Keeping it Secret

How to Keep Your Information Confidential When Revealing it to Investors

You have a new business plan, know-how, technology, product or service. There is a company or individual willing to invest in your business venture and they would like to know more about your creation and your business before they can invest. This will most likely require you to reveal information that you would rather keep confidential. How are you then able to safely disclose details about your business in a way that all confidential information and intellectual property rights arising out of it remain confidential, and do not fall into the hands of your competitors or the public in general?

An important step to protect the information you share with the investor remains confidential is to ensure a confidentiality agreement is signed by you and the investor.

There are two main types of confidentiality agreements that you could use, those are a unilateral or mutual confidentiality agreement.

Unilateral Confidentiality Agreements

If you are the only party disclosing information under the confidentiality agreement, then the most suitable form of agreement between you and the investor is the unilateral confidentiality agreement (also known as unilateral non-disclosure agreement – “NDA”). Under the unilateral confidentiality agreement only you, as the disclosing party, would agree to disclose information, whilst the investor would be the only party obliged to keep the information they receive confidential.

Under the unilateral agreement, the investor (as the recipient of confidential information) would then have confidentiality obligations in relation to information it receives from you. Those obligations can include:

• keeping the information confidential and not disclosing it to any third party;

• returning or destroying the information upon your request;

• implementing and maintaining protection measures to ensure the information remains confidential; and

• only using the information for the purpose of the investor determining whether it wishes to invest in your creation.

Another key point of the confidentiality agreement is to ensure “information” is defined as broad as possible. This is to ensure a wide range of information disclosed by you is subject to the confidentiality obligations under the agreement.

Mutual Confidentiality Agreements

It may also be that you would like to learn more about the investor to understand whether it has the capacity and experience to deliver your new technology, product or service. You would therefore also require access to information that would be likely considered confidential by the investor (e.g., marketing studies, list of suppliers and/manufacturers, prices and etc.). It is in this case that a mutual confidentiality agreement would be the most suitable option.

Under a mutual confidentiality agreement, you and the investor would have access to confidential information of each other and would agree to keep such information confidential. Confidentiality obligations that you and the investor would have under mutual confidentiality agreements would be similar to those of a unilateral confidentiality agreement.

Final Remarks

When you ask an investor, or are asked by an investor, to sign a confidentiality agreement ask yourself:

• would I also like to obtain access to certain information of the investor and, if so, is that information publicly available? (Your answer to this question may determine whether a unilateral or mutual confidentiality agreement is more suitable for your case);

• is the definition of information under the confidentiality agreement sufficiently broad to cover information I am revealing to the investor under the agreement?

Also, regardless of the type of confidentiality agreement you choose, it is important that you only reveal any confidential information to the investor after you and the investor have signed the agreement. Information revealed before signing may not be protected by the agreement.