Confidentiality for Startups

An entrepreneur and investor walk into a bar. The entrepreneur hands the investor an NDA. The investor walks out.

A lot of startup lore is chance encounters and conversations. And NDAs do not feature heavily in the romance of these stories. Bottom line, nobody wants to sign your NDA.

What's an NDA?

An NDA is a non-disclosure agreement, sometimes called a confidentiality agreement. The idea is that the parties agree that the confidential information shared by the other party is to be kept confidential.

What's the value of an NDA?

There are two critical reasons for NDAs. First, to restrict the circulation of commercially sensitive information. Second, to avoid potentially invalidating IP rights, especially later patents rights.

Practical measures for confidentiality

Seasoned entrepreneurs tend to pour a lot of cold water on NDAs. Black letter lawyers will insist that NDAs are an essential safeguard. What to think?

There’s a good case for a reasoned middle ground — biased to sharing as much as you can as freely as you can.

Let me explain.

You need a plan and some preparation.

The plan is simple, and here it is:
1. Divide your information into General Information and Sensitive Information.
2. Share General Information, Guard Sensitive Information

It’s as simple as that.

The preparation is working through what can be shared, because having that information in circulation does not represent risk.

General information vs Sensitive information

General Information you share will vary for everybody but will typically include
• Elevator pitch
• Addressable market
• General strategy
• Short form plan and projections
• Team and network

Sensitive Information you guard more carefully will typically embrace:
• Detailed commercial strategy
• Detailed financial statements, and projections
• Unannounced technology developments or partnerships
• Other proprietary details best held back for now

You get the picture.

This approach doesn’t mean you can’t share Sensitive Information when it’s necessary.

Just that you don’t share Sensitive Information automatically, unselectively or without a thought.

When you do share that Sensitive Information, ideally it’s with somebody you trust, and who is under an obligation of confidence.

An obligation of confidence doesn’t always mean a signed NDA, but that’s one for another time.