Inside Entrepreneurship: How to protect business idea from others

Q: I have been developing a business opportunity in the consumer, construction and governmental sector for the past 11 years. I have so many questions. But my biggest concern is once I get in front of investors, they will steal my ideas and blow right by me. What can I do?

John Reichstein, Bellingham

A: During the earliest days of business building, entrepreneurs know they are vulnerable. They've heard the stories. Yes, there is competition everywhere, but nothing is worse than having your best thinking usurped by the very people you turn to for financial support.

I'd like to give you assurances that your business plan won't circulate among potential industry competitors, but I can't. It happens.

What I can assure you is that venture funds are not likely to steal your ideas and morph into your main competition. The purpose of a venture fund is to invest in high potential companies like yours, not operate them.

I also believe there are high-integrity venture capital professionals who respect the proprietary work of entrepreneurs.

As an example, a few months ago I referred an executive summary to Clifford Haas, a partner with Sigma Partners. He called me to say he couldn't look at the deal further because one of his portfolio companies was now exploring the same emerging market.

Since not every VC is a class act like Cliff, here are a few things you can do to help minimize VC's sharing sensitive information with potential competitors.

Don't send entire business plans, patent filings or other detailed proprietary informa-tion to fund managers as part of an initial solicitation. Start with an executive summary.

Take the time to read about the venture fund's portfolio companies. Do any of these companies have similar technology or market goals as you? Be wary if they do.

Include a standard confidentiality notice on the cover of your business plan rather than ask a fund to sign a confidentiality agreement (a clear sign of a rookie entrepreneur). Funds just don't have the time to negotiate agreements with every entrepreneur who seeks venture funding. Plus, larger funds argue that they see so many similar plans they are not in a position to police innovation. That's the purpose of intellectual-property law.

Despite your reservations about the venture community, there is a far more likely way you can lose your competitive advantage. It's all about how fast good ideas are copied in the marketplace.

Here's an example. I have a friend who co-founded a women's magazine called Simplicity. After a highly successful launch, large magazine publishing houses took note. Months later, a look-alike magazine called Real Simple rolled out offering perks for advertisers, subscribers and distributors. Simplicity couldn't survive.

The lesson from Simplicity is simple. No matter how brilliant the founding idea, execution matters more.

The best way to protect your company is to surround it with strength. Seek out deep-pocket partners to help develop or market your products before competitors surface, lock down your distribution, protect your intellectual property, hire the best staff and consult mentors from your industry. It's easier (and less exhausting) to stay one step ahead if you have strategic help along the way.

You also need money, which brings us back to trusting the professionalism of potential investment partners.

After 11 years of development, I'd say it's time to expose your ideas to the venture community.

You can't let competitive fear paralyze your efforts to raise money or enter into industry alliances that can help your company progress.

At some point, you have to trust your instincts and move forward. You can do it.

Recent column follow-up:

In a further answer to an earlier questioner wondering if there was venture capital out there for ideas that benefit the environment, Expansion Capital Partners funds clean energy, clean water and clean manufacturing technologies.

Expansion Capital is not for startups, but is further evidence that there are a growing number of funding options for environmentally friendly companies.

Susan Schreter writes about startup planning and small business financing for the Seattle Post-Intelligencer. She has an investment banking and buyout background and serves as a coach to entrepreneurs and consultant to corporations. Find more Inside Entrepreneurship columns at www.seattlepi.com/venture Send questions about small business management or raising money for your business to susan@insideentrepreneurship.com or by mail to Inside Entrepreneurship, c/o Seattle Post-Intelligencer Business Section, 101 Elliott Ave. W., Seattle, WA 98119.

Add P-I Business headlines to