To NDA or not to NDA imageWho knew this question could have so many answers?

This question comes up more than you would think but maybe because I live in the startup world where scrappy entrepreneurs are looking for collaborators, co-founders, and capital. At a recent local Friday Lunch Friday Phoenix event, a founder asked if she should carry her NDA in her purse. The room exploded with diverse opinions.

The definition of an NDA:

First, I am not an attorney but I am a businesswoman (see the disclaimer at the bottom of this article). A Non-Disclosure Agreement (NDA) is a legal document that is used to protect ideas, know-how, and other secret sauce under a variety of circumstances, remember that last part because it is the key.

What NDAs are used for:

The usual NDA protects one company from another company during discussions and negotiations. So if I approach Company A to do some work for me, I want Company A and all its employees and contractors to keep everything that I disclose a secret. In the same situation, a mutual NDA just means that everything Company A discloses about how they will work with me needs to be kept secret. If I have a mutual NDA with Company A, I cannot go to Company B and spill the secrets from Company A.

As I said, I am not an attorney but I did go to law school (and yes, I graduated but I choose to start my company rather than take the bar – for more on that visit our website at www.traklight.com/company).

The real answer to this question.

The answer to almost every question in law school was “It depends.” And that is the case here. Requesting and insisting upon a NDA depends on the situation. Are you hiring an employee? Are you hiring an independent contractor? Are you hiring a company for custom work? Are you talking to potential co-founders, angel nnvestors, or VCs?

It’s my opinion that employees and contractors should be under NDA when you are revealing your know how to them during discussions. Seek legal advice to ensure that your contracts: employment, consulting, Operating Agreement, Articles of Incorporation and so on have non-disclosure provisions.

The main reason given for the reluctance for VCs to refuse NDAs is that they are not sure what other deals may come in the door or how your company and products may conflict with other existing ventures. It is not likely because the VC wishes to steal your idea. One path forward is to only reveal enough information to interest and certainly no secrets without a NDA.

We all know that the tough part is execution not idea generation. And to get all IP Geek for a minute, ideas are not intellectual property. So you need to think of the context of your discussion and what you are trying to protect.

Know your audience. If you have the next great software idea and you are not technical enough to code yourself it is likely a good idea to ask potential co-founders or software companies to sign a NDA before you reveal the details of your idea.

Does that mean you carry the NDA in your purse (or backpack)?

You can but it is mostly applicable for that meeting after the first encounter. When you go to reveal your secret sauce or business process that is not out there in the public, that is when the NDA is critical.

So if someone does not wish to sign a NDA, think of the context, timing, and the person before you walk away. That done, if you have that niggling, uncomfortable gut feeling about why the person will not sign the NDA, head in the other direction.


Enterprise Risk Management