If you have been around the startup world for long, you have seen a Nondisclosure Agreement (NDA). You have either been asked to sign one, or you have asked someone to sign one. This is one of the most overused, least understood contracts in the startup world.
Everyone thinks that their idea is the next big thing. As a result, it is very popular for entrepreneurs to ask everyone to sign a nondisclosure agreement before they will talk about their next idea. The problem is, this turns people off, especially those whose advice you may really need. If you come to someone for advice regarding your idea, you need to be sure you can trust them. If you can, then you should ignore your desire to have them sign an NDA. NDA’s cannot prevent someone from disclosing your information. They are used to stop them from profiting if they do. If all you have is an idea, you will have a hard time convincing the court that the person who implemented the idea owes you money for simply having it. There are other, more effective, ways to protect your ideas without offending everyone you confide in:
- Limit the people you tell about your idea early on
- Work with professionals early (this documents the idea and provides the same evidence it was yours first)
More than any other way to protect your idea:
Do something with it
There are times an NDA can be an effective tool, but those times are limited. NDAs are more effective when used before the sale of a business, or when considering a partnership or joint venture. An NDA is a single use contract.
If you are trying to make your legal as simple as it needs to be, you should consider ways to consolidate your agreements.
Consider a nondisclosure provision in the agreement you are using with the person. You can even use nondisclosure language in a letter of intent. The nondisclosure provision can be just as effective as an NDA while providing more to move the relationship forward by also providing other terms about the relationship.
So, When Should You Use an NDA?
When the entire relationship, at the point of signing, is about delivery of sensitive information. For example, if someone is interested in acquiring or investing in your business. If the entire nature of your relationship is the disclosure of a trade secret or a currently unavailable product, an NDA makes sense. In those cases, the information you are providing has value, and the disclosure of that information has consequences to you.
If all you have is an idea, you need to do something with it. If you need to share it with someone to make your idea work, use an agreement that moves the relationship forward. Don’t require an NDA and another agreement just to get started. Use people you trust.
An Example of How to Avoid Using an NDA
If you must work with a software developer, make sure you have strong nondisclosure language in your agreement. Evaluate the developer first. Give them the elevator pitch you can share, get their ideas. Sign a contract that includes nondisclosure language. Then, share more information to move the relationship forward.
Of course, you need to make sure you have limited your liability before you sign any contracts.
Do you use NDAs in your business? Why do you use them?