Skip to main content

Disclosures and Non-Disclosures - By Sanjay Anandaram

“Here’s a NDA (Non-Disclosure Agreement) – please sign it”, said the entrepreneur. His face fell and he looked almost hurt when I told him that I don’t sign NDAs. It is simply impossible to keep track of the business ideas and plans that get discussed with various entrepreneurs. There are also many ideas and plans that sound and indeed are similar in concept if not in all details. One would open oneself to needless and avoidable complaints about plagiarism and favouritism if NDAs are signed.

So, how does an entrepreneur “protect” his business plan or “idea”?

Every entrepreneur actually believes that his/her business plan is singularly unique and that it will change the world if only capital were made available. While it is important for every entrepreneur to believe in his/her plan, it would be arrogant to assume that no body else has thought about it either.

Most businesses are the types that could be classified as “better, faster, cheaper.” In other words, they take an existing mode of delivering a solution, value-add around this solution by better orchestration of the eco-system, usage of technology and greater operational excellence and deliver “better, faster, cheaper” solutions to existing problems. The real key to their success lies therefore in their ability to relentlessly execute to their plan day after day, acquire customers and be financially viable. There’s little or no real intellectual property in these companies.

On the other hand, there’re a miniscule number of companies that are actually developing fundamentally new business models and technologies that can radically alter existing value propositions to customers. These types of companies tend be staffed by top class technologists and experts from the relevant business domain. Intellectual capital and intellectual property are the bedrock of their existence. Patents are used, among other ways, to fiercely protect their intellectual assets. Even in such scenarios, unless important formulae, critical and unique business processes and crucial algorithms are discussed, NDAs are rarely signed by professional investors.

When one goes to a doctor or a lawyer or a chartered accountant, one doesn’t sign a NDA in spite of discussing deep personal matters. Why? Because there’s a sense of trust and faith and sometimes even helplessness. Their sense of professional ethics prevents them from discussing specifics of a case with anyone else. Similarly, entrepreneurs need to understand that professional investors too have a code of conduct and business ethics that prevents them from discussing specifics of a plan. It is also important for entrepreneurs to have done their home work about the investor and learn how to discuss the details over multiple meetings. In any case, if an entrepreneur believes that the mere disclosure of his/her business plan jeopardizes its prospects, then it is probably too fragile to fund in the first place!

In the case of a public company, the following details are well, public. The capital structure and financials, the valuation, the management team details, the business model, the solutions offered, the kinds and names of key customers, the new strategic initiatives being planned. These companies have to brutally compete in the market where there are rarely any real secrets or at least (short-lived ones).

So why then are private companies so wary about their details? Given that they are private, they are under no obligation to share details; but then even if these details become known, why should it impact the company? After all, investors, key senior employees, key customers and partners will all want to know details of the company to make sure the company is worth partnering with. Details are to be shared with these constituencies and needless and excessive secrecy around the company can only harm it, in today’s day and age. While it is important to keep a healthy buzz around your company, it is important that this buzz be created by happy customers, employees and partners rather than through contrived means.

What do you think?

Sanjay Anandaram is a passionate advocate of entrepreneurship in India; He brings two decades of experience as an entrepreneur, corporate executive, venture investor, faculty member, advisor and mentor. He’s involved with Nasscom, TiE, IIM-Bangalore, and INSEAD business school in driving entrepreneurship. He can be reached at sanjay@jumpstartup.net. The views expressed here are his own.

Popular posts from this blog

How I Raised Funding - Priyanka Agarwal, Wishberry

You have to be confident and shameless while crowdfunding. Priyanka Agarwal, Wishberry shares on how to succeed in crowd funding with Venture Intelligence in this  interview. Priyanka also candidly shares how the team built Wishberry, raised funding from top angel investors like Rajan Anandan, on pivoting, and difficulties in raising capital for entrepreneurs operating in niche spaces not chased by VCs. Q: What does Wishberry do? Priyanka Agarwal : In its latest avatar, Wishberry has pivoted into crowd financing of low budget films (INR 1-5 Cr). We are essentially trying to create an internet platform for investment opportunities for HNIs in films including Marathi, Tamil, Kannada, or films targeting the global diaspora. L-R: Co-founders Anshulika Dubey & Priyanka Agarwal, Wishberry Given that you are building a marketplace, how did Wishberry solve the Chicken and Egg problem? Beyond the “all or nothing” model what did Wishberry do to pull in more arti...

Profile of Career Forum founder

The Starship Enterprise column in The Economic Times (not available online), featured Sujata Khanna of entrance exam training institute, Career Forum. The company, which started with just seven students in Pune, now covers over 39 cities reaching over 15,000 students. ...The most important milestone I think was in 1995 when we decided to incorporate Career Forum into a Company. This brought in a lot of professionalism and we also went for expansion. ...Strong technical network is our unique selling proposition. We have a strong ERP system running across all centres in all areas of business from distribution to logistics... Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the Private Equity and Venture Capital ecosystem in India. View sample issues of Venture Intelligence India newsletters and reports.

Should VCs buy out angels?

Interesting discussion at VentureWoods between Deepak Shenoy and Roshan D'Silva on this " perennial topic ". Here are their first posts (in the comments section): Deepak Shenoy said, Alok, true - there is reason to think about why one wants to exit. As a stock market investor, I have made decisions to sell companies at (say) 400% profits, when the company went on towards 1000% of what I bought - yet, I wasn’t sulking in a corner. Because a) 400% is pretty nice and b) I’d reached that comfort level of profits. Angels may not want to stay the distance, which could be much longer than their cash needs, and if the current valuation is attractive enough for them to exit. As individuals I would imagine that angel investors are the kinds that put in Rs. 10 lakhs to Rs. 50 lakhs in a business - and honestly, there are a number of such people who have this kind of cash lying idle in bank accounts (idle = they don’t need it right now). Such people can be angels, but they won’t b...