Here's why you shouldn't ask investors to sign a nondisclosure agreement

If you've raised a dollar from someone other than your loved ones, you can probably skip this article because you already know how silly it would be to ask an investor to sign a nondisclosure agreement . But, if you're a first-time entrepreneur trying to raise seed money, I'm pretty sure you have a brilliant NDA ready for any investor who bothered to respond to your cold email.

Your NDA probably achieved promising initial success when you got him signed by your siblings. There's just one small problem going forward: no one else will sign your NDA (true story).

First, do you really need an NDA

Short answer: NO!

But I understand. you've spent hours painstakingly constructing a pitch deck and practicing your presentation. You're ready to meet investors and hope to get the funding your startup needs to take it to the next level. You are afraid that one of them will steal your idea. Ultimately, you want to be the first to market with your idea.

Let's take a look at some of the most successful companies of our time, and you'll find that none of them were first to market:

Larry Page and Sergey Brin did not invent the first search engine. Jeff Bezos didn't invent the first online store. Elon Musk did not invent the first electric car. Steve Jobs did not invent the first smartphone.

The reason these entrepreneurs and businesses have been so successful is because they have created superior products.

Here are four reasons why you don't want to ask investors to sign an NDA:

1. It makes you look like an amateur

Asking an investor to sign an NDA before presenting your pitch deck is a surefire way to make you look inexperienced. Investors are professionals with a reputation to uphold and have no interest in risking their name for your intellectual property. Applying for an NDA is a great solution.

2. This creates a liability for investors

"If we're asked for an NDA, we'll just pass."

Aya Peterburg, Managing Partner at S Capital

If an investor has invested or will ever invest in a company with a similar idea, they can be sued for this NDA.

"If we're asked for an NDA, we'll just pass. Why? Because there's a 1% chance we'll drop the next Google and a 100% chance we'll put our fund at risk," said Aya Peterburg, Managing Partner of S Capital, who led our seed round at Hourly.io.

3. It's about the execution, not the idea

The most amazing idea is worth about a dollar (on a good day). Building a successful business from scratch is the hardest part.

These startups are often plagued by talent access issues, go-to-market nightmares, and other growing pains that leave behind many unhappy customers and broken promises.

Most investors became investors because their passion is supporting the next generation of entrepreneurs. They would rather make their money grow by investing in your business than stealing your idea.

4. This is a problem that creates extra work

Sending an NDA means investors now have to read it, come back with changes, pay a lawyer to make changes, and wait for a response from you, all before they've even heard what you have to say. It's just too much effort for an unknown opportunity.

And if they sign the deal, investors should make sure to avoid breaches of contract by remembering the details of your NDA when weighing thousands of arguments and selecting who to invest in.

Put simply, it's easier for an investor to make a deal that doesn't require the complexity of an NDA, and that's what most investors will do.

Is there a time to request an NDA

There is never a good time to request an NDA, unless of course you want to narrow down your list of potential investors...