Start-ups Basics: Protecting Your Idea
Many IT companies start with an idea- some of them are good, some not so good. After the basic idea, it is often the case the people behind the idea, the tech guys, will start going around pitching the idea or the concept to potential investors- these could friends/family, incubators, banks, private equity groups, venture capitalists, other IT companies.
However, many start up owners, in the rush to get funding and pitch their idea, forget one crucial step- and that is to protect their idea.
For instance, if a start-up has a ground breaking idea in internet security, it may rush to a large, established IT security company to see if it would be interested in investing or buying the product from the start-up. The start-up would be invited in to make a pitch. But what if, in their excitement to sell the product, the start-up discloses all of the concept, data, solutions, work-arounds of their idea. The IT security company could quite easily take the idea, get their own teams working on it and find a quicker, more feasible solution.
So what about our start-up? Where would this leave them? Well, unfortunately, the law would not offer any protection to the start-up.
Similarly the start-up cannot go to pitch an idea and then disclose no information whatsoever to the other party. This would defeat the purpose of pitching.
A feasible solution would be for the start-up to require the other party to sign a short agreement, known as a non-disclosure agreement, or sometimes as a confidentiality agreement with those persons, or companies, it wishes to speak to.
The non-disclosure agreement will provide that neither party may disclose any information that it receives from the other party to any third party. It will also cover the employees of the parties.
It is worthwhile, for a start-up, to invest the time to have a standard form non-disclosure agreement drawn up which can be easily amended every time the start-up approaches a new investor or anyone interested in their company. The document can be sent in advance so that it is signed prior to any meeting or disclosure taking place.
Often, it is the case that, once a non- disclosure agreement is signed¸ the parties regard the document as a deterrent to taking or using other people’s ideas- this invariably will save the start-up from incurring legal fees.
Finally, sometimes by insisting on the signing of a non-disclosure agreement, the start- up conveys, to the investor, a professional attitude to its idea and that it is willing to act in a business-like manner.
Please contact one of our experienced company formation lawyers today for more details. Email us at email@example.com or call +971 4 448 4284.