I’ve recently been meeting with many startups attacking one specific marketplace vertical. I deliberately reached out to each of the players in this specific vertical as I like the space and believe that it holds the potential for a very big business. When meeting with so many startups attempting to solve the same problem, you gain a deep appreciation for how important it is to sweat the details while executing. It is often the little things that matter.
For example, in the context of this marketplace vertical, some very important details are how many steps it takes for a buyer to reach sellers, how many sellers the buyer is allowed to reach so that the buyer does not feel overwhelmed, and which information is revealed about each seller. As a direct consequence of diving into the details of each startup, an investor gains a lot of information about what differentiates them and which specific approaches may be better conducive to success. The information provided by one entrepreneur is very valuable for a competing entrepreneur.
Non-disclosure agreements, or NDA’s, emerged exactly for this reason. Since investors gain such valuable information during the course of these meetings, it is very important that they treat all proprietary information gained from one startup as confidential when meeting competing startups. Since NDA’s are a hassle to sign and explicitly signal a lack of trust which the entrepreneur has for the investor, they are very rarely used. However, although NDA’s are rarely used, there is a common understanding between entrepreneurs and investors that what is discussed in a meeting stays in that meeting. This is why I was surprised when, in one of the meetings, an entrepreneur asked several sensitive questions about what I had learned in meetings with competitors.
I declined the repeated requests for competitor information because, although there may not be a formal NDA in place, I have the responsibility to keep private all information which entrepreneurs have trusted me with. However, although the right course of action for an investor in this situation is clear, what about for the entrepreneur? What does the search for competitor information from a potential investor say about the entrepreneur?
On one hand, it shows that the entrepreneur is proactively looking for opportunities to improve his business by learning from what his competitors are doing. Replicating what works elsewhere, avoiding what doesn’t, and knowing what your competitors plan to do in the future, make you more likely to succeed. This is a good thing.
On the other hand, it shows that the entrepreneur is willing to use information gained from someone else violating their informal NDA. While some may say that this is an ethical breach on the part of the entrepreneur, I don’t agree. Formal or informal, the investor is under NDA, not the entrepreneur. If the investor divulges sensitive information, it is the investor’s fault, not the entrepreneur’s. The investor may be unethical or simply not the brightest tool in the shed, but the entrepreneur is not to blame for this. On the contrary, he is to be praised for his opportunistic attitude. He might get no information nine out of ten times, but the one lapse may be a critical source of insight.
So, although taken aback at first, upon greater reflection I discovered that I actually liked the entrepreneur’s approach. It was quite entrepreneurial.