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Growth Strategies

What nondisclosure forms can protect my business plans when pitching investors?

Guest Writer
Entrepreneur, Business Planner and Angel Investor
min read
Opinions expressed by Entrepreneur contributors are their own.

Your question is a tough one because most serious professional investors won't steal your idea, but they won't sign nondisclosure forms, either. But it still is a problem sometimes, and your options aren't all that attractive. Let me explain, first, then suggest some steps you to take. Meantime, here is a link to a generic nondisclosure form.

Serious professional investors have full-time jobs investing other people's money in new ventures. They are accountable for success or failure over the long term. They know that a good idea is only a small part of what it takes to succeed. An experienced and capable team is often a very large part of what determines the success of a business. The last thing they want is a good idea that doesn't come with a committed and competent team. Your idea would do them no good without a team to run it.

Serious professional investors review businesses and listen to pitches all the time. If they signed disclosure document before every meeting, they'd end up with a paperwork nightmare to track and thousands of ideas that they couldn't pursue because some nondisclosure document in the past might be interpreted as related to this new pitch. So they typically don't sign nondisclosure documents.

That said, it does seem as if ideas and confidentiality leak sometimes. Investors on the boards of startups are often going to have trouble not occasionally sharing ideas that came from pitches. They deal in ideas all the time. It's hard to keep track of where you heard what. The further down the scale of professionalism you go, the more likely to happen. Angel investors are much more likely to leak information than professional venture capitalists. They are investing their own money, so keeping a professional distance can be more difficult.

I've heard the occasional story of investors listening to pitches directly competitive to companies they are already involved in. That isn't ethical, but it happens.

What to do about it? Opinions vary. You can ask this question at different forums and get lots of different answers. They are going to range from "Forget about it and just pitch" to "Get yourself fully documented and never talk to anybody who hasn't first signed." I tend to fall toward the side of not trying to get investors to sign, but there's no consensus. The more serious investors will refuse to sign nondisclosures And some shady bogus investors will also refuse. This issue can be a dilemma for entrepreneurs.

Take care before you pitch to check the backgrounds of the investors and investor groups you're dealing with.

Keep in mind that ideas are hard to protect from a legal standpoint. I've had people take my ideas and run with them. The more likely scenario is that friends and associates will be the ones doing the purloining, not investors. Better to be quiet, overall. Share your plans only with very trusted people, and choose your investors carefully before you pitch.

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