NDAs – still applicable in the start-up era?

A growing trend among start-ups is to do away with Non-Disclosure Agreements altogether. An article in the NY Times gives some helpful tips on the subject and talks about how founders ask potential investors to sign NDAs and how they respond.

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The consensus is that investors do not sign NDAs because they view it as a waste of time. The likelihood of an investor hearing out your idea and then putting it to work and executing it is slim to none. However, when dealing with manufacturers, customers and partners – NDAs become an absolute must – even before funding is considered.

No one is more interested in protecting your business than you yourself. That’s why it’s good to have some safeguards when working with others. Start-ups should consider NDAs when working with people. Below we have discussed each group in detail.

Co-founders, employees, contractors

If you want to build a great start-up team, you are probably looking at co-founders, employees and contractors to form a team.

Investors know that the value of an idea is not in the novelty, but in the execution. But if you’re still in the planning stages of your company, extra care must be exerted, especially with people you do not know yet. Asking for an NDA before an interview is more common than you’d think, particularly in the early stages of a start-up.

As you begin hiring employees and contractors, make sure that they are cleared on the subject of NDAs for certain talks, costumer focus groups and partnerships. NDAs do not cover only patentable IP. Trade secrets have to be protected as well.

3rd parties

If you’re developing software or products that need prototyping or a minimum viable product, make sure that you know whom you’re working with. You might be asked to sign a mutual NDA as you become knowledgeable of secrets and other trade information made available during talks.

When using freelancers such as designers and coders – especially if it’s from sites like Odesk or Elance – be extra careful to what terms and conditions you agree to. Get clear on what those terms are and who owns the final product (and source code).

Customers & Partners

Be careful with beta testing your products with the public. If nothing is signed, everybody will be able to steal your ideas and reveal your plans and product road-map.

Mutual NDAs should be used as soon as possible. The same principle should be applied to partners as well. If the person you are taking on as a partner will not agree in writing to keep the Coca-Cola formula secret – toss him out.

Extra notes

Be extra protective with trade secrets when someone offers to help executing your idea.

Sometimes, a situation will arise where an NDA cannot protect you. If you go ahead without one, keep in mind:

  • To apply due diligence to any crowd or company that you will be working closely
  • Give out the least amount of information needed to keep the discussion going
  • Sometimes your gut feeling does not lie. Listen to the wisdom of your instincts

After all is said and done, remember that enforcing an NDA is a tremendous task, doubly so for a start-up or a small business. You’ll have to weigh the pros and the cons and make a decision based on what is best for the start-up.

photo credit: birgerking