Q&A: Why Can’t I Use a Nondisclosure Agreement?

By Rieva LesonskyBusiness on Main

Question: I have an invention that I want to shop around to potential incubators, investors and companies. How do I prevent my idea from being stolen? I'm worried that asking people to sign nondisclosure agreements (NDAs) is bad form.

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Answer: I’m concerned you, like many novice inventors and startup entrepreneurs, are making the all-too-common mistake of being so afraid someone will steal your idea — even when it’s just an “idea” and not a product or business yet — that you won’t discuss it with anyone and, as a result, your idea never becomes reality.

When you're approaching an incubator or potential investor, asking them to sign an NDA is a major faux pas. Incubators and investors are inundated with so many applicants that if signing an NDA is a condition for considering you, they’ll just move on to the next person. Asking a venture capitalist, in particular, to sign an NDA will immediately get you pegged as a rookie not worth a second glance.

I know the idea of not using NDAs scares you, so first, let’s talk legal: NDAs are not a strong protection against having your idea stolen. If your idea is patentable, and you’re looking for manufacturers, prototype manufacturers or partner companies to work with, you’re better off filing a provisional patent application to get "patent pending" status. Keep an inventor’s notebook that use can use to document the progress of your invention.

Realistically, incubators and investors see hundreds to thousands of ideas a year. They aren’t in business to steal ideas and start their own companies; they’re in business to fund and grow other people’s companies. And because so many ideas are so similar, having to sign an NDA for every idea they consider would hamstring their abilities to consider new ideas at all.

Even if someone agreed to sign an NDA and then stole your idea, do you have the money to pursue expensive, lengthy and complex litigation against them?

Investors, incubators and business relationships in general thrive on an atmosphere of trust, and “going legal” too early destroys that trust. If you do start a long-term relationship with this manufacturer, incubator or investor, a contract (not necessarily an NDA) should certainly come into play. But asking someone to sign an NDA before you talk about working together is like asking someone to sign a prenup before your first date.