- We get asked to sign hundreds of them a year. It isn’t practical to be party to so very many contracts just in order to find out what a company has in mind.
- Managing the commitments would be a due-diligence and compliance nightmare- imagine being asked to “check” the legal status of hundreds of CDA’s, never mind the time negotiating and signing them up.
- We’re looking to back companies which can build protectable positions. In our view a business idea can’t be protected and expecting to do so is probably unwise. That protection could be patents, or could be customer relationships the company will build, it could be a database, or designs, knowhow or copyright. However, without any such protection we couldn’t expect to sell our interest in the investee at the end of the investment life. So if a CDA is needed to protect the idea, we probably wouldn’t back it anyway.
- Our experience has been that, the more closed and nervous the management team is about their idea, the less unique and special that idea is in practice. When we did sign CDA’s at the start of the fund life we found that where the team was most insistent was exactly when there was least to be protected.
- We commonly see the same idea repeated many times, despite the management’s insistence that they are uniquely pursuing the opportunity (after all if they are in “stealth mode” then it follows that their competitors may be too!). We don’t want to have to defend ourselves against an aggrieved founder who thinks we broke a CDA when in reality we just backed someone else with the same idea.
- Although advisors will often suggest that you need a CDA to protect the patentability of a technology, on a first meeting we may well not need to know “how” the idea is achieved, merely to understand “what” it achieves. If the step from “what” to “how” is obvious then it is not, by definition, patentable. Even if a company chooses to disclose to us, I would be stunned if a direct private disclosure to a professional FSA Authorised fund manager could ever count as a “disclosure” for the purposes of prior-art.
Thursday, 19 February 2009
Why we don’t sign Confidentiality Agreements
intellectual property|investment|IP|vc|venture capital|venturecapital|