Should I be wary of signing a non-disclosure agreement with someone I just met?

Question

1/22/12 update in case you were puzzled as to why I haven't accepted an answer: Pretty much all of the answers make the obvious point that working for him would have been silly, but none of them seemed to answer the question.

tl;dr: Some guy I just met says he wants me to join his company. Before he shows me what they do, he wants me to sign a non-disclosure agreement. Is this weird?

I'm traveling right now. Someone who saw me coding seemed to think I was smart or something and started talking with me. He explained that he owns a software company, told me a bit about what it does and told me that he was looking for a programmer who would work for a stake in the company. He explained that the company's product is being developed rather secretly, so he couldn't tell me much. But he did tell enough about the product to convince me that he's not completely making this up, which is a decent baseline.

He suggested that he show me more of what he's been working on and, after seeing that, I decide whether I want to join. Because of the secrecy behind the product, he wants me to sign a non-disclosure agreement before we talk.

I'm obviously somewhat skeptical because of the random nature by which we met.

In the short term, I'm wondering if I should be wary of signing such an agreement. He said it would be easier to show me the product in person rather than over the internet, and I'm leaving town tomorrow, so I'd have to figure this out by tomorrow. If I decide to talk with him, I could decide later whether I trust that it's worth spending any time on this company.

The concept of being able to avoid telling a secret seems strange to me for the same reason that things like certain aspects of copyright seem strange. Should I be wary of signing a non-disclosure agreement? Is this common practice?

I don't know the details of the agreement of which he was thinking, (If I end up meeting with him, I'll of course read over the agreement before I decide whether to sign it.) so I could consider alternatives according to the aspects of the agreement. Or I could just consider the case of an especially harsh agreement.

This question seems vaguely related. Do we need a non-disclosure agreement (NDA)?

Thanks

Answer 1

Read the NDA and see how fair/reasonable it is. Tweak it to suit you if necessary. Or ask for his elevator pitch instead. Or walk away.

As a consultant, I sign NDAs quite frequently - but I strongly prefer to use a mutual NDA that I had prepared that is fair to both sides, makes provisions for public knowledge and independent discoveries, and so on.

addendum: i missed the 'work for a stake in the company' part on first read. That's great, as long as it's accompanied by a reasonable market salary. Otherwise, run away screaming. It's extremely likely for that 'stake' to end up being worthless (you can't feed your family on 'stake'), and it's far too easy for the 'stake' to vanish when the 'big bucks' start rolling in.

Answer 2

I wouldn't. The part that makes me at least as concerned as the NDA part is the "work for a stake in the company" part. That's basically code for "work for free."

If he has such a great idea, he should have no trouble getting venture capital, at which point he can pay his employees and not require signing of NDAs before job interviews, like most other software companies do. Working just for a stake in the company means you are giving way too much away for way too much risk in a company you don't own. The fact he is asking you to sign an NDA is just another sign that he's not really aware of how software companies should run, in my opinion.

Ideas are a dime a dozen. Execution is the hard part. Giving you the idea is really giving you very little. I don't think it is too much to ask to politely refuse to sign the NDA.

You may feel like you are risking a big opportunity, but based on the smell of it I'd say you are actually saving yourself from a lot of trouble.

Answer 3

I wouldn't do it, not without at least some idea about what he is doing.

There isn't any business where someone can't at least share their basic concept; how else would such a business draw up a business plan and solicit investor dollars? NDA's are more properly used for protecting intellectual property details, and the fundamental concept behind his business doesn't really qualify as such.

So ask him for an executive summary, outlining the broad brush strokes. If he can't do that, I think the conversation is over. Signing an NDA without this basic knowledge would be opening yourself up to a potentially over-reaching gag order, in my opinion.

Let me know if this turns out to be a Multi-Level Marketing company.

Answer 4

Since this person approached you, and not vice-versa, tell him that since they want you so badly, you're the one setting the conditions, and the condition "sine qua non" is that you WILL NOT SIGN THE DAMN NDA. I imagine they are anyway just developing an online version of MS Money or yet another social network, since truly revolutionary ideas are not heard of until they are executed and available as a product/service!

Answer 5

1. Is it weird? Yes
2. Is it uncommon? No
3. Should you be wary? Always

I've worked with several start-ups. Some were far more clandestine than others. Personally, I was always a little put off when someone withheld sharing their ideas without a non-disclosure agreement. If there is an idea so good that someone can steal it and make millions of dollars on it after an hour of conversation, I haven't been privy to it. It's difficult to make lots of money, and it should be.

The execution is what should be protected by an NDA. However, almost everyone (that I've dealt with) operating at the stage where they are willing to offer a stake in the company doesn't have much done yet.

I read a great post by Jeff Atwood about this same thing, it helped me clarify my thinking on the subject.

Building a company on sweat equity is tough, and (personally) I have yet to see it succeed. Every time I have agreed to work for part-ownership and no salary it didn't pay off.

In summary, I would sign the NDA if:

1. They are willing to fully explain the idea before signing
2. The idea seems solid
3. There is solid research behind the idea. Market research, technology research, and real numbers are a plus. Don't accept the answer that idea X is so new there is no way to test it's feasibility

I would consider working for the company if:

1. They have a business plan (and understand it)
2. They have reasonable expectations of return, based on real data (not: I know this product will make a billion bucks, I JUST KNOW IT)
3. They have reasonable expectations of your commitment. I have found that companies that offer equity expect you to devote your every waking second to the business. In many cases, this is completely unreasonable.
4. They are willing to pay you at least a modest salary. Things often take longer than expected, don't go bankrupt in the meantime.
5. Most importantly, as a partner, there is no part of the business that is secret or off-limits to you. This is a major red flag, don't be assured that "someone else is handling it" or that "you don't have to worry about it." It's fine to trust your partners, but reserve your right to verify.

Answer 6

You should exercise extreme caution. There are several red flags already:

1. Sign an NDA before you even have the vaguest hint what an idea is. As someone else pointed out, ideas are a dime a dozen. The concept of an application isn't what an NDA is meant to cover, and anyone who thinks it is typically has a harebrained idea in the first place that would be easy for somebody else to take and run with.

2. "Stake in the company" is only worth as much as the income they generate, and at this point it sounds like that's $0. Never work for equity unless you are a close friend/family member of the person offering equity, and even then it's a red flag. If the idea was really as amazing as it's made out to be, there should be a "war chest" either from the founders' own money or from VC backers to make some kind of salary package, even if it's lower than the norm. In short, salary + equity = okay depending on circumstances. Equity only when you're just "some guy" to the founder = Run away as fast as you can.

Answer 7

Other answers focused on his business proposition. I agree with those comments, but no answers gave me satisfying answers to the question.

I ran into similar situations a few more times over the past year, and I heard about similar situations involving other people. I actually never signed the agreements, but the aforementioned other people did in similar situations. Considering all of those situations, I think can answer this question now.

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The person I just met probably thought he has some world-changing idea that he needs to protect. Not only was it probably not a world-changing, money-making idea, it was also probably particularly boring.

He was probably not trying to con me in any way other than trying to get me to work for free. That is, he's probably not trying to get lots of people to sign NDAs with him so that he can later claim that their success belongs to him. Rather, he was probably just afraid for silly reasons.

I find it hard to evaluate how interesting an ideas without having heard it, so I wouldn't be able to tell whether it is so amazing before agreeing not to disclose it. Moreover, the idea is probably particularly boring because the secrecy within which he has been sharing it has prevented it from growing.

If I knew that it was going to be a big new idea that would be interesting/useful to me under the terms of the NDA (without me working for him), it would make sense for me to sign it and hear his idea; I don't think I need to worry about him trying to con me based on this agreement alone. That said, the idea is probably particularly boring, so listening to him explain the idea would probably have been a waste of time.

Answer 8

I've had a dozen people ask me to develop their idea and get a stake in the company but you know what, none of them have come to anything. Here is the deal: they are employed and bringing in an income and would wouldn't risk their own money on the idea but you have to? If it was a great idea they would either get off their backside and get funding or risk all (give up their job) to see it through.

Any great ideas that come to something come with blood, sweat and tears, but we developers are an easy touch for all those great ideas out their. I would say almost every employed person have had a dream of one day starting out on their own with a great idea but how many are willing to give up their cosy life for the RISK?

I spoke to someone the other night who has a dream to turn his shell barn into a swimming pool with offices on the second floor. To turn that into reality he needs to first spend a bit of money and get his hands dirty or pay for someone to get their hands dirty.

Answer 9

Yes Sign it:

What is the worst that could happen if you sign?

You can't tell anyone about it.

What is the worst that could happen if you don't sign?

He will not let you work on this project.

based on the above, regardless of circumstances you met him, its not unreasonable.

That individual believes he has something of value, but wants to make sure its protected.