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After all the time you have spent developing your business idea, the last thing you need is for someone to steal your ideas and beat you to market. There are numerous instances where it is desirable to share confidential information with another party. But the key to doing so is making sure that the other party will be bound to respect the confidential information you provide them and not use the information to your detriment.

Thankfully, most people you will show your business plan to are professionals. If they think you have a viable idea, they will want to invest in it or join your staff. And in that case, it is in their best interest to keep your idea confidential. Just to be on the safe side, though, describe your product or service in your business plan, but don’t include a full set of blueprints — critical data such as circuit designs or key algorithms to your digital media service.

To limit the circulation of your business plans, clearly state on the cover page of your plan that photocopying or duplicating your business plan is strictly prohibited. You can go one step further and ask that anyone who reads your business plan sign a confidentiality or nondisclosure agreement (NDA).

NDAs reached mythic proportions during the height of the dot-com boom when most startup companies were rabid about them. It’s now important to be more discerning before requiring others to sign an NDA. You do not want it to be a barrier getting in the way of an otherwise productive business conversation. In fact, venture capitalists often refuse to sign NDAs before looking at your business plan.

There are many instances when an NDA is appropriate. NDAs can help protect your company’s confidential information when dealing with customers, suppliers, employees and the press. A typical NDA requires the signer not to divulge trade secrets, patents or other confidential information to anyone outside the company receiving the information. A written NDA is an important legal tool — if a company can prove that someone violated the agreement, the company may be entitled to injunctive relief, damages and even compensation for lost profits.

The principal situations to use NDAs are when you wish to convey something valuable about your business or idea, but you want to ensure that the other side does not steal the information or use it without your approval. Here are some typical situations where a confidentiality agreement is often used:

  • An invention or business idea will be presented to a potential partner, investor, or distributor.
  • Financial, marketing, and other information will be shared with a prospective buyer of your business.
  • A new product or technology will be shown to a prospective buyer or licensee.
  • A company or individual will be providing you with services and will have access to some sensitive information in providing those services.
  • Employees will have access to confidential and proprietary information about your business in the course of their job.

But nondisclosure agreements are not foolproof. Your ability to enforce an NDA depends on many factors, including the value of the information in question, how and why someone violated the agreement and whether the information is available from other public sources.

At the very least, the NDA will prove two things: You’re serious about protecting your intellectual property rights, and you expect the person signing the agreement to respect your rights.

When you draft an NDA, consider what is truly valuable to your company. If your NDA covers the wrong items, it is not much good. Make sure that your NDA specifies what the person signing should not disclose. A vague NDA is much more difficult to enforce. And make sure your NDA identifies all parties to the agreement, along with the starting date and length of the agreement.

For more information on drafting NDAs and confidentiality agreements, visit www.AllBusiness.com.

 

Copyright © by Richard D. Harroch. All Rights Reserved.

About Richard Harroch

Richard Harroch is a Managing Director and Global Head of M&A at VantagePoint Capital Partners, a large venture capital fund in the San Francisco area. His focus is on investing in Internet and Digital Media companies. He is the author of several books on startups and entrepreneurship. He was also the founder of several Internet companies. He is the co-author of Poker for Dummies and a Wall Street Journal bestselling book on small businesses. He was also a corporate partner at the law firm of Orrick, Herrington & Sutcliffe, with experience in startups, mergers and acquisitions, strategic alliances, and venture capital.

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