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On the Wharton BPC Confidentiality Policy
Steven M. Sammut, Senior Fellow of the Wharton Entrepreneurial Programs and Lecturer in Management

Generally, venture capitalists won't sign a confidentiality agreement because they see too many plans--both solicited and unsolicited--often with overlapping strategies from unrelated parties. It becomes impossible to separate the source of the idea and becomes an unmanageable risk. Many venture capitalists can recall dozens of instances during their careers where they received nearly identical business concepts from three or more independent sources over a period of several months. This happens frequently because science and technology are open enterprises and ideas tend to move in lockstep. The problems that need to be solved in a market are effectively in the collective inventory of business, technology and social issues--they are par of common currency. Once a technological breakthrough or a new business model emerges, it becomes obvious to several groups simultaneously.

If patenting doesn't really cover the subject matter, and this is often the case, the entrepreneurs have to proceed on the basis of trust. They should do so very selectively and rely heavily on the reputation of the particular investors. Most investors are very honest and realize that if they are ever accused of stealing an idea, they are basically finished in the very tight community of entrepreneurs and investors.

A legitimate concern, however, is the subject of patents. If your business concept incorporates a patentable idea, the best practice is to file at the very least a provisional patent application prior to circulation of the plan. Ideally, a "full patent application" is best, but there is approximately a tenfold difference in the cost of a full vs. provisional patent application. The reason for filing prior to making public disclosures is that the Patent and Trademark Office might construe that your business plan constitutes either an enabling disclosure of your an invention, or an offer of sale. In either case, such a disclosure might trigger the count down on a one year period during which a full patent would have to be filed in the US. Unfortunately, the statutory bar to a patent in other countries is imposed upon such disclosure. Those of you with a patentable idea should, therefore, factor both the timing and cost of filing a patent in your plans for the business as well as the WBPC. If you are looking for competent intellectual property counsel, the organization Innovation Philadelphia (www.IPphila.com) maintains a listing of firms that are eager to work with students and local entrepreneurs.

Once you have secured intellectual property counsel, the WBPC recommends that you follow their specific advice as to disclosure related to your situation. Generally, however, it is not necessary to include a draft of your patent with your business plan submission for the WBPC (and you should not do so even when making an initial submission to a venture capitalists in real-life circumstances). Do make reference to the fact that you have filed and identify the attorney that you have retained. In real-life situations, different venture capitalists will have different practices with respect to signing confidentiality agreements for the specific purpose of reviewing a patent application once they are in the mode of serious due diligence. The due diligence that a venture capitalist undertakes in the study of patents can cost the firm many thousands of dollars. In other words, once it is appropriate to get serious, it is serious business!

Finally, the value of any business has more to do with the quality of the management team and their ability to execute on a concept. If the business model is essentially sound, it is all a matter of execution. This was probably the major lesson of the dot-com experience.