Start on Purpose print banner
Ask on Purpose

A prospective investor chuckled at me when I gave him a confidentiality agreement to sign before handing him my business plan. All he said was “I don’t sign confidentiality agreements.” I gave him my business plan anyway. Was this weak?

Weak?!! That’s the last word I would use to describe anyone who takes time to ask a good question. I think it shows entrepreneurial strength.

It’s understandable for entrepreneurs to worry about their innovations, especially before they have the funding in place to build their new product, website, service or retail concept. But in most cases, companies are better equipped to protect their innovations by having a war chest to pursue customers and market share.

So, should you specifically ask prospective investors to sign a confidentiality agreement before providing details about your company’s plans for growth?

No, mostly because it is a waste of your time. Active investors in the venture finance community just don’t sign them. Here’s why.

If investors stopped to read and negotiate the wording of confidentiality agreements for every business plan submission, they would never get down to the business of investing in great new companies. Also, venture capital funds that specialize in investing in a specific industry, such as healthcare, clean-tech or social media, often receive similar but not identical business plan submissions.

Because it’s too hard for venture capital funds to differentiate what they know or don’t know among all fund decision makers and research staff, it’s easier to just not engage with entrepreneurs who insist on a confidentially agreement.

Here’s one caveat. If you plan to submit your business plan to a corporation for strategic investment consideration, talk to your legal counsel about your best options for the specific situation at hand. Ideally, your legal counsel should have experience negotiating agreements that involve valuable intellectual property. If not, find legal counsel with been-there-done-that expertise in your industry.

Do you have a question for Susan? or connect through Twitter @startonpurpose

Back to top