The non-compete agreement. When people ponder the reasons for Silicon Valley’s surge as a startup haven—often leaving New England licking its wounds, as it did after student venture Facebook’s departure for Palo Alto, for example—they often point to the persistence of this little clause in many New England-area employment agreements as a major contributor.
The clauses are meant to prevent a company’s ex-employees from starting similar businesses that could undermine it in the marketplace. In California, courts have held that they’re unenforceable. In Massachusetts, they’re still quite common—and there’s widespread agreement that they hold back entrepreneurship. Yet many big companies favor the clauses, and years of lobbying to have them outlawed in the state have come to naught.
Now one Boston venture firm, Spark Capital, is taking matters into its own hands. Partner Bijan Sabet—who explains more in a Q&A with Xconomy below—announced on his personal blog Saturday that the company will no longer require the startups it invests in to put non-compete clauses into their contracts with employees.
“The non-compete clause is a significant barrier to startups and innovation,” Sabet wrote. “I believe it significantly hurts business in the state of Massachusetts and other states that have not followed California on this issue. I’ve heard from many successful entrepreneurs that haven’t started a new company in this state because of their non-compete. Some have actually moved to California because of this.”
Sabet emphasized that he still believes that entrepreneurs should be forced to protect their former employers’ trade secrets and other intellectual property. Non-disclosure agreements “are essential and should considered completely differently from non-competes,” he writes.
But effective immediately, he said, Spark Capital will do away with non-compete clauses and will ask the founders, CEOs, and co-investors at the companies in its portfolio (several of which we’ve profiled, including Buzzwire and Bug Labs) to do the same.
In an interview today by e-mail, Sabet told me that he thinks Spark’s move will eventually motivate other New England venture firms to abandon non-compete language in their own contracts. But he says Spark moved now because it “didn’t want to wait to get consensus with other investors before we put a stake in the ground.” Here is the rest of our conversation:
WR: You said in your blog post that you “will not require a non-compete clause” with your portfolio companies and new investments. Was this formerly a requirement? What was the thinking behind it—and why, in general, do you think non-compete agreements are so common in New England?
Bijan: Oftentimes it was in there as “boilerplate” language. I don’t know the origins well enough, but I do know
