Intellectual property is one of the most important assets of early-stage companies. Intellectual property can be difficult to protect because venture firms reviewing confidential pitch materials don't often sign non-disclosure agreements, and applicants don't have leverage to push for them.
The need to protect one's intellectual property during early fundraising is far from theoretical. If Company A pitches a fund for pre-seed or seed funding, the fund will decline to invest. After receiving a pitch from Company B, the fund decided to invest.
Because Company A and Company B do the same things, the fund may be able to give some of Company A's ideas to Company B.
How can a startup protect their intellectual property so that they don't end up like company A? A broad strokes overview of the legal landscape as well as a few considerations and strategies to mitigate the risk of intellectual property theft can be found below
When an NDA is not a realistic option, the next best thing founders can do is to signal as much as possible that pitch materials shared with funders are confidential.
Even if a founder considers a concept confidential or proprietary, it's not legally protectable.
Trade secrets are the most protected type of information. These are defined as tangible and intangible by federal law and many state laws.
The trade secret definition captures a lot of information, but it must be concrete to be considered a trade secret.
More abstract business ideas are protected by New York and California. If a startup has any operations or engages in raising money in these countries, it will be protected from being sued. California doesn't require business ideas to be novel.
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