The entrepreneurs we counsel frequently ask what they can do to protect their ideas from being poached. They want to know whether they have contractual rights to their ideas and whether there is any paperwork they should use to protect their rights, particularly in conversations with investors. A nondisclosure agreement, or NDA, while necessary in some instances, may not be effective or appropriate in the early or even middle stages of a business relationship between an entrepreneur and an investor.
A number of articles have come out in the last two years discussing a sharp decline in investors’ willingness to sign NDAs when presented by entrepreneurs. The fact is that investors simply have no incentive to sign them. With so many entrepreneurs working on the next big thing, investors can take their pick from a talented pack. They can afford to reject the entrepreneur requesting an agreement and focus on others that do not require signing on the dotted line.
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