Will Investors Steal Your Best Ideas

Smart ways to protect your business secrets and innovative ideas from insincere investors

Q.  I have been developing a business opportunity in the consumer, construction and governmental sector for the past 11 years. I have so many questions! I'm concerned that once I disclose my business idea to investors that they will steal it from me. What can I do to protect my ideas?

A.  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 quite often.

What I can assure you is venture funds are not likely to steal your ideas and morph into your main competition. The purpose of a venture fund is to invest in high potential companies like yours, not operate them.

I also believe there are high integrity venture capital professionals who respect the proprietary work of entrepreneurs. As an example, not too long ago I referred an executive summary to Clifford Haas, a partner with Sigma Partners. He called me to say he couldn't look at the deal further because one of his portfolio companies was now exploring the same emerging market.

Since not every VC is a class act like Cliff, here are a few things you can do to help minimize VCs sharing sensitive information with potential competitors.

• Don't send entire business plans, patent filings or other detailed proprietary information to fund managers as part of an initial solicitation. Start with a well-written executive summary.
• Take the time to read about the venture 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 (a clear sign of a rookie entrepreneur). 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 community, there is a far more likely way you can lose your competitive advantage. It's all about how fast good ideas are copied in the marketplace. It happens in every industry.

Here's an example. I have a friend who co-founded a women's magazine called Simplicity. After a highly successful launch, large, well-funded magazine publishing houses took note. Months later, a look-alike magazine called Real Simple rolled out offering super perks for advertisers, subscribers and distributors. Simplicity couldn't survive.

The lesson from Simplicity is simple. No matter how brilliant the founding idea, execution matters more. Simplicity entered the market unprepared to stay ahead of the competition. Management just prepared for Simplicity's launch, not a long-term battle.

The best way to protect your company is to surround it with strength. Seek out deep pocket partners to help develop or market your products before new competitors surface, lock down your distribution, protect your intellectual property, hire the best staff and consult mentors from your industry. It's easier (and less exhausting) to stay one step ahead if you have strategic help from more established companies along the way.

You also need money which brings us back to trusting the professionalism of potential investment partners. After 11 years of development, I'd say it's time to expose your ideas to the venture community.

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.

Take Command Action Step

Improve your business plan. You can do this by challenging yourself. Assume there is a better funded competitor that will launch a similar product or service within six months of your market entry. What do you have to do to make your company stronger? It is this type of exercise that will make your business plan more attractive to investors and your company more successful for you too! You can do it!

Do you need time-saving tips to help fund and grow your business? Ask Susan How! Write to small business funding expert Susan Schreter at susan@takecommand.org