Someone on Quora asked this question:
Have any startups seriously compromised their company by giving away their ideas/strategy in a VC pitch?
Some say that VCs can use pitch meetings for market research and that you have to be careful when speaking with firms which have competitors in their portfolio. Do any founders believe their company was harmed because of this?
Novice entrepreneurs often have this concern. While I definitely prefer paranoia to frog-in-the-well over-confidence in an entrepreneur, paranoia does not equal paralysis. Here's how I replied to the question:
As a pan-Asian tech VC firm, we see a lot of deals every year. If anything, we find that copycats and seemingly similar ideas are quite common. So is there that much value to a VC to steal one firm's idea? Not really. If all it took to achieve start-up nirvana was a great idea... It's really more about execution and a dose of luck. On the other hand, the effects on one's reputation of stealing someone's idea (or even being perceived to steal someone's idea) are too great a risk for reputable firms. Ideas are a dime a dozen, so why bother stealing them and risking one's reputation?
To the somewhat less urgent concern of VCs using pitches as market research exercises, I say: possibly, but so what? Wouldn't this concern come up in customer meetings too? Whether a start-up pitches to a customer or a potential new recruit or an investor, people naturally want to know more. It is the pitcher's responsibility to filter out useful meetings from the time-wasters. Or go one step further: ask the listener questions and treat the pitch as a research exercise of your own. I sometimes ask questions for which I already know the answer (or think I know!) so that I can understand the presenter's thought process. Entrepreneurs can do this too.
Finally, do your homework. If you are concerned about potential rivals in the VC firm's portfolio, first research the firm's past deals before pitching to them. Sign an NDA if you're paranoid. Don't give anyone your source code. You'd do the same with a customer. A VC isn't that different.
A quick postscript: in my personal experience, on the few occasions when someone has made a pitch to me similar to one of our existing investments, I have either said no straight off the bat or introduced the two companies/teams to see if they can collaborate or, rarely, pursued the new opportunity with the team's full knowledge that we have another similar investment (overseen by some other investment professional). Other VC firms may have different (not necessarily better or worse) portfolio management strategies, including deliberately making several investments in similar/overlapping areas of interest.
Here's another post I wrote about why it's really not about your "idea".
http://www.murli.net/greekcomplexity/2013/02/its-really-not-about-the-idea.html
