Do NDA's work?
This leaves the entrepreneur vulnerable to his or her ideas being stolen and benefiting someone else.
To protect themselves, entrepreneurs can opt to go to the other extreme and require potential investors and other people with whom they share their ideas to sign a non-disclosure agreement (NDA) or confidentiality agreement.
An NDA will usually specify the information to be held confidential, what is excluded, and the time period during which confidentiality applies. Entrepreneurs can have a tailored NDA drawn up by a lawyer, or make use of a standardized document obtained from the internet or other sources.
But do NDAs really protect entrepreneurs? There is disagreement about whether NDAs are effective. On the one hand, some people argue that entrepreneurs who insist on an NDA display a suspicious, distrustful attitude that does not augur well for a future relationship, putting off prospective investors.
They also say that investors are unlikely to sign the NDA anyway because it is not in their best interests to do so – if investing in businesses is their profession, they are likely to come across many similar (though separate) ideas, rendering an NDA in every instance impractical. They also add that NDAs are notoriously difficult to enforce due to the expense involved and the challenge of proving a breach of contract.
On the other hand, some people say that for an entrepreneur to share information without any protection whatsoever is foolish and asking for trouble. Entrepreneurs can compromise by being selective about who they talk to – asking around and getting referrals can make it easier to identify who to trust their ideas with. It is also recommended that entrepreneurs tread a fine line, watching what they say and revealing only what is necessary to close the deal without misleading the other party. There is no clear cut answer to the question of whether NDAs are helpful or a no-go area.
Entrepreneurs may be better off assessing the situation and making up their own minds about what to do.