One way to tell first time entrepreneurs from veterans is by their insistence that people sign NDAs. When approaching VCs, angel networks, or seasoned angels, I recommend holding off on NDAs until after you’ve made an initial presentation, and they’ve asked to see your due diligence documents. Why?
- Building a successful startup is about 95% execution, and about 5% idea – which you’ll probably change as you go anyway. If all you’ve got it the idea, and not the ability to execute, you have bigger problems than NDAs.
- You are probably asking your audience for a favor, like considering an investment in your company, or giving you advice. Asking them to sign an NDA can be seen as a slap in the face to someone who is about to do you a favor.
- Some investors will view your request to have them sign an NDA as a sign of naiveté. Others, like venture capitalists, may refuse to sign an NDA early in the pitch process.
There are a few exceptions. It’s fine to ask vendors, agencies and other suppliers to sign NDAs. Also, if you are pitching to another entrepreneur, and don’t have a close personal relationship or connection, better to be safe than sorry. Finally, if you’ve come up with some sort of truly radical innovation, you might want to insist on an NDA – but be realistic about what constitutes radical innovation.