I know what you're thinking.

You really believe you have something special. Something earth-shaking. Something unique. It might be a piece of technology or a business model or a way of building or distributing a product. Whatever it is, you believe your unique idea is essential to the success of your startup business, and you are concerned that if someone else finds out about your idea, they could beat you to the market and establish an insurmountable competitive advantage over you.

Which is why you are thinking about asking potential investors to sign a non-disclosure agreement (NDA). Am I right?

But even though I understand why you would be thinking about an NDA, in most cases having an investor sign a non-disclosure agreement in regard to your new business idea is a waste of time for four reasons:

• Unless you have invented something to replace videotapes and DVDs and have an issued patent to protect it, most ideas can easily be replicated by other companies.
• The first to market is many times like the pioneer who comes away with a number of implanted arrows from making early mistakes. Many times the second or third to market does best, because they can learn from the mistakes of the first.
• There is no one who is assigned to watch for new technology so their company can steal the idea. Most companies are not even aware of startups and won't take much notice until you have some revenue success. Bigger companies take much longer to get new products to market.

• By insisting on secrecy, the entrepreneur irritates potential investors. It shows that the entrepreneur doesn't trust the people he is soliciting for funds.

So when should you use an NDA?

I would suggest you consider asking potential investors to sign a non-disclosure agreement under the following circumstances:

• When you share with them information that a third party has asked you to keep confidential.
• When you share with them trade secrets, patents pending or processes.
• When you share with them customer and prospect lists.

By the same token, you should not use an NDA to protect information about what the company is engaged in and what business model it is using, or industry or trade figures that are available in many places, including the Internet.

Most attorneys will indicate that you need an NDA for almost everything that in your wildest imagination might be confidential, but that is just part of the Lawyers Full Employment Act. Use common sense. Be careful with whom you share your ideas, products or business models. But realize there is no one out there poised to steal your idea. Any sophisticated investor will be put off by being asked to sign an NDA, especially for a startup.

No matter what you're thinking.