The article provides the example of Brian Barth, co-founder of online travel technology firm, SideStep, who had a series of meetings with partners at VC firm General Catalyst.
In 2003 and 2004, Barth had a series of more than 10 meetings and phone conversations with partners at General Catalyst, a Cambridge venture capital firm. (Barth remembers three meetings with Joel Cutler, a founder of General Catalyst, and three with Terry Jones, a partner at the firm who was formerly the chief executive of Travelocity.com.)
Barth says that Cutler and Jones never told him they were working on a travel idea of their own, even when he asked them directly about a rumor he'd heard through the grapevine. (In their version of the story, Cutler and Jones were simply meeting with Barth to explore the possibility of investing in SideStep, or possibly buying the company.) A month after the last conversation Barth had with Jones, in March 2004, General Catalyst announced it was investing $6 million in a company that it had helped to form, Kayak.com, to help travelers search many travel sites simultaneously. (Kayak.com wasn't an idea brought to General Catalyst by an outside entrepreneur.) Jones would be chairman, and Steve Hafner, a cofounder of Orbitz, would be the chief executive.
It brings up a question that's constantly on the mind of an entrepreneur: How much do you reveal about your business plan, and to whom? How much entrepreneurial paranoia is healthy -- and at what point does coyness and secrecy start to make you look like a nutcase with a PowerPoint deck?
There are plenty of things for entrepreneurs to worry about. A venture capital firm might decide not to invest, and either develop a company of its own or fund one of your competitors. An important prospective business partner, like IBM or Oracle, could decide to develop a product just like yours after lengthy discussions. In one case that involved a local company, Thomson Financial, which was an investor and had two seats on the board of Boston-based CCBN, decided to start a competing business, and allegedly used information from CCBN board meetings to compete against it
UPDATE: This is what Paul Graham, co-founder of ViaWeb (acquired by Yahoo), has to say on this topic:
You may wonder how much to tell VCs. And you should, because some of them may one day be funding your competitors. I think the best plan is not to be overtly secretive, but not to tell them everything either. After all, as most VCs say, they're more interested in the people than the ideas. The main reason they want to talk about your idea is to judge you, not the idea. So as long as you seem like you know what you're doing, you can probably keep a few things back from them.Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.