Ask HN: Did I explain how a VC might steal a start-up idea correctly?

My comment is currently awaiting moderation so you may not spot it underneath the post (Note that although this is a common issue, I felt it necessary to share this post because this blogger was recently included in a list of admired upcoming local bloggers and yet no one commented on the post and clarified about the issue with the NDAs):

http://www.youwanttoberich.com/2010/11/04/how-to-get-a-vc-to-fund-you/comment-page-1/#comment-11075

Hi, I’d just like to clarify that I don’t know anything about venture capitalism and I’ve never been in contact with a VC before but since no one clarified this section, I thought I’d share my guess.

"During the Q&A, I asked Sandejas: Is there a chance that the VC will steal the small businessman’s idea?

Yes.

I was surprised.

I guess Sandejas was telling me and the audience not to be naïve, and that there are big businesses or venture capitalists out there ready to gobble up small companies with big ideas simply because they can."

I doubt the lesson is naivete although like I said I am purely guessing. Big businesses will gobble up small companies but it has nothing to do with whether someone is going to steal your idea or not. It’s just the nature of corporations. In fact, many small businesses often sell to them because it is often guaranteed pay-out vs. the risk of the business not generating enough profits in the long run and shutting down.

"Ask the venture capitalist or the investor to sign a Non-Disclosure Agreement (this makes them liable to you in case they disclose your business idea to third persons) – just an fyi, some of them will not. Give in during negotiations, but not so much. Remember that it still has to be a win-win."

I don’t think this advise will work which is why I’m sharing my guess. I’m not suggesting that NDAs don’t work at all but this isn’t how VCs will primarily steal your idea and if you look at it from their point of view, it’s bad for them to be associated with an idea stealer because not only are they risking the idea to fail if they don’t have the idea maker’s vision or staff but then less people would go to them.

More importantly, stealing ideas is just not very profitable even in the short term. No decent VC would waste time hearing idea makers when they can assemble a team that will brainstorm for them and be done with ideas in a cheaper and less time consuming manner.

What VCs want instead are for the idea makers to handle all the launch events, all the hype and all those other factors and they just supply the initial cash flow. It’s when the idea becomes profitable enough that the VCs will start buying back their shares and hence ‘steal the idea’ because at that point the mindset is that we just need guys to "maintain" the popular service and we no longer need the founder anymore. They’re not going to kick the founder out directly though. Too much bad PR. Instead the VCs will use their control of the company to guide it in more "corporate cash inducing" manners rather than innovating upon the idea. The common example being injecting ads in a service or creating subscription type payments into the service once enough people are stuck on the service that they can’t afford losing their data and hence are willing to shell out cash for it.

Again, these are all just my guesses but I feel it is necessary to state this in case NDAs aren’t sound enough to prevent someone from having their business idea stolen.