The Wolf In Client Clothing (Read Your Contracts)

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Can a startup afford to turn away a prospective client? Sometimes. By Carissa Ganelli (Founder & CEO, LightningBuy)

A wonderful thing happened two weeks ago. A VC acquaintance introduced me to a prospective client. Fabulous, right? Just what every startup wants: referrals. After the email introduction, the CEO and I set up a call.

The call went better than I hoped. The CEO and his team uttered plenty of oohs and aahs and said “neat” and “great” many times. They thought we'd be a perfect fit for some of their properties. However, as the call progressed, some of the questions they asked and comments they made raised a red flag for me. I got the sense that they were going to steal our concept.

I’m not normally a paranoid person. I’m firmly in the camp of “there are plenty of good ideas but it’s the execution that matters.” On the other hand, my co-founder is a paranoid freak and that everyone is going to imitate our product. However, after those overly probing questions and comments, I too became a paranoid freak. Despite my reservations, I persisted with the call because no startup can afford to turn away a prospective client, can they?

Within a few minutes of ending the call, the company immediately sent a follow up email to schedule a call with our tech team. That too was strange as one of LightningBuy's value props is that there's no dev work required on the part of the client, so no need for a tech call.

Since my hackles were already raised, I sent over our standard NDA and then they responded by sending over theirs. Their NDA had a clause in it that I've never seen before - and I've probably seen/signed over 100 of them as an employee, consultant and founder. I read every single one. I also vetted it with my attorney and he confirmed that he's not seen it before in an NDA and I was correct to be concerned.

Here's the clause:

“Independent Development. Recipient may currently or in the future be developing information internally, or receiving information from other parties that may be similar to the Discloser’s Confidential Information. Accordingly, nothing in this Agreement will be construed as a representation or inference that Recipient will not develop or have developed products or services, that, without violation of this Agreement, might compete with the products or systems contemplated by the Discloser’s Confidential Information.”

That clause seems like they are setting themselves up to be protected in the future if they want to rip off someone.

If they did develop something similar to LightningBuy, how could I ever prove they got the idea from me? They could counter they already had it in development. So I removed the clause from the NDA and sent it back over. I then got an email from their General Counsel and then had a call with him trying to bully me into signing it. I especially loved it when he tried to make me feel stupid and inexperienced saying that these clauses are standard. They. Are. Not.

I didn’t sign it and we won't be going forward with discussions with the company. Also, my team and I will be hyper vigilant to see if they try to develop something similar. Not all clients are worth having.

Here are some Dos and Don’ts regarding NDAs and contracts:

  • Do read everything. Contracts are a bore and sometimes painful to wade through. They border on indecipherable but they must be read and understood. Having signed around 100 NDAs, I could’ve easily just signed this one without a careful review and would have missed entirely the offensive clause.
  • Don’t be paranoid but definitely be skeptical. There’s no need to look over your shoulder at every turn but do be aware of atypical questions or comments that come your way.
  • Don’t feel the need to over-share. As founders, we’re so eager for press, investments, traction, you name it, we offer up information that’s never been requested. Why give away your secret sauce? Why announce who’s funding you so investors can collude for your next round (like they do on Shark Tank) and you get a bad deal? Keep that kimono closed as long as possible.
  • Do believe that most people have integrity. Only a few are sleaze balls.

Editor's note: Got a question for our guest blogger? Leave a message in the comments below. About the guest blogger: Carissa Ganelli is the Founder and CEO of LightningBuy, where mobile is monetized via merchants who set up and sell on mobile without a mobile site or an app. After graduating from Bryn Mawr College, she took a wrong turn towards corporate life earning her marketing stripes at Time, Inc. before getting an MBA at Kellogg. LightningBuy has to be successful because she has no Plan B for her career. Follow her startup on Twitter at @LightningBuy.