Posts Tagged Business

The First Date NDA – Just Say No

Background: I wrote this back in April 2006 and circulated it to some folks. Never got around to posting it online. Today, I was reminded of it when an NDA came up. After re-reading it, this is just as relevant now as it was four years ago.

 

Ten Reasons to Say No To The First Date NDA

Friday, April 21, 2006

I’m sometimes faced with a request to sign an NDA when I first meet an entrepreneur.  I call this the First Date NDA.  In case you don’t know, an NDA is a Non-Disclosure Agreement.  It’s basically a broad legal agreement where you promise to never disclose or make use of any information you learn from the other party.  Often the NDA is mutual: the other party also agrees to keep your secrets.  In Silicon Valley it’s regarded by some as a standard practice, or at least they’ll tell you so.  For many reasons, my personal policy on First Date NDAs is to say no and be willing to walk away.  Here are ten of them:

1. Flexibility

If you’re the kind of person who gets approached frequently with ideas, or you work with ideas, you severely limit your own liberties in signing an NDA.  Each NDA you sign means less flexibility for you.  It can limit, for example, who you can potentially talk to, the kinds of projects you can engage in, and the kind of clients you can work for.  It limits what you can and cannot talk about.  If you sign an NDA with an optical networking entrepreneur, you have to be careful whenever you talk to another optical networking engineer or entrepreneur, or potential investor.  After signing a few NDAs, obviously this quickly gets untenable.

2. Future Earnings and Opportunities

Would you go on a first date someone who first made you agree to never ever date anyone else who enjoys snowboarding or who knows French cuisine?  That’s what an NDA does.  An NDA limits who you may be able to get into a relationship with in the future.  Unless you’re able or willing to close off entire fields of work, the NDA is a heavy shackle that can drag on your very livelihood, potentially affecting your earning ability.  It narrows your dating pool forever, as if dating weren’t hard enough.

3. Connection Impairment

A broad NDA may not serve either party.  Suppose you speak with an entrepreneur about a baby diaper idea; he’s looking for a technical partner.  You’re not interested, but a week later you meet a technical genius with a baby diaper idea looking for a partner.  To avoid potential liability, you’re going to have to go about this very carefully if you want to help these two folks connect; plus without the ability to mention the idea, you may never have even discovered the potential for matchmaking.  The broad NDA can make it difficult to facilitate these important connections that happen all the time.

4. Liability

You may as well sign a document that says, "Come and sue me at your leisure."  This is a legal document that binds you forever; an NDA rarely has an end date.  Anything that you say or do in the future could land you in trouble because of an NDA you signed in the past.  The amount of personal liability may be unlimited; they could seek hefty damages.  All for what?  So you have the dubious privilege of having that first conversation with someone, that may or may not lead to anything?  That same someone could come out of nowhere 10 years from now and sue you over breach of contract. Not being a lawyer, I don’t know how strong the case would be – but would you want to risk it?

5. Practicality

If a stranger came up to you and handed you a list of conversation topics and said, "Sign here to agree never to bring up these topics again," could you do that?  Except with an NDA you’re supposed to agree before you even know what the topics are!  Suppose you were willing to agree.  The question is could you stick to the agreement?  You might be having a casual dinner conversation with an old buddy, and in your head you’re supposed to track every "off limits" topic you’ve ever signed an NDA on.  How’s your memory?  In practice, the NDA doesn’t seem easy to enforce in court anyway.  It’s probably quite hard to prove in a court of law the direct violation of an NDA.  I’ll bet the only real winner will be the lawyers.  So what’s the real point?

6. Principle

Ideas are mashed up, mixed, all the time; innovation is always based on other ideas.  An NDA is a broad tool for staunching the free flow and exchange of ideas, an attempt to control information.  And we all know that information wants to be free.  Doesn’t an NDA just go against the grain of everything you know to be good and worth fighting for?  It’s basically an agreement to voluntarily censor what you say, who you talk to and what you do for the rest of your life.

7. Double-standard

An experienced entrepreneur knows that the people who are most likely to be a risk to talk to are the same folks who as a policy never sign NDAs: venture capitalists and major corporations.  No major venture capitalist will touch your NDA – even bringing up the subject can get you laughed out of the room.  Moreover, companies like Microsoft, IBM, Apple and Adobe never sign your NDA either. I know this for a fact. Not only is it impossible for them to guarantee your secrets at a corporate level across all departments and employees, present and future, they refuse for the same reasons I’m outlining here!  They’ll make you sign theirs if you let them, but there’s no way you’ll make them sign yours if you want to talk with them.  So if an entrepreneur can’t make the big guys sign an NDA, why should you be so willing sign it?  Who’s a greater threat to the entrepreneur anyway, you or a VC?  Don’t be a sucker.

8. Strength of concept

In my experience and view, very few broad business ideas are worth stealing; in and of themselves, ideas are rarely worth anything.  Be honest with yourself, back in 1996: would you have stolen "selling books online"?  Or "online auction"?  Or "online directory"?  Besides, was it the business concept itself that made Amazon, eBay and Yahoo! successful?  How many competitors did they beat out, who were doing the exact same things?  What threat were you to Jeff Bezos?  You had your own ideas and projects that you were bullish on, right?  If a new business can be toppled by the mere theft of the idea, it’s not a very strong business idea anyway, in my opinion.  The real strength of a business is the people, timing, and execution.  Yes, there are specific proprietary implementation details that can make a difference.  But except for a rare few businesses that’s a small part of the whole equation.  Plus there’s already a more powerful legal vehicle for protecting those brilliant ideas: patents.  And a patent doesn’t require that you swear anyone to secrecy. Patents are a whole other diatribe for me.

9. Promiscuity

The smart entrepreneur doesn’t go to bed with a stranger on the first date, even with protection.  An entrepreneur that gets you to sign an NDA is either lulled into a false sense of security and will foolishly spill it all to a total stranger, or will more likely continue to harbor secrets anyway, keeping the best cards close to the chest.  Either way, the NDA is not serving you; it’s often laziness on the part of the entrepreneur, an allowance for indiscretion.  So what’s the point of the NDA?  It’s so she can potentially come after you in the future or at least rest easier knowing that she has the option should the need arise.  So how’s this a good thing for you?  Smart entrepreneurs keep their pants on.

10. Etiquette

Would you ask for an HIV test and credit report on your first date?  Bringing an NDA to an initial conversation just smacks of bad manners.  Good entrepreneurs are good judges of character.  Integrity, confidentiality and discretion are part of excellent character.  Do you really want to start a business relationship, a partnership, by pushing a legal document across the table?  Trust begets trust, relationships develop one small confidence at a time.

Wrap-up

Is an NDA ever appropriate or a good idea?  I’m sure.  Most high tech employers require it before you begin employment.  But there you’re getting a job in exchange, and with many employers, signing that NDA is negotiable.  Always ask yourself what you’re getting in exchange for a lifetime commitment to keep someone else’s yet-to-be-determined secrets.  But certainly on that first date with a potential business partner, I think it’s almost always a bad idea, besides being a tasteless way to start a new relationship.  It reflects badly on the entrepreneur to ask it of you.  To me he looks at best untrusting, insecure, unconfident and naive.  At worst, he looks manipulative, overbearing and opportunistic in the worst sense of the word.  Either way, not great marriage material.

Just say no and move on.  It’s not worth it.

Disclaimer: These are my personal opinions.  I’m not a lawyer.  Just a guy in Silicon Valley who has seen a lot of NDAs and plenty of requests from silly entrepreneurs.

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