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Part Six: KEEPING SECRETS

AUDIENCE MEMBER: It's probably a common belief among the people here that the easy part is having the idea and where it gets hazy is going from the idea to actually having the business. This is a two-part question. The first is, what are the merits of starting from scratch, building your team, following all of the advice that we've heard and going from nothing to something, or being opportunistic and forming a partnership with an existing company. So from their point of view, you might be "intrapreneurial;" they'll see you as a potential business they can add on to an ongoing business. And the other part of the question is, what are the risks of shopping an idea around, putting together a proposal, a business plan, and divulging it to people, because at some point, someone else may like the idea enough to do something with it and then it gets to where it's a race to see who can get to something first.

So how do you deal with that? You have to divulge enough information to be interesting, to be appealing, to be a good investment, but if you do it too much too often, you might find you are taking more of a risk than you want.

MR. BIDDLE: One of the most successful people I've met in the computer industry—I worked for him a few years ago when we bought a company that was a bit of a mess and went in to put a new plan together as a public company, $25 million, and put together a business plan. We distributed it to all the employees and a bunch of the people on the senior management team got real upset that our trade secrets would come out. We said, "You can publish this on the front page of the Wall Street Journal. The money is going to be made in the execution. And that's the bottom line."

I think if you've got a trade secret…some truly magic thing where one sentence is going to allow a bunch of people to figure it out. I have never seen one of those in my life. It's execution, not an idea that makes things work.

MR. MORINO: I think because we've been around the security community, that we are a little paranoid in this region, and we think we have the only ideas. I can't tell you the number of times someone comes in with a non-disclosure agreement, and we go through all the trouble of signing the non-disclosure agreement, and they have nothing to tell us that we didn't know before the meeting started. And by the way, it also tells us something about you, and you don't know that in the process.

Execution is everything. There are ideas that are very unique and perishable. Believe me, they are few and far between. There is a good chance that not only did somebody else have the idea, there are probably ten people ahead of you someplace in the country right now, especially if you're on Web time. The key is moving on your idea, getting a prototype and getting out there fast into that market so you can get to a customer, try it, adapt it, make it successful and execute.

MR. STEIN: I'd like to come back to the person that asked the question about shopping the deal around. I think that what you heard every one of these venture capitalists and investors say was we have X dollars that we want to put to work. Their job is to invest that money. They are eager to invest it in great ideas and great concepts.

One of the techniques that Netrix used to raise money, and to raise it very quickly, was to select three or four potential investors and show them the deal at exactly the same time, tell them, "By the way, we are showing this to these other three or four people and we are going to go with the guy who steps up first." You then have created a reason for them to invest. Of course they like to drag their feet. The longer that they go on, the more chance they have for you to prove your concept. And so I believe that there is a real benefit to showing this to a number of people, and to saying, "We are going to close this deal as quickly as we can."

MR. MAY: Never approach an angel network, whether Texas Capital Network, the Capital Network in Boston, the Private Investors Network, and ask if we'll sign a non-disclosure. You have to disclose what you are doing to get some feedback, so there is no problem with shopping it or sending it out. The idea is you're trying to get people to call you back and get attention. So you have got to publicize, whether it be on the Web or in these networks, what you are doing to get attention. There is a lot of activity out there. You have got to get in front of people.

MS. MILLER: I have a follow-up to the issue of partnerships. There are some very creative ways that you can partner with other companies and also other organizations. There is a lot of money out there in the Federal government, in state governments, for companies doing something that is of benefit to other people. There's just vast amounts of money out there. So, partnering with universities, partnering with other people who are connected with those other sources of funding can be extremely creative. So if you're thinking about some creative financing, that's another way of going about it, and we have a lot of information about that.

MR. HELLER: I'd like to just return to this area of disclosure. Obviously, you hit a hot button with everybody, and what I find is that there are two areas of paranoia that we constantly see among high-tech entrepreneurs. One of them is the area of disclosure and I see more people who don't ever get anything funded and never build a company because they intend to keep this thing a secret. They want people to put in money, but they're not going to tell them anything about what they do, or at least the details.

The other area of the paranoia is control. Our philosophy on this is, if you are so obsessed with control, you probably don't have anything that's worth controlling. Investors are not interested in controlling the company, just as they're not interested in stealing your idea and giving it to someone else and starting another company.

Part 7: EAST VERSUS WEST

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