Is NDA worth it to startups ?
Startup’s with disruptive technologies and ideas need to keep their trade secrets under wraps if they want to succeed in today’s fast paced work environment. An NDA can keep such sensitive information under tight lid when you cannot protect your idea via copyright/trademark/patent. A bunch of clauses can be added for breaking an NDA, where the defendant will have to pay the penalties for breaking the NDA in the form of lost income or possible criminal charges.
What is NDA?
A Non-Disclosure Agreement is a legal document which binds two parties in a confidential relationship. All parties involved in this agreement agree to contain all the sensitive information made available regarding their respective business.
Scenarios when you need an NDA
When discussing business financials or any personal information which needs to be protected, a Startup needs to have an NDA signed.
· An investor would like to wait and see some results before working with you or buy in some shares in your company.
· It is very important to consider that NDA provides significantly low protection when compared to copyrights or patents and are very difficult to protect in court.
· It might take years for a Startup to battle in court and end up losing all their money on lawyers. It is better to not reveal any trade secrets before you sign an NDA with any third party.
Like in the case of MidRail Vs Partners Group.
Partners Group collected MidRail’s sensitive information and used it to compete directly against them by soliciting the sensitive information it gained through MidRail, to bid against a company who directly competed against MidRail. Allegedly, Partners group never wanted to invest in MidRail and only wanted to learn trade secrets to buy off another competing firm. This cost MidRail in loss of millions of dollars and disrupted their precious business strategy for expansion.
Startup should never reveal all of its trade secrets and business development plans without receiving anything of value in return from the investor. Startups can pitch their idea but also keep trade secrets vague enough as startups usually don’t have enough money to go against another firm in the court. Startups need to make sure they only reveal what’s necessary.
If Uber were to pitch their idea to investors 10 years ago without an NDA, they would just vaguely define that their idea is to create an e-platform to connect commercial drivers with potential clients as there is a gap in this industry. The clients cannot find the drivers at the right time to drive them to their destination.
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