As an investment platform bridging early-stage startups with investors, we’re always in conversations with entrepreneurs and investors. And besides trying to help startups raise capital for their startups, one of the other areas we focus on is education. Just like social media changed the way we interact, crowdinvesting is slowly but surely changing the way startups are funded. And through these conversations we try to educate entrepreneurs and investors about this new capital raising method.
So recently an entrepreneur raised an interesting concern for raising money online. She was worried that there was too much confidential business information being posted online. She raises an interesting point and this is something that other entrepreneurs may also be thinking. So here is why we want to share our views on why you DON’T have to worry.
Myth: With the capital raising process getting digitized via crowdinvesting, startups will naturally have to share their business details (i.e. business plan, term sheet, etc) online. This is risky and dangerous for the startup because information is too easily available and shared on the internet with the general public.
Reality: This might not be of concern for the early adopters who are thinking, “Heck yes, technology is changing the way everyone and everything interacts, and startup investing online IS the future,” but for the more conservative entrepreneurs looking to raise money, here are 3 reasons why it’s not dangerous to share your business details online.
(1) Traditional, Face-to-Face Investors Would Never Sign an NDA Anyway
When startups go out there talking to angel investors and/or VCs, rarely ANYONE agrees to sign an NDA (non-disclosure agreement). Most VCs won’t sign NDAs because:
- At any given time VCs are looking at 3 or 4 similar deals. They’re not looking to create legal issues in the case that they fund startup A, and startup B (with a very similar idea) thinks the VC stole his/her idea.
- VCs don’t want to spend the time and money signing NDAs, making adjustments on NDA agreements with lawyers, and keeping track of the NDAs they signed. Remember, they meet with hundreds of startups.
The honest truth is, having an idea doesn’t mean anything because there are probably people out there with very similar ideas to yours. Brad Feld sums it up here saying, “…the value is in creating the thing, not simply having the idea.” So what’s the point of an NDA? For a startup – minimal to none.
(2) Competition? Ain’t Nobody Got Time For That
Some entrepreneurs are worried that by sharing their business plans, term sheets, etc online, it’s giving their competitors (who might also be raising capital) a leg up. This is not true because well, you’re a startup. What I mean is:
- Company valuations for startups are always an estimate. There is no way any startup can accurately estimate the valuation of their company in x number of years. This is a known fact in the startup industry. So what if there’s a million photosharing apps and every one of them is valuing themselves at a different price? This is the wild, wild west, and investors will choose the best deal so let the best one win at the end of the day.
- Nervous that other startups will steal potential investors from your startup if they’re similar ideas? Investors and capital are finite; nothing about this has changed since traditional, offline capital raising methods. Investors are taking a chance on the startups, so they will gravitate towards the one they believe will be the most successful.
- Competition is good for the industry. This is one of the ways new and innovative companies come about. A little competition will push entrepreneurs to think and rethink about their business, core competencies, and differentiators.
- Afraid that your amazing idea will get stolen? Don’t worry because it’s likely that (a) you’re not the only/first one who thought of the idea, or (b) someone else had this same amazing idea and has probably started executing it. Which leads us to the last point…
(3) Information Isn’t #1. It’s All About Execution
It doesn’t matter how much you know about your competitors, your industry, your consumers, etc. Because at the end of the day, the startup with the best execution and team will win. The startup that can best deliver the desired product to its consumers will be the last one standing, and no amount of sharing business details online will prevent you from succeeding. Why? Because execution comes from the team. For instance, we’re (Return on Change) one of hundreds of crowdinvesting sites out there. Literally hundreds of competitors. Despite this daunting fact, we can’t get bogged down by this, and everyday we work to create the best investment platform for our users.
Let’s spend less time worrying, and more time executing our/your company’s vision because we all know that success lies within the team and execution. That’s the secret sauce no one can take away from you.
Having said all that, depending on your startup it is absolutely imperative you don’t disclose your secret sauce or too much information on your product to risk your intellectual property rights!