(Updated)
Dharmesh Shah, Angel investor and repeat Entrepreneur himself talks about why startups looking for funding should not pursue an NDA (other than the fact that investors won’t sign it anyway). His three key points:

• As an Entrepreneur it is often in your interest to share WHAT you do, as a way to solicit feedback, concept validation
• If there is a “secret sauce” of HOW you will do it, you should not share it anyway, NDA or not – not until further down the road as part of due diligence with a committed investor
• Since it’s commonly known that investors do not sign NDA’s, asking for it is akin to displaying a banner: “Newbie Here”

I’d like to add a fourth point, which becomes a reality-check whether you should seek funding at all:

• If the information you reveal during the presentation is enough for a competitor to jeopardize your position, than you really don’t have anything substantial to justify an investment. Your time would be better spent on product development.

I mostly work with software startups, and I think it’s safe enough to claim that in this field concepts do not get funded. You need a prototype – partial functionality, alpha, demo (not slides!) ..etc, and some form of market / customer validation. Anything less is just fluff.
That’s software; obviously if you are about to revolutionize chip technology, that’s more asset intensive and you will not be able to develop a product pre-investment. You may get funded on the concept, but in that case the other key component is the credentials of the genius PhD-team you have assembled.

Either way, it’s the “substance” beyond a 30-min presentation that gets funded. If you have it, no need to worry about revealing the basics – if you don’t, save your time ….

Update (6/13): Rick Segal on the funny (stupid?) practice of trying to “slip in” an NDA.

Tags: startups, entrepreneurship, VC Funding, Venture Capital, Angel Funding, NDA, Non-Disclosure, Confidentiality, IP, Intellectual Property, Market Validation

The next  SVASE  VC Breakfast Club session is on Thursday, April 20th in San Jose.  It’s an informal round-table where up to 10 entrepreneurs get to deliver a pitch, then answer questions and get critiqued by a VC Partner. We’ve had VC’s from Draper Fisher, Hummer Winblad, Kleiner Perkins, Mayfield, Mohr Davidow, Emergence Capital …etc.

Thursday’s featured VC is Jim Marshall, Managing Director, Selby Venture Partners. The Zvents post  has all the info and a map, but please remember to click through to register either from zvents or directly here.  

These sessions are an incredible opportunity for Entrepreneurs, most of whom would probably have a hard time getting through the door to a VC Partners.   Since I’ve been through quite a few of these sessions, both as Entrepreneur and Moderator, let me share a few thoughts:

• It’s a pressure-free environment, with no Powerpoint presentations, Business Plans…etc,  just casual conversation, but it does not mean you should come unprepared!
• Bring an Executive Summary, some VC’s like it, others don’t.
• Follow a structure, don’t just talk freely about what you would like to do, or even worse, spend all your time describing the problem, without addressing what your solution is.
• Don’t forget “small things” like the Team, Product, Market..etc.
• It would not hurt to mention how much you are looking for, and how you would use the funds…
• Write down and practice your pitch, be ready to deliver a compelling story in 5 minutes.  You will have more time, but believe me, whatever your practice time was, when you are on the spot, you will likely take twice as long to deliver your story.
• Last, but not least, please be on time!  I am not kidding… some of you know why I have to even bring this up.

See you on Thursday!  

Tags: Venture Capital, VC Breakfast, Funding, VC Funding, Startups, Entrepreneurship, SVASE