Protecting your startup’s intellectual property. If, how, and when to deal with it.

Nothing makes a worse impression on investors than when the founder of a startup brings a non-disclosure agreement (NDA) to the first meeting. This is not to say that founders should take the protection of their intellectual property lightly and pretend that terms such as NDA, patent, or trademark do not exist. “It’s understandable that founders want to protect their ideas. But they shouldn't take it too far, and it’s important to realize that the relationship between the startup and investors is firstly built on interpersonal relationships, and secondly on the papers they sign together,” says Viktor Nyitray, Startup Coordinator at UP21.

So how and when to deal with protecting your startup’s intellectual property? “Take an honest look at your own business plan and try to objectively say – am I going to the investors with an idea that is amazing in my opinion, but untested on the market, or is my idea already at the level that its existence would be threatened by someone peering into its business plan and internal processes?” adds Viktor Nyitray, who has experience in protecting intellectual property both from the perspective of an entrepreneur and investor.

Viktor Nyitray, Startup Coordinator at UP21

A formal confirmation of secrecy is not enough for an ingenious idea. It is possible that it might suffice – no one is saying that a founder can’t request an NDA while sharing an idea with investors – but imagine how the situation would actually play out. The founder comes to the meeting, and before he even says a word about his project, he pulls out a multi-page confidentiality agreement, which he wants to see signed before continuing. It’s obvious what he’s saying. I don’t trust you, I’m afraid that as soon as I tell you what I’m working on, you’ll get up from the table and steal my idea for your own use.

Even if we don’t factor in the psychological aspect of the NDA at the first meeting, the purely rational aspect remains. If the investor signs a confidentiality agreement, he can’t tell people in his network about the startup, or otherwise help out, unless they also sign follow up clauses for exceptions to which the agreement does not apply. As if the process of getting investment and the inevitable due diligence that comes with it wasn’t already enough. 

Bottom line: bringing a non-disclosure agreement to the first meeting with investors means that there probably won’t be a second.

So what do you do when the deal is well on its way to being closed and meetings move to the level where the startup starts to share its unique know-how? In other words, how do you protect your intellectual property while there is still something to protect?

“In the life of the startupists there are three people people they shouldn’t cut corners with. An accountant, a financial director, and a lawyer. If I as a founder am not personally an expert in commercial law and protection of intellectual property, I would definitely consult with a lawyer about everything,” says Viktor Nyitray.

n general, two things can be said. First, if you are starting a project based on unique technology which you are most likely to be the only one in the world to have, patent it first. In the end the investor is interested in that as well – he’s going to want to know whether your technology will be yours in a year, or two, or ten years down the road. Second, with ambitions that go beyond the borders of the local market, get a trademark for your brand. Not just for physical products, but for digital as well.

“Even without a signed NDA it’s unrealistic that someone would steal your idea. Every year we have more than a thousand projects in the pipeline, and if we were so short-sighted that we would ruin our credibility and steal someone else’s ideas, we simply wouldn’t have time for it,”says Viktor Nyitray.

If there is a golden rule to help founders, regardless of the phase their startup is in, it is to share information and know-how only with investors who they trust and who trust them. In the end, what sense does a business relationship make if it’s only held together by piles of signed agreements about who owns what?

Viktor Nyitray is responsible for startup recruitment and their onboarding at UP21. He also taking care of our copilots and making sure that their flights with our startups are turbulence-free. Moreover, he is actively working on creating meaningful partnerships and interconnecting the startup community at large. Outside of UP21 he is working on facilitating education at high schools in Great Britain and consult on customer service management.

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