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    Dealing with Entrepreneur's Number One Fear

    Susan Schreter – Tue, Nov 29, 2011 2:23 PM EST

    I'm afraid to send my business plan to investors. After all they can just steal all my ideas and go make all the big money without me. What can I do to protect myself?

    During the earliest days of business building, entrepreneurs know they are vulnerable. They've heard the stories. Yes, there is competition everywhere, but nothing is worse than thinking your best ideas will be usurped by the very people you turn to for financial support.

    I'd like to give you assurances that your business plan won't circulate among potential industry competitors, but I can't. It happens.

    What I can assure you is active angel club investors and venture capital funds are not likely to steal your ideas and morph into your main competition. The purpose of startup and early stage investors is to fund high potential companies like yours, not operate them. Savvy investors are happy to let you do the hard work of perfecting products and services and steadily building the value of a company to a lucrative sale.

    What I like most about your letter is you take the time to evaluate the downside of every strategic move before taking action. This approach will always give you the greatest leeway to perfect your plans and minimize avoidable problems.

    Here are some recommendations:

    • Don't send entire business plans, patent filings or other detailed proprietary information to potential investors as part of an initial solicitation. Start with an executive summary.
    • Take the time to read about a venture capital fund's portfolio companies. Do any of these companies have similar technology or market goals as you? Be wary if they do.
    • Include a standard confidentiality notice on the cover of your business plan rather than ask a fund to sign a confidentiality agreement. Private investors and venture capital funds just don't have the time to negotiate agreements with every entrepreneur who seeks venture funding. Plus, larger funds argue that they see so many similar plans they are not in a position to police innovation. That's the purpose of intellectual property law.

    Despite your reservations about the venture finance community, there is a far more likely way you can lose your company's competitive advantage. It's all about how fast good ideas are copied in the marketplace.

    The best way to protect your company first-to-market advantage is to capitalize it with deep pocket partners, hire over-qualified employees, lock down your distribution, protect your intellectual property, and consult mentors from your industry. It's easier (and less exhausting) to stay one step ahead if you have strategic help along the way.

    You can't let competitive fear paralyze your efforts to raise money or enter into industry alliances that can help your company progress. At some point, you have to trust your instincts and move forward. You can do it.

    Susan Schreter is a 20-year veteran of the venture finance community, MBA-level educator and policy advocate for small business owners. Her work is dedicated to improving startup operating performance with reduced personal risk to entrepreneurs. She is the founder of www.takecommand.org, which offers the largest centralized database of regional and national small business funding sources in the U.S., including angel clubs, micro-finance lenders, venture capital funds and more. Follow Susan on Twitter @TakeCommand

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    3 comments

    • Pete H
      Pete H  •  4 months ago
      A great way to protect yourself is do a legal document or poor mans patent. how you do it is get the original copy or copys, notarize it, put with it a sign statement with witnesses date and signed..seal it in an yellow envalope.put it in safe or safe deposit box.If some one tries to steal your ideals or patents.take them to court you have evidence of your plans that was never opened from the date you sealed it.Is it full proof? No but it gives you some protection from those who may try to benefit.Remember facebook suit? if it was not for the emails or documents those guys who sued mark Zuckeburg would not have gotten a dime. you can sue for copy rights or civil damages.also emails, correspondence, recorded conversations or any documents. that were negotiated should be kept in a file.
    • Scott
      Scott  •  5 months ago
      Our system encourages entrepreneurs to transfer ownership of their work to the rich upper class to receive funding. No small business owner wants their hard work to be owned by someone else. Instead, the government should provide a small business loan program similar to the student loan program where the government pays interest for four years. This would allow small business owners the opportunity grow their business through the risky startup stage while maintaining ownership of their hard work.
      • MC1
        MC1 5 months ago
        Out systems rewards good ideas and smart entrepreneurs.

        The SBA already dose something like this through their guaranteed SBA loans. In my humble opinion the government should not be in the business of funding entrepreneurs at the expense of tax payers. More then 50% of small business fail in their first year and leaving the tax payers with the bill is a bad idea and is wrong.

        That said i would stay away from the SBA and their loan programs for a number of reasons. The first is once you get an SBA loan you can't get out of it. So if you go broke trying to get your business running and can't pay your SBA loan, bankruptcy won't protect you. The second is that the SBA doesn't make the loan they insure the loan in a particular form which basically means you can't modify the loan after you have it and lastly securing any other financing after you have an SBA loan will be impossible because any additional lender will not lend to you because they know that in a liquidation of you company the Government is made whole first.
      • Cal
        Cal 5 months ago
        No if government is to be involved at all it should be as an investor. With loans payments need to be made and new businesses do not need more debts. Since if the business fails taxpayers loose anyway, investment versus loan is much more valuable. When the investement is worth something sell it and profit. However in reality government needs to stay out of business lending/investment totally. Its history is terrible. Look at the SBA over 90% losses in most states and have never had under 50%. Most business failures I have seen are businesses that never should have been started to begin with
    • gerald
      gerald  •  5 months ago
      Get customers first. Take Priceline for example. They sold the idea before they digitized it.
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