Wednesday, February 15, 2006

VCs and NDAs

there is alot of conversation this morning on why VCs typically wont sign an NDA - I have to agree with most of brad felds points - and fred wilson identifies the ultimate one "we dont have to". I'd like to take the discussion a step further and ask the VCs how the entrepreneur can protect against the VC community knowledge grabbing. The statement that a VC is looking at 3 or 4 deals of a similar type is largely bollox. Especially at the bleeding edge. What many VC's do is take a meeting to 'learn' about the sector / concept - with no or little apparent pre-determined investment intention. Why should the favorable negotiating position provided by the check book - extend the inbalance to knowledge theft? (theft may be a bit strong here) Few VCs will admit that they knowingly engage in this practice BTW. The reason is simple - the 'tip of the spear' is still capital - its not knowledge. Until there is a semblance of equality here, a VC has far bigger license to sit in a meeting under the pretext that he may invest, not sign an NDA, and 'pass' due to reason 1-10 of SOP VC handbook. The takeaway for the entrepreneur 1. Do your homework on who you meet with - study the background and investment history - probe in detail their knowledge of your concept early in the discussion, and ask why they are interested. Don't take comments like 'wow - this is like drinking from a firehose' - leave the room. 2. Dont just take any VC meeting because you get them. Too many entrepreneurs think that the solution to funding is volume of meetings - the solution to funding is finding the right investor period. you should be able to tell within 15 minutes whether there is a fit. 3. If you are not meeting with a partner, dont take the meeting. I don't care what any analyst or associate thinks - your path to getting the right ear just got too long and too distracting if a partner is not in the room. I have met with over 90 VC firms in the last 2 years and only once did i see a VC who was not a partner who had decision making or significantly influential mindshare on the process - his name was Bob Geiman from polaris and he was a principal (he's now a GP).

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