The entrepreneur community is buzzing about the recent AngelGate scandal, and while others debate whether collusion and price fixing actually occurred among an elite group of Super Angels in Silicon Valley, one lesson to take away is that entrepreneurs need a way to protect themselves. Fundraising and due diligence involve the disclosure of a company’s most confidential and private information. From financials to strategic market plans, laying bare your company’s inner-workings to those who might invest leaves entrepreneurs vulnerable. So what is a company to do?
Mum’s the word
First, Mark Suster gave some solid advise recently on his blog Both Sides of the Table. He recommended: “Do not mention the other VC firms, angels, seed funds, etc. to any investors that you are working with if you don’t have to.” In other words, if you don’t want investors comparing notes and sharing information, don’t give them a leg up and tell them who their potential competition or ally, is.
If the information is going to get out anyway or has leaked despite your best efforts, simply ask your potential investors not to speak to the others. As Mark pointed out, “Once you’ve asked it’s pretty tough for investors to want to disregard that advice.” It clarifies both your wishes and puts investors on notice that you will be aware if there is a breech in confidentiality. When trust is expected, it makes it less likely that investors will go around you anyway.
Guard your heart
We have blogged before about the need for an online portal to organize, share, and, most of all, protect your due diligence materials when seeking funding. Such a portal, like Radar, provides a safe, controlled environment in which to organize and disseminate your key corporate documents. Best of all, as account administrator, you maintain the keys to the kingdom. You determine who sees what and for how long with the ultimate ability to rescind access if need be. While not a foolproof method of preventing information sharing, it goes a long way.
Join the conversation. What other advice or experience do you have to contribute to the issue of information sharing among potential investors? We want to hear from you.