Elena Mazhuha
Elena Mazhuha

By Elena Mazhuha

In my four years in venture capital, I’ve been asked by a few founders to sign a non-disclosure agreement (NDA) before they’ll give any numbers about their company.

It’s easy to spot founders who are likely to want an NDA. What their deck lacks in numbers and traction, it makes up for unambitious market forecasts. They want to be in stealth mode for ever. In other words, everything is VERY TOP SECRET. 

News flash, founders: your “secrets” aren’t really secrets. Because no one is going to ever steal your idea — especially not VCs. By going around making everyone sign NDAs, you just look dumb. 

So why wouldn’t anyone copy another person’s idea? Here’s five reasons to stop worrying.

1/ This idea is not the key business for the people you pitch

If a founder pitches to an investor, they won’t just leave their VC firm and start copying the founder’s startup. VCs spend years building up their reputation, trust and media presence to raise a fund and have a decent pipeline. Quitting the job to steal one’s idea is not an option. 

If a founder pitches to a corporation investing in startups, in most cases this corporation doesn’t have any spare employees to copy a random product, because everyone is busy solving current problems and making shareholders happy. If you don’t believe me, just check out this corporation’s “We Are Hiring” page and see how many people this company needs right now to deal with routine issues.

2/ It takes time to build a product

Each startup founder spends months doing the research, building the minimum viable product, crying for two days in a row because it doesn’t work, fixing bugs, doing customer development, finding the first clients and actually starting to earn money. Even if a founder has endless financial resources, they still need time to hire motivated people, mentor them and have them build a decent product that fits the market’s needs. Potential copycats will need to spend the same time, financial resources and motivation to do the same. And before they do, the original founder will probably be raising their Series A! 

3/ This idea will probably be worth nothing to a large corporation 

In 2020, Alphabet earned $180bn, Meta made $86bn and Netflix made $25bn. Even if you’re building a business which will earn $100m in seven years, that kind of revenue will add less than 1% to a corporation’s financial results. And the big tech companies would probably try to buy your startup in seven years instead of spending that time and masses of cash to build something similar. 

4/ All ideas are untested hypotheses

All ideas are untested hypotheses, which need years of validation, thousands of iterations and might not work eventually. Who wants to invest millions and years in unvalidated ideas? Definitely not large corporations, which already have billions in revenue, shareholders to please, privacy issues to solve and other routine things to do. In fact, there’s a whole independent industry of people investing in unvalidated ideas. It’s called venture capital! 

5/ Motivation means a lot

If someone decided to launch a business, left their jobs, hired a small team using their savings and spent months to convince their families not to leave them for good, they already have more motivation to turn an idea into a huge success than a person/company, which only wants to make money by copying one’s product. People driven solely by the wish to make money give up when they face problems. Why bother if today they could make a picture of a funny ape and sell it for half a million to Paris Hilton and Jimmy Fallon? By contrast, people with a deep personal motivation can be stopped only if they already tried everything and nothing worked at all. In most cases, they never stop, because they can pivot, raise a bit more money, convince first employees to work for free for a while and finish what they’ve started. 

Sharing ideas with investors, potential acquirers from large corporations or other founders is a good way to collect feedback, brainstorm together, have someone unbiased listen to the hypothesis and suggest even more unique solutions to the problem. Not sharing is a good way to get stuck really soon and have no fresh hypotheses to move on with. 

Elena Mazhuha is investment director at Flyer One Ventures.

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Carol
Carol

At least she started by quoting her years of experience. Most founders are very open about their businesses not to mention this being a practice throughout pitch sessions , fund applications and first meetings with VCs and others but if the discussion leads to access to sensitive or other information, it is in the founder’s right to have an NDA. If a VC staff were to start sending financial information on a business to friends on a WhatsApp group, then that would be a breach and that is why VC’s also have it in their contracts with staff not to… Read more »

Fritz Demopoulos
Fritz Demopoulos

The writer certainly fails to mention the bigger issue facing founders. Entrepreneurs face four types of VCs: 1. The first type are serious investors who are both knowledgeable of the industry and have a track record of doing deals within the category. Founders should be willing to talk to these types, and share sensitive information. There is always going to be some risk in sharing, but it is worth taking when dealing with a credible, experienced investor who has done deals and knows the industry. I wouldn’t say these types are rare, but not as common as you’d think. 2.… Read more »

Ken
Ken

A simple NDA protects both parties. It’s a fundamental need in the business world where ideas are exchanged for funding – and not having one exposes either parties to unnecessary risks and disputes. Telling founders that they don’t need one because “no one is ever going to steal your secret” shows her lack of exposure to this industry, because it happens so frequently. True that the VCs are not going to drop everything and start a company based on a stolen idea, but it is very common for a conflict of interest to occur, where a VC has already invested… Read more »

Bob
Bob

Horrible, entitled, BS “article.”

Paul
Paul

VCS drop your entitlement, you are not special, specially if your fund is generic, have no track record, and you have never started a company. Sign an NDA when needed, and chill the [email protected]$&k down. if you are smart enough, it’s easy to understand if an NDA is needed or not. Is pretty stupid to think that any NDA from a startup is protecting an “idea”. There are a lot of things that needed to be protected for inventions, or proprietary technology, or because is a legal requirement based on a previous NDA, like if there is a M&A ,… Read more »

Frank Kouretas
Frank Kouretas

Oh boy. While I believe this advice is generally well-intentioned, it is bad advice. It’s dangerous because it is the type of advice that is probably right 95% of the time, but when it’s not right things can go really, really wrong. While many businesses are not doing something that maybe needs an NDA, there are a minority of businesses that have some unique IP or business insights worth pretecting, and there is certainly a minority of investors that are not always working in the best interest of businesses they have not yet invested in. It takes 10 minutes to… Read more »

Robert
Robert

Fully agree Frank!

Hami
Hami

What a bullshit. This an article with a lot of arrogant statements and disrespectful attitude toward the founders. I even did also experienced that VCs stole ideas. In one case it was one of my own ventures/startups in the second case it was a startup where I was the mentor. However, if you need publicity so write an article with real advice and subject matter expertise and treat founders as equal or business partners and not as children from kindergarden or monkeys from zoo

Rono
Rono

And you say have have a gig at VC firm? Pretty pathetic article and arrogant reckless advice, especially from somebody who doesn’t create any IP. I can only imagine the amount of good opportunities your VC firm lost out on due to this ignorant attitude and approach.

Gemma
Gemma

This is what my company is bootstrapped. This is so biased

Alex Mojtahedi
Alex Mojtahedi

Great article. However, I have seen sometimes VCs have a portfolio company that is struggling and approaching a competitor/same size that seems to be doing a better job on tech/execution to see if they can find a solution to help their own portfolio companies! Of course, this is rare but still happening & founders need to do their own homework and ask questions prior to sharing more information. I agree that VCs won’t/can’t sign NDA because by default they are seeing so many deals every day and might invest in less than 1% of opportunities.

Mark
Mark

The do still ideas, they also forward pitch decks to companies that they have invested already and they force some of the CEO’s to fix the issues and start making money for them. Revolut did. because their investors forwarded a lot of pitches and allow Revolut implement ideas and announce before the startup that was behind the business model/idea launch. Thats why all these VC’s fishing for new ideas, and let sinking ships to add more features with the hope of becoming profitable company. Btw. Why these people with the money who provides fundings for big VC’s don’t react on… Read more »

Tiri
Tiri

Refusal to sign NDA is about personal ego for many investors with almighty God complexes. They feel belittled by startups they most often regards as inferior. As a startup you are inferior and you are expected to be thankful until you no longer need their money 🤑🤑🤑💰💰💰💰🤑🤑

Antonio
Antonio

Sorry but this is terrible advice, I would even say ill-intentioned advice. Signing an NDA is not a big deal, and I hate when anyone make such a fuss about signing one. Its a good tool that helps protect both parties. VCs, as well as companies may share ideas, part of them or contents exchanged, with companies that may benefit of them. I have been signing NDAs both when I had my startup as well as an employee in a 20k+ employees company when doing projects in collaboration with other companies. Never had any serious person complain about it, never… Read more »

WTF
WTF

Dear Author, you misunderstand what the NDA is for. It’s not to prevent you from stealing ideas, but your mother’s brother might know some tech giant who is VERY KEEN TO STEAL IDEAS. Very sus why you don’t want to sign an NDA. I certainly won’t have you investing in any of my startups.

Yehuda Borenstein
Yehuda Borenstein

You are correct to a point. We never ask for an NDA at the start. The reasons why people wouldn’t copy an idea are proper and to the point, in most cases! We ask for an NDA in a DD that discloses trade secrets or patents that have not yet been published. Or if you invested in a competitor. I always love to challenge VC smart people to try and be a founder and start a company; VCs that have been founders are the best since they know to appreciate the challenges to start a company. Your comment looking dump… Read more »

Greg
Greg

So you’ve been in VC for a few years… so what? Calling founders dumb shows more about your maturity and professionalism and a lot about the elevated and arrogant attitudes of most VC investors. If you’ve known what it’s like to throw it all in and build something, you sure as hell wouldn’t want a nobody investor like you to rip off or share any valuable IP, patents, often, many more years of work than you claim to be in your field as an ‘expert’. NDAs exist for a reason, so pay founders a respect. If there isn’t an intent… Read more »

Ble
Ble

Great article. Calling founders dumb because you’ve been a VC for 4 whole years.
*Some* founders often have good reason to request an NDA. If its not that big a deal, then sign it.

Tiri
Tiri

Great answer ☺️☺️☺️☺️!!!

Alex Weller
Alex Weller

Perhaps you’re not so much aware of your surroundings whaman. In 2019 Amazon capital had launched competing products after seeing ideas from startup founders.

If a tech giant like Amazon can cheat startup founders, what’s the guarantee that a puny, amateur investor like you with just 4years of experience wouldn’t do the same?

Sign the damn NDA if YOU don’t have anything to hide.

Thomas Preuß
Thomas Preuß

In general it’s a fair statement, that you don’t need NDAs when talking to well-known, top tier investors. But if you talk to other types of investors you should think twice about what you disclose right away. I have seen some black sheep investors (also well-known individuals) who tried to invest for unreasonable terms and got rejected and then copied the idea right away with a new team. so be aware and select carefully to whom you talk. Due diligence is not a one way street, also founders need to do it about their potential investors.

Jolly Contrarian
Jolly Contrarian

… so just sign the NDA. If you’re not going to nick the idea, where is the harm? Methinks the lady doth protest too much.

Jack
Jack

“In my 4 years” as if that’s long enough to have a clue. Come back to us when you’ve seen anything at all.

Tam
Tam

Maybe some founders don’t. I know people in VC who have gone to take small equity in similar firms who they were supposed to raise funds. Lot of VCs are looking at X times returns they can get, they even force founders to lie about numbers, hide certain things and exaggerate others. If they find a more agile startup, with better founders resume they will switch sides and spill secrets. This article is trying to paint VCs beautifully.

Dan N.
Dan N.

Yes and No. If it is an idea about business models, forecast numbers, there is no need for NDA. But if it is an IP, features or solutions to problems, are key value for most deep tech startups, then NDA should be signed. I have seen VC copy and forward files to competitor of startup who just happened to be their portfolio company. I have seen big corporation copied features and even IP. Having say that, most VC in US would not sign NDA, so don’t bother to ask. However, most VC in other countries don’t mind to sign NDA… Read more »

Norman Devereux
Norman Devereux

Spot on Dan. Well said. The article is written by someone not having an inkling about getting an idea into reality without finance. VC are only interested in making even more money from low risk ventures.

Afshin
Afshin

Well, it’s rather nonsense. We have experienced it first hand how one of the investors stole one of the ideas we shared with him, and implemented it in his factory. Fortunately, we just shared with him a part which was not critical to our project. Also, the other part of the article where she mentioned all ideas are untested hypothesis is wrong. An investor would not invest in just an untested hypothesis. You should prove them it works, or at least has the potential. Also, as somebody else mentioned you will lose all your rights for patenting by sharing your… Read more »

Luke Henning
Luke Henning

I agree with most of what is said here. What I will say is that this differs for hard tech start-ups, you often have info that can only be shared under NDA. This is always a delicate dance about what you are able to share at what point of the investment discussion.

Andrew White
Andrew White

As a patent attorney working for over a decade with startups and scale ups, while I understand on a practical level why investors may be reluctant to sign NDAs, many founders may want this because they have valuable IP they want to protect but do not yet have the financial resources to do so. If the founders disclose their ideas without there being some obligation of confidence in place, in the UK and Europe at least they lose the ability to patent that idea. Many founders come to me complaining about this and in the end they normally have to… Read more »

Noreen
Noreen

So glad to see a patent attorney share this sound advice.

Nora
Nora

Condescending all over the place. Very poorly written article.

Ble
Ble

Super condescending!