for all the product he sold, and potential damages to you.