Startup Law

Startups, confidentiality agreements, and fundraising

When startups are trying to raise funds, one concern for founders is how to protect their intellectual property and sensitive business figures.

One way founders try and do this is through confidentiality agreements or non-disclosure agreement (NDA).

According to LegalVision, a confidentiality agreement or NDA is an agreement between two parties agree to not disclose any confidential information provided to one another. 

However there is a problem. Many venture capital firms will refuse to sign confidentiality agreements or NDAs. 

As Jordan Green, chairman emeritus of the Australian Association of Angel Investors, explains to anthill,  investors will see hundreds of businesses every year, many of whom will have similar ideas for similar markets. It would be incredibly difficult for investors to remember the agreements surrounding each discussion and not to reveal details in the wrong context. 

He says it's up to founders to be able to pitch their startup without needing to reveal their most sensitive IP information. 

“When selling to a customer one doesn’t have to explain why the secret delivers a benefit to the customer that the customer values,” he says/.

“Whether the secret sauce is software (copyright), hardware (patent), branding (trademark), or process (trade secret), it’s the outcomes - the effects, the market, the pain to be solved - that is of most initial interest to the investor.”

Even in the face of this opposition, Gadens partner Richard Partridge startups should insist on having an agreement in place. 

“I understand the relationship has to be strong and held in good faith for these negotiations,” he says.

“My view is let’s try not to offend them, but if your technology is of particular importance and of high value if it was to be disclosed to the public, then you should insist on it.”