How to Thwart Entrepreneurial Espionage

Is there such a thing as entrepreneurial espionage? Entrepreneurs who believe that their “great ideas” have been stolen by ruthless competitors, opportunistic web surfers, shady consultants, and dishonorable prospective investors, would say, “Yes! There are people out there who will take advantage of all too trusting entrepreneurs.”

When entrepreneurs ask me about the risks associated with sharing their business plans with complete strangers, I do admit that not all business plan readers in the venture community operate with a high level of integrity. Even if less reputable investors and business partners know they won’t participate in a deal, they may continue talking to an entrepreneur to learn more about an emerging industry. They also might share business plans with other venture community insiders without first asking entrepreneurs for permission.

Still, entrepreneurs may pay an even higher price if they act like turtles and hide from all opportunities to engage prospective investors, corporate partners or customers. At some point, entrepreneurs just have to share information in order to attract investment and other kinds of business advancing activity. Here are some savvy considerations:

No. 1: File provisional patents fast. In March, 2013, America moves to a first-to-file system in which patents are awarded to inventors who “file first” with the United States Patent and Trademark Office rather than the first inventor to “invent first.” Entrepreneurs are better off locking down some level of priority at the USPTO, before sharing information about innovative concepts with anyone except qualified patent counsel.

Also, before filing a provisional patent or comprehensive patent application, be ultra careful about publishing information about your company’s technologies online, especially at crowd funding sites. You can lose potential patent rights in the United States or Europe.

No. 2: Keep trade and technology secrets secret. It is not at all necessary to disclose the intricate details of your company’s “secret sauce” technology in your business plan document. You can describe what your company or products will do without fully disclosing how you will do it or the unique elements of your underlying technology.

After you have met with one or more prospective investors and develop trust that they are talking to you for genuine investment purposes rather than industry knowledge building purposes, then you can provide more detailed information. At that time, you can also ask prospective investors to sign a limited non-disclosure agreement. It’s important to know that no venture capital fund will sign a confidentiality agreement at the start of the solicitation process. VCs just don’t have the time to read and negotiate confidentiality agreements with every entrepreneur who wants funding.

No. 3: Research conflicts of interest. Don’t send a business plan to a venture capital fund that has already invested in one of your industry competitors. Even if your company’s prospects or technology outshine the competitor, investors will be loyal to their portfolio companies first. You can find a list of the names of a venture capital fund’s active portfolio investments at their websites.

No. 4: Highlight confidential information. Consider adding a general confidentiality notice on the cover you’re your business plan. A confidentiality notice may not have a lot of practical legal teeth but it is worth the effort. Confidentiality notices generally say, “This business plan is provided in strict confidence and may only be used for the limited purpose for which it is disclosed. Without limitation, any full or partial disclosure, copying, dissemination, reproduction, or reduction to writing of any kind of this document is prohibited.”

No. 5: Beware of independent contractors. There are certain circumstances in which independent contractors who contribute to the development of potentially patentable innovations may gain ownership rights unless previously assigned in writing to a business organization. If a collaborator is unwilling to assign all “rights, title and interest” in a proposed work project at the start of an engagement, then hire a different collaborator.

Another obvious action step is to get all consultants who may be privy to your company’s product and service pricing strategies, customer lists and other important trade secrets, to sign a confidentiality agreement as a condition of new or continued engagement. A confidentiality agreement should contain a definition of trade secrets, limitations of how consultants can utilize trade secrets, restrictions on document production, return of documents at the end of the engagement, and the types of monetary and injunctive relief that a company can recover if the consultant breaches the agreement.

As you build your business you will learn that no one will ever protect the interests of your business better than you – its owner. It’s up to you to use good common sense and a good legal advisor to thwart insincere and dishonest opportunists.

Susan Schreteris a 20-year veteran of the venture finance community and entrepreneurship educator.  Her work is dedicated to improving startup longevity in rural, urban and suburban America.   She is the founder of, a community service organization that offers the largest centralized database of startup and small business funding sources in the U.S.   Follow Susan on Twitter @TakeCommand.