By Danielle Silva, VP of Business Development, LSN
Most fledgling entrepreneurs are (understandably) protective about their technologies. In turn, it is common for them to ask investors to sign an NDA before engaging in a dialogue. An NDA (Non-Disclosure Agreement) is essentially a confidentiality agreement that two parties engage in to ensure that the information shared amongst the two parties is not made publicly available. Companies do this in an attempt to ensure that any technologies or processes that are integral to the firm’s operations are not disclosed to any other party. However, an NDA can discourage conversation, especially if incorporated into the introductory dialogue. So what is the right path to follow when considering whether or not to put an NDA in place?
Firstly, always consult your lawyer. This article isn’t intended to be legal advice, rather it is intended to help you think strategically when engaging investors. Many life science entrepreneurs may be tempted to make investors sign NDAs before even speaking with them. However, these investors typically look at hundreds or even thousands of deals every single year. An NDA could discourage a conversation. Especially when targeting investors that get a lot of solicitations, and NDA will probably constitute a burden. If you can’t express to an investor in the initial dialogue why your company has value, you’re probably not ready to start talking to investors. That doesn’t mean that there is information worth protecting, but you needn’t disclose “the secret sauce” in the introductory email.
Secondly, keep in mind that investors aren’t purely looking at your technology, they are also looking at you. Ideas are more like mushroom spores than lightning strikes – They emerge simultaneously from various sources, and the right leadership (not just the right idea) makes the difference between success and failure. Management is just as important as product from an investor standpoint. Many entrepreneurs we speak with are surprised by how many companies are in their competitive landscape. There is probably someone else doing something very similar to you, so rather than hiding your idea, show investors how you, as an executive, can do it better, faster, and more effectively.
Finally, remember that the purpose of your initial dialogue is supposed to facilitate a relationship. If things look promising and meetings surface, that’s the right time to discuss putting together an NDA with your lawyer. Avoid making it appear that it’s complicated to do business with you from the get-go. Again, always consult your lawyer before engaging in investor dialogue, but remember to keep a tactical mindset. Fundraising is a numbers game and the easier you make it to start a dialogue, the more meetings you’ll net.
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