Why my Exploratory calls are NDA-free
NDA Lessons Learned
I didn't realize how strongly I felt about the topic of getting asked to sign an NDA before an exploratory, complimentary call -- until I was giving advice to someone who was asked to sign an NDA before their first interview at a start-up. Spoiler alert: I don't recommend signing one; here's why.
None of this is legal advice. This post was not sponsored or affiliated with my lawyer (or any lawyer). Please consult your own attorney for help with contracts that are specific to your needs.
These are my lessons learned, which are specific to the nature of my business. This advice may not work for you.
Legal contracts are similar to data sets: each is unique, has gotchas, and you need an expert to help you navigate them. :)
NDAs should protect both sides signing the contract, without burdening one side over the other. I don't recommend signing one to hear what the company does (at an interview, pitch, strategy call, etc.).
If you do decide to sign an NDA, please hire a lawyer to review it before signing. It's never too early to hire a lawyer; but there is such a thing as "too late". With your lawyer's help, you'll be able to understand:
each word of the contract, especially around scope of responsibility if things go wrong,
what it means for “things to go wrong” as stated in the contact.
Each contract is up for a discussion -- and clauses can be amended/removed.
Phase 1: Context
I started out by agreeing to sign every NDA sent my way, before getting on a complimentary strategy call to discuss approaches for solving each company's current business challenges. Because I mentor, advise and consult mostly for start-ups, I wanted to do what seemed like the "right thing" as the time, even if the ask came right after an introduction. After agreeing to sign an NDA, here's what that process actually looked like in reality -- and my lessons learned.
When founders are starting out, especially first-time founders, they don’t know what they don’t know. Understandably they also try to extend their runway as much as possible -- sometimes at the expense of legal (and other) services. They typically don't hire lawyers, or, best case scenario, they have a pro-bono lawyer that's volunteering a few hours of their time a quarter (or similar) to the company. As a result, it seems that the contracts that do get used are those found on the internet, for little or no money, without understanding what the contract actually says and how it does/doesn't apply to their start-up, and how applicable or limiting the disclosure actually is, and the repercussions for doing so.
Phase 2: NDA
You probably see where I'm going with this. I would receive this NDA and send it to my lawyer (to the tune of $100s of dollars for my peace of mind), who would then flag and explain clauses to me. I would then ask the founders to amend/remove certain clauses, and we'd get into a legalese negotiation stage. Sometimes the contracts would be 10+ pages in length, governed out of state, and would have required an additional lawyer licensed in that state to review the contract as well. This is all before we even talked about their business overall -- and it wasn't clear if my services would even be a fit at this time.
To make things more concrete, here are examples of some of the most egregious clauses I've asked to be removed/amended from 6 actual contracts -- clauses that I didn't even know were in the contract without my lawyer's help:
My likeness and credentials will be used indefinitely by the start-up for any internal and external materials, including board and pitch decks.
I'm not allowed to offer anyone consulting services in their same broad industry. e.g. I cannot take on another start-up in the Financial sector (industry and example changed) because of their loose affiliation with providing CRM services to Sales teams in Financial companies.
I'm not allowed to consult for any company with a Sales team (department name changed), because of their loose affiliation with providing CRM services to Sales teams.
I would be liable anytime the start-up got sued (!)
I need to get permission every time, before hosting complementary, mentor office hours for accelerators, in case one of their clients/competitors is attending. (Hmmm... not only does this violate California law RE independent contracting, I also have no control over who's in the accelerator cohort or is planning on attending office hours.)
I would be liable for any deaths at the company (!)... that was in a non-medical field (think retail, industry changed)... for doing a code review (!)
Sometimes I wonder what must have happened for the clauses to make it into the contract?
Did I mention that we haven't discussed working together at this point, before I've seen these clauses? :)
In one of the cases above, the start-up refused to remove/amend the clause and I walked away from the prospective client. Which clause do you think that was?
As an aside, I've learned that a contract is more likely to be legally binding if both parties stand to benefit from it; it can't just restrict one party without offering anything in return.
Phase 3: Strategy Calls (Finally!)
As you've probably guessed by now, when the dust around all the legal paperwork settled, sometimes many weeks later, I’d get on a call to learn about what the start-up does and why they may need help, and... -- it wasn't the right fit.
For early-stage start-ups, there were typically 1 of 3 reasons:
They had no internal/external engineer(s) to begin collecting any data, to begin understanding their customers.
Phase 4: Pivot to NDA-free Strategy Calls
After almost a year of paying (many) $100s to protect myself and my business, I decided to pivot to NDA-free strategy calls only, for the following 4 reasons:
If a founder can't talk about their start-up from a "10,000 foot view" without giving away the "secret sauce", how will they be pitching their start-up to investors (if/when the time comes) -- since VCs don't sign NDAs to hear pitches?
If by telling someone their idea, it means that anyone can "steal it", there is no moat -- and when the founder(s) go out for funding, VCs will not find the company fundable.
If the start-up does get funded (!), there will be a term sheet outlining the legal terms and conditions to the money received. If the founders are struggling in drafting the terms of an NDA, what will happen when it's time to review the term sheet?
Last but not least, if a start-up has trouble drafting an NDA that's specific to their business needs and wants a complimentary strategy call, I should not be shouldering the burden to pay for it with my time and money to explain the contract to them -- before we even discuss if it makes sense for both sides to work together.
After I pivoted, I still receive some push-back from founders to NDA-free strategy calls; typically, their argument is "but my contract is standard". To which I truthfully reply: I've been doing this for a while and I have yet to see the same contract twice; actually I've found that legal contracts are similar to data sets: each is unique, has gotchas, and you need an expert to help you navigate them. :)
Find what works for you, re-evaluate if it's not, find a lawyer that works for you (ask your network for recommendations) -- and protect yourself. Good luck!
And if you'd like an NDA-free strategy call to see how you can improve your product, reach out. If we decide to work together, I'll ask to sign your NDA and send over my consulting agreement for your review. :)
PS The day this blog post went live, I was asked to sign an NDA before finding out more about a company I was talking to. I told them that I just posted an opinionated blog post about why I don't sign NDAs: (1) I've seen many that would restrict my consulting business, and (2) I'd need to hire a lawyer to review the conditions to make sure that's not the case before signing. They were surprised, but dropped the requirement. :)