Most people understand the importance of an NDA (non-disclosure agreement) when discussing new ventures with potential partners. However, the value of incorporating ‘non-compete’ clauses into these agreements – so an ‘NDANCA’ – is often overlooked. In this post, Ivan Woods, of our Singapore team, highlights the lesson by looking at a painful lesson recently learned by a client.
Please keep our conversations private… and please don’t steal my ideas
Almost everyone thinks about ensuring confidentiality in business discussions: search for NDA and Google finds “about 130,000,000 results”. But strangely few focus on protecting their unique ideas and IP by adding non-compete clauses into these agreements so that your NDA becomes an ‘NDANCA’.
Search for that and you get… 9,470 results. This surprised me enough that I tried all the variations I could think of: “non-disclose and non-compete” seem to get the most results at about 3,750,000 – less than 3% of that for NDAs.
This just seems weird: not all discussions involve IP which can be protected, but clearly in the world of startups and constant innovation, many do. Stopping somebody pinching your ideas and trying to reproduce them seems, well, important. (Was it only me who watched the Facebook movie?)
We witnessed a painful example of this recently with a client who, for reasons which will become clear, didn’t think a non-compete would be a big issue. Over the last year our client has:
- Come up with a truly innovative business idea
- With much effort, developed this into a viable and market-ready proposition, which we all believe has great potential across Asia and worldwide
- Made countless trips to meet potential partners, customers and employees; spent weeks sleeping in hotel rooms; missed family events…
Not unusual for many founders, and all worth it if you earn it back – for which first-mover advantage is often crucial. But late last year, they faced the potential of that advantage being wiped out in one or more of their major target markets.
So what happened? They set up a meeting with a potential business partner/investor in another country in the region, one with a truly impressive background and reputation. He seemed perfect to help them with connections, cash, business skills – all boxes ticked, or so our client thought.
The conversation was great, although then went silent for a while as often happens. But it turned out that since their meeting, this guy had been setting up a virtually identical business, together with a shiny new app and website. These so closely resembled our client’s, that there could be no mistake: he had simply taken their fully-developed concept (and all the time, money and effort they invested) and tried to replicate the idea.
Thankfully, he hasn’t done a great job, and we remain confident that our client will succeed – although his business is still running and still a threat. But even with such an apparently reputable partner, the danger is clear and could have been avoided with suitable non-compete conditions to protect our client’s IP, planning, marketing proposals… etc.
A non-compete shouldn’t be any more controversial than a standard confidentiality agreement. They typically go both ways and also include mutual non-circumvent clauses – “don’t go behind my back to people I’ve introduced” – for further protection, so your counterpart can see a mutual benefit as you share ideas and connections.
Properly drafted NDANCAs will put off most people from nicking your ideas. (They are equally relevant in M&A deals, to avoid a previous business owner just starting again with a competing company.) If they still try, you can apply for an injunction – or in the worst case, can claim financial damages for your losses. And, if someone is reluctant to sign, you should at least consider their intentions, or perhaps just their business experience.
How we can help
As part of our Advisory services, we can help construct the right agreement tailored to your needs. You owe it to yourself to protect the time and money invested into your business, and the costs of managing complexity need not be so high in this day and age.