Credit: Shutterstock
Credit: Shutterstock

Do investors steal the ideas you pitch them? Yes, all the time, and here’s why.

Tales about devious investors conniving to take advantage of aspiring entrepreneurs have been circulating in the tech community for a while. Most founders dismiss such stories as urban legends, but in fact, some VCs do steal ideas from early stage startups in order to boost their own struggling portfolio companies. Immigrant entrepreneurs, who have limited access to capital and are often overly eager to find an investor, should approach fundraising with caution, warns Michael Burtov, a star mentor and lifelong entrepreneur.

A few weeks ago, I was speaking at a startup event. Afterwards, an immigrant founder approached me, asking for feedback on a new product for his early-stage startup. He asked me to sign a confidentiality agreement, as his idea wasn’t patented, and he was afraid that someone would steal it. 

I said “No,” as I always do. He asked why, as immigrant founders often do before they learn that almost no one in the U.S. startup world signs NDAs. Our conversation soon turned into an interesting discussion that made me question my own beliefs.

A few days later, a CNBC article appeared in my Google news feed. “Mark Cuban rejected this ‘Shark Tank’ company — and said he’d take its ideas to one of its competitors,” the article stated. 

A stone on this startup’s grave

Having myself been on Shark Tank, I was anticipating CNBC to be critical of Cuban’s behavior and to slam this egregious lapse in ethics from a prominent VC. How and Why was this shocking moment allowed to air on the world’s most prestigious startup-focused TV show? 

Rich, powerful VCs stealing a startup’s idea was a prime example of something that did not fit the carefully curated Shark Tank narrative of good, moral, “tough-love” investors who just want to help aspiring entrepreneurs. But that’s not at all what the CNBC article was about; it was just a promotional piece for the episode. 

Here’s what happened on Shark Tank

Shark Tank Season 14, Episode 19 introduced Parting Stone, a company with a unique concept – a cremation alternative that transforms the ashes of your loved ones into polished stones as a comforting way to remember them. 

Parting Stone has already worked with over 600 funeral homes and was on track to generate substantial revenue. They were seeking investment to expand and automate their service,and asked the Sharks for $400,000 for a 5% equity stake.

Mark Cuban, instead of entertaining an investment, plainly stated that he loved the idea and would share it with a direct competitor, Eterneva, in which he had previously invested. 

“I invested in a company called Eterneva. We’re a direct competitor with you… I like [your] idea so much, I’m going to take it to [Eterneva] and see if [they] can do the same thing,” said Mark Cuban on Shark Tank Season 14, Episode 19

Cuban’s actions are perfectly legal, but unethical. They not only undermine Parting Stone’s hard work and dedication but also highlight an often-overlooked darker side of investor-entrepreneur relationships: One where ideas are often stolen and repurposed without consequences, and even rewarded by peers and media. 

Legal, but unethical

When I started my entrepreneurial journey, investors stealing ideas and giving them to their portfolio companies wasn’t so uncommon, but it was considered an issue among “low-quality investors.”

Word would get out about those investors who engaged in such practices, tarnishing their reputation. However, as the years went on, I’ve heard more and more cases of this happening with no repercussions for the unscrupulous investors in question. 

Some deliberately take the investment into due diligence in order to learn even more secrets that are not publicly available so that those innovations can be used in the investor’s current portfolio companies.

It’s common for investors steal ideas to whom founders pitch to have portfolio companies in overlapping spaces. More often than not, those startups are struggling and desperate for new ideas and pivots. 

An investor with access to intellectual property that they can steal can be a significant benefit to their portfolio companies and, in turn, help the investor generate returns. This trend of legal but unethical intellectual property theft highlights the investor-startup adversarial relationships. 

Immigrant founders might find this mind-boggling. In many countries across the globe, the social status of the founder and investor is based on reputation, and such intellectual theft ideally should be a rare and taboo occurrence. That was the case in the U.S. many years ago. But unethical behavior is becoming so commonplace that it’s now endorsed by celebrities on prime-time TV. 

It’s important for every immigrant startup founder to flag IP theft as a concern in the American investor-founder relationship. Personally, every time I hear about someone’s idea being stolen, I feel disgusted and immediately remember that this is both a feature and a bug of the American startup ecosystem. 

In the words of the great American entrepreneur, Steve Jobs, founder of Apple, “We have always been shameless about stealing great ideas.”

About the author

Michael Burtov is a serial venture-backed entrepreneur who has grown multiple startups from initial ideas to millions in revenue and venture funding. He has appeared on Shark Tank and his work has been covered in hundreds of major media outlets. He is also the subject of mini-documentaries by Discovery Channel and CNN’s “Great Big Story.” Additionally, Michael has worked with hundreds of high-growth startups to scale and fundraise, directly and through his involvement with leading innovation organizations including Harvard Business School, Harvard Innovation Labs, and the MIT Enterprise Forum. He is also the author of “The Evergreen Startup,” a popular book on early-stage startup fundraising. He holds multiple patents and has received several awards for his work, including the Edison Universe Edison Award, the TIME Magazine Best Inventions Award, The Business Journals Top Inventor Award, Brandeis University Alumni Entrepreneur Award, and the TechCrunch Disrupt Wildcard Award.

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