5 reasons to use a FrieNDA with potential investors

May 5, 2010

When you first approach a potential investor, don’t insist they sign an NDA. Save that for later, when you divulge the intricate details of your plan, and for people you pay, like freelancers, employees and consultants.

Instead, try a “frieNDA”—get introduced to investors through people you know and trust. Ask the investors to keep any particularly sensitive information between you, and let your mutual friends serve as a way to enforce confidentiality. Here’s why:

1.)   When you first begin to woo a potential investor, it’s a bit like flirting with a new love interest. You wouldn’t want to start by asking him/her to agree that they want to have 2 kids and a golden retriever on your first date. It’s a bit presumptuous.

2.)   Some investors will view your request to have them sign an NDA as a sign of naiveté. Venture capitalists, for example, typically refuse to sign NDAs early in the pitch process as a policy.

3.)   Startup success is about 95% execution, and 5% idea. Especially since most startups change their strategies as they go. If all you have is the idea and not the ability to execute, you have bigger problems than NDAs.

4.)   Chances are, someone is already doing what you are envisioning. If not, be sure to ask yourself why not. There may be a good reason.

5.)   Are you really prepared to file a lawsuit? If you think a prospective investor violated an NDA, it’s typically difficult, expensive, and time-consuming to prove it legally.

Got a different point of view? Have you ever seen a founder sue an investor? Please share your war stories.

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Forget “stealth” mode

December 20, 2009

Just read this comment in the google group “lean-startup-circle”.  Author Mike Brown from Indianapolis was kind enough to share:

“I see so many people saying, 1I’ll tell you what I’m doing after you sign an NDA.’ …Unless you’re talking about some really deep technology that REALLY pushes  the bounds of what we do (think Project Natal from Microsof), you most likely aren’t the only one doing what you’re doing.

… The sooner you get a working product that your users can play with, the sooner you can get feedback and in many cases ideas that will significantly improve your product. Going stealth I would argue (counters that approach). Think about it in terms of software development. With software… one primary goal is to get a working application in front of  your stakeholders quickly so that they can provide feedback as the application is evolving.  (That) avoids the problem of spending a year working on a project only to get feedback at the end from the customer that you totally missed the mark.

If you want to kill a startup, the quickest way is to spend a year developing a product that no one wants because you were in ‘stealth mode’…. By letting people know what you’re doing, you’re likely to get a lot of feedback that you’d pay a lot of money to get otherwise. Such as ‘this reminds me of…[insert competitor you didn’t know of]’ or ‘I’m building something similar, want to team up to make a unified product” or “I like [feature x] but I really wish I could do it by [method y]’. All of this feedback can be used to help you adjust your launch trajectory.

That’s the true definition of Lean (startups).