I cannot fathom why the majority of commentators here are automatically agreeing with Sam that Jeremy is in the wrong.
If you look at the facts, it seems obvious that Jeremy is entitled to some compensation. He worked for the company for 1 month, without compensation. That would automatically entitle him to equity in the company. Now, they could have (and should have) signed a stock agreement with a cliff in it, but the did not. The cliff only exists if they agree to it.
I have no idea what Jeremy is asking for, but it seems like he should absolutely be entitled to some equity. He never agreed to give up the equity he earned from working on it for a month.
I suppose this underscores the importance of having legal agreements with anyone who works on your company, especially anyone you jointly apply to programs with.
Yeah, somewhat surprisingly, I find myself sympathizing with Jeremy in this situation (which is not necessarily to say he is in the right; we have very few actual details about the case, so all opinion is fueled purely on personal bias and not on the actual facts, which could substantially change the commentary).
Everyone else in SV, especially guys like sama, is making money hand over fist for doing practically nothing. Sometimes it feels very bad when you're not part of the group collecting free money. I know I feel left out sometimes and wonder I'm not out there nourishing my own magical unicorn that hemorrhages investor money as fast as it gets it while simultaneously being lauded as a visionary. I haven't pursued that because I don't feel it's moral to run a company the way SV people run companies, but my moral reservations have been proven naive before.
It's completely plausible that Jeremy left for a legitimate reason and it's completely plausible that although he was only there a short time, he contributed substantially to the roadmap that took Cruise to acquisition. He should receive some compensation for that, if that is indeed the case. Even if he only did it for a month, it's a lot more than the VCs do. Why is Sam Altman entitled to money from this company but a cofounder who worked for one month isn't? I understand the legal argument that ensures sama will make money on this no matter how much or little one believes he may deserve it, but what about the moral argument that the people who contributed to and built the actual product should be entitled to the majority of its profits?
I guess it just feels bad that Sam Altman feels the need to come out and "defend" a Cruise cofounder's right to deprive another cofounder of some at least semi-legitimately earned equity. Jeremy definitely came closer to the startup lottery in this one than most of us will, and Altman, who controls the startup lottery, doesn't want to let him get anything (because he and his compatriots want it for themselves instead).
It's a lot more than the VCs do? By giving you the millions to hire a staff, get an office, etc for years?
Working on something for a month absolutely doesn't entitle you to a share of the proceeds two or three years down the road, if there was no written or verbal agreement. You can make a claim, sure, but it should be thrown out quickly, and you absolutely should not wait until a blackmail-friendly situation to make it.
Even if he had options, he would have had to exercise them years ago at most companies.
> It's a lot more than the VCs do? By giving you the millions to hire a staff, get an office, etc for years?
Yes. Writing a check and occasionally shooting off an introductory email has its uses but it shouldn't be compared to actually building a billion-dollar product. Many founders need VC money and VCs certainly deserve some type of compensation. It's quite dubious, however, that VCs deserve double-digit equity (and often 50% of the company or more) just because they had money at a time when someone else didn't, and allowed themselves to be talked into giving that money to someone who was able to do something good with it (which, in VC, is essentially an accident; they are throwing money at college kids and seeing what, if anything, ends up sticking).
>Working on something for a month absolutely doesn't entitle you to a share of the proceeds two or three years down the road, if there was no written or verbal agreement.
If you leave the equity split undefined, it's undefined, not 0.
We don't know what was done in that 1 month time frame. It's possible that Jeremy laid out an entire roadmap from concept to acquisition that Cruise followed meticulously. If this is the case, he is certainly entitled to a significant amount of equity.
Perhaps in that one month, Jeremy did nothing but take up space in the office and perhaps he was dismissed for his uselessness. Under such circumstances, supposing there is reasonable documentation of this, he's probably entitled to little or no equity. The judiciary will have to consider the evidence and make a ruling as to what is equitable.
>Even if he had options, he would have had to exercise them years ago at most companies.
You're right, they get stock. Restricted stock, usually, but still stock. That said, he would have vested none of it in a standard structure.
When the company was actually incorporated, the split was no longer undefined.
The VC deserves whatever percentage the founders are willing to sell to them for the millions they put up. I don't think it's usually an unfair trade, given that VC as an asset class has lost money historically.
Can I ask why Jeremy would be entitled to anything since nothing was ever signed? If Kyle had a verbal agreement with Jeremy to pay him X or give him Y equity in exchange for the work he did, I don't see that in Sam's post or in the complaint that was filed. Without a signed agreement nor a verbal agreement, why would the courts give Jeremy anything?
You and I work on a company together for 10 years. We never sign a legal document determining the equity structure.
You then incorporate and sell the company. Do you think I shouldn't be entitled to a portion of those proceeds?
Stock agreements amongst founders largely exist to limit your claim to equity. Without them, everyone working on a project is essentially an equal partner.
I find myself agreeing with sama on this (if the facts are at all how he presented them, that is). But ...
I agree for moral reasons, not legal reasons. And despite the relative moral high ground that the startup world seems to occupy in business, morality != legality.
Morally, if things are as they seem from here, and someone completely left and checked out, having contributed essentially some whiteboarding and finding an office, then I'd feel that morally speaking they're owed some compensation but not necessarily equity.
However, legally, the principle you mention seems sound. And morals vary from person to person, which is one of the basic reasons societies need legal systems.
It seems kinda shocking that they never signed anything explicit about Jeremy's equity. But if they didn't, then yeah, maybe he has a case.
>having contributed essentially some whiteboarding and finding an office
reminded about that story of a guy painting a wall at a startup here around 10 years ago. Though the equity in that case was done in writing.
In the case of Cruise, without even going into detailed merits of the case - there are lawyers and judges for that after all - i think Cruise has simple question - go for less than 100% of $1B or go for the whole 100% of nothing. Do they honestly think that their half-baked system - at best practically equivalent to the system of an average Grand Challenge team 10 years ago - is really worth $1B? They got lucky that GM is that stupid, desperate and rich. Greed can scare easily that luck away.
I worked for a guy once who had a piece of farmland. Right behind his land was another piece of land that did not have road access. He had a farm lane bisecting his land and he let kids use it freely to access the hills on the other land with their bikes.
A real estate developer bought the other piece of land. He hired a lawyer who filed a lawsuit saying that after a number of years of access that farm lane had become a public road even though those kids were illegally accessing that other piece of land.
The real estate developer won his case and had the farm lane paved and declared a county road. The developer then started a subdivision and eventually purchased my bosses land to extend it. If my boss had kept his farm gate shut and padlocked none of it would have happened but he was trying to be a nice guy and paid dearly for it.
This was extremely scummy of the real estate developer and I'm surprised it actually happened. Do you have any idea how the real estate developer and their lawyers managed to win the case?
Actually the law is often on their side, so it was likely not hard. Around here this happens all the time and so people are aware that gates need to be locked, signs posted etc, otherwise a Prescriptive Easement may be created :
http://www.dirtlawyer.com/pe-summary.html
IANAL but I have paid one in the past to get advice on this subject. ymmv, laws vary by jurisdiction, etc.
According to grandfather’s sibling[0], it may be that the crossing onto the other land became a subject of an adverse possession. Apparently in such a case you’re supposed to have a clear notice[1] on the property in question if you don’t want to lose it.
What you are describing could probably be construed to be Adverse Possession by a motivated lawyer. In this case you would actually now own the tree, and thus the previous owner would not be able to sell your tree in the first place. https://en.wikipedia.org/wiki/Adverse_possession "Adverse possession is a method of acquiring title to real property by possession for a statutory period under certain conditions, viz: proof of non-permissive use which is actual, open and notorious, exclusive, adverse, and continuous for the statutory period."
I washed your car once. The car was clean. You own the car and all the papers are under your name. I did not immediately ask for payment, and did not sign anything.
5 years later, when you sell your car, I show up and say I am entitled to ownership of your car because I washed it 5 years ago. There is a photo of me washing your car, so I am clearly involved. Do I own a part of your car?
Washing someone's car does not entitle you to ownership of it. Founding a company and working for the company without pay does entitle you to equity in that company -- that is where the equity comes from; investments into the company and the labor of its founders (until hiring employees who are being compensated for their time and are not automatically entitled to equity, though a compensation plan might grant it).
> Washing someone's car does not entitle you to ownership of it. Founding a company and working for the company without pay does entitle you to equity in that company
Yes but washing the car without pay, is the same as working for a company without pay. In both cases there was labor without pay. Labor without pay does not mean ownership.
He didn't "found" the company, otherwise there would be legal documents proving he already has equity in the company. Basically he's saying that getting an office is the same as "founding" a company, which is similar to saying that washing a car is the same as "owning" a car.
Until a company is incorporated, who do you think owns the company? Nobody at all?
Does that mean I could go and incorporate your company for you and give myself all the equity? After all, you didn't incorporate it and give yourself equity already.
In lieu of another contract, everyone who started the company together is an equal partner.
It clearly states that Kyle incorporated the company before even meeting Jeremy. Kyle incorporated it mid-Sept-2013, and then met Jeremy end-of-Sept-2013. Jeremy then left Nov-2013, and never worked on Cruise again.
> Until a company is incorporated, who do you think owns the company? Nobody at all?
If a company is not incorporated, then it's NOT a company. There is nothing to own. For it to be legal you need to incorporate and pay taxes.
> Does that mean I could go and incorporate your company for you and give myself all the equity?
Yes, if I have a company for years and not incorporate, and not pay taxes, and operate without the government knowing, you can incorporate a company with the same name and at the same address and give the equity to yourself. You would have to pay all the taxes, register all the trademarks etc. but at the point you are essentially doing so much work running a company anyways there's no doubt that it's essentially your company.
> In lieu of another contract, everyone who started the company together is an equal partner.
That's my point. You don't need another contract. The incorporation and the equity papers IS the contract. If he had equity, he is a partner. If he didn't, he is not. That's the contract.
Yes, everyone who did the original incorporation is an equal partner, that's fine I agree with that. But clearly Jeremy WAS NOT part of the original incorporation, and NEVER owned ANY stock after all these years. He wants to be paid AS IF he was the one who incorporated the company, AS IF he had equity.
You seem to be operating with a bizarre definition of the law.
I have a consulting company. It has clients, it has revenue, and I pay taxes on that revenue. It even has a trade name.
It is not incorporated. That does not mean that you can come along, incorporate it, and say the company actually belongs to you.
By default, the result of your work is your property. This is a central concept of property rights. You can transfer that property to others in exchange for compensation, but without a contract the work remains yours.
Thus, everyone whose work flows into a company automatically is receiving a portion of that company (it is a result of their work) unless some other agreement overrides that (ex. I agree to a vesting schedule).
You cannot be bound by a contract you didn't sign. Jeremy never signed anything agreeing to give up the equity he is automatically entitled to.
> You seem to be operating with a bizarre definition of the law.
Well that seems like a personal attack. Maybe stick to the facts and not me and you?
> I have a consulting company. It has clients, it has revenue, and I pay taxes on that revenue. It is not incorporated. That does not mean that you can come along, incorporate it, and say the company actually belongs to you
Yes, exactly my point. You just proved it. In this case you (Kyle) have papers you filed with the government proving ownership of your consulting company, and paid taxes etc. It would be wrong for others (Jeremy) to come along and claim ownership of it simply because they did some paperwork that had no direct impact on the company getting clients or revenue. You just proved my point.
> By default, the result of your work is your property.
Agree.
> Thus, everyone whose work flows into a company automatically is receiving a portion of that company
Disagree. If I do volunteer work for a non-profit or school, I don't own a portion of that non-profit or school. Yes, I own the work I did, and I am entitled to take it back or discontinue it, but my work does not automatically "convert" to ownership of the organization in the absence of signed forms.
If I made a magazine for a non-profit, without being paid, I own the magazine, it's my IP, and I am entitled to stop the non-profit from using my magazine at any time. But I don't get to "own" a part of the non-profit simply because I own the magazine.
Owning my work, and owning equity in someone else's company that have used my work in the past, are 2 separate things entirely.
There is a difference between company and corporation. A company can exist without being incorporated (and many are never incorporated), a corporation cannot.
That's not the point. We are not arguing about semantics about the type the entity here. We are arguing about ownership. it doesn't matter if it's a C-corp vs LLCs etc.
The point is, there is a legal entity, with papers clearly showing Kyle has ownership and Jeremy does not.
You and a friend washed a car once. You didn't charge anything for it. You, but not your friend, continued washing the car every week, whether it was clean or dirty.
When you went to the owner for payment, he gave you $300 for washing it. You washed it approximately 15 times. Your friend requests 1/16th of the payment.
He also claims that without his help in the first place, this would not have converted into a paid venture for either of you (which is hard to prove), and therefore that initial input was worth more than the 1/16th, and requests an additional % of the share.
When you went to the owner for payment, he gave you $300 for washing the car. The owner gave you, not your friend. You. The owner only wants to pay you for your efforts, and at not point wanted to pay your friend.
Instead of asking the owner for payment, your friend now demands part of your $300, because you are less intimidating to bully around.
Your friend also demands a portion of all the money from all other cars you have washed after that time you washed a car together. Because if it wasn't for that first car wash together, he claims you would not have been able to figure out the sales process for washing cars for money. So he is entitled to dividends for eternity.
You and I planted a tree together. It looked like it was going to be a nice tree, so we filed a joint application for funding from the city. The application was successful but I left before the funding came through.
Years later, it turns out that this was a bona fide money tree. I think you and the city should put my name on some branches, since I was there in the beginning. If it takes 48 months for the tree to reach maturity, and I was there for the first month, then 1 branch for every 48 of your branches seems fair.
You and I planted a tree together, and applied for funding from the city. You didn't show up for the interview. In the end the application was successful because of the effort of others on the team.
At this point, no one owns the tree. I decide to officially file for ownership of the tree from the city government, paid all the filing fees, and was granted 100% of the tree with all the papers from the government.
5 years later, on the day I am about to sell my tree, you sue me for ownership of the tree. Does that seem fair?
Or let's put this another way.
I go on crunchbase, find 30 startups in Palo Alto, take their team info and write an application to an incubator and put myself as co-founder. I tell these startups about this and some of them decide to just ignore me because it's not worth the effort to tell me to go away.
Years later, one of the startups is about to get sold. I have made zero contributions to the startups, but there is an application saying I had the title of co-founder. I decide I am entitled ownership of the company, because I helped them apply to an incubator. I sue them to block their acquisition.
You're thinking it the wrong way around. The default is that a person always owns the result of his work. Employees sign an agreement to give that result to their employer in exhange for a wage. If there is no agreement, the person who did the work will keep owning the results.
I am assuming Jeremy is in the wrong because Kyle did offer him compensation. More than was fair, if we take Sam at his word. But Jeremy rejected that offer.
I don't think people coming out of the woodwork to stake a claim is inherently wrong, IF they contributed to the effort, and IF they accept compensation that is offered. But if they did not truly contribute, or reject an offer, that crosses the line into just being greedy.
I am assuming Jeremy is in the wrong because Kyle did offer him compensation.
"More than fair" could be doing a lot of work here, if the parties disagree on what it is for - if one side is thinking it's pretty good compensation for a couple of months work the other could be thinking it's a pretty lousy trade for x% of $bignum . Which says nothing about what is actually reasonable, in a given scenario.
Jeremy is left in what at first glance seems to be a scummy position but we live in the real world here and from the looks of it he does have a valid claim here. Sam says "Kyle made an extremely generous offer to settle this claim by offering to give Jeremy a lot of his own money." but Jeremy could be entitled to at least 10% of the company. Was Kyle offering him 100mil to settle the case? Doubtful. It sucks but this is what happens when you aren't careful. With that huge payday on the line any of us would've done what Jeremy is doing right now.
So depressing this is the top comment. If as you say Jeremy didn't sign an agreement with vesting in it, did he get a share certificate or a written contract to issue shares? I doubt it. So the legal situation is entirely in cruise's favour. Ethically cruise should and did make Jeremy some fair offer. But he is making an opportunistic raid, rolling the dice on a huge potential profit using the GM deal as leverage. Do people here really think that Jeremy is simply claiming a fair outcome for his one month of involvement?
I like to think Sam is a relatively sane guy with good intentions. He seems to have wrote this to send a message, which means he believes in the principal of what he's doing, which is what makes it easy to trust.
It actually seems a lot more unfathomable to me that an expert & thought-leader in startups would (1) be wrong & (2) risk his personal reputation just to make a bit more money. Finally, given the timing, it's pretty obvious Jeremy is shaking down his (ex?) friend for some money.
If you believe equity should be granted out of thin air for working on something then well, you live in a different world than I do my friend. I trust the legal system (via contracts) to lock something like this down otherwise it's literally heresay.
> I like to think Sam is a relatively sane guy with good intentions.
So do I. I think he genuinely believes everything in this article and it's not out of self-interest.
I just disagree.
> If you believe equity should be granted out of thin air for working on something then well, you live in a different world than I do my friend.
First of all, all equity is granted "out of thin air." It's an abstract concept. Without an agreed upon definition of the conditions whereby equity can be lost, it inherently flows to whoever worked on the project.
If someone worked on a startup for 11 months and then quit, should he still get equity? What about if he wasn't getting paid? What if he was fired? What if it was actually for 4 years?
There isn't any intrinsic answer to these questions and that's why we have legal agreements which spell out the answers. Just because an agreement wasn't signed does not mean Jeremy isn't entitled to compensation. A company can't refuse to pay you if they forgot to give you an official offer letter.
I absolutely agree that contracts should be used to lock these things down. But there weren't contracts in place. Sam makes a lame appeal to a universal "implied" contract of there being 1-year cliffs, but the fact is that many people wouldn't sign such a contract. (I, for one, don't think it's ethical to leave founders who forego salaries with literally no compensation, even if they leave in the first year.)
But lets not forget Sam has a vested interest in this deal going through. To say he is not biased would be completely incorrect.
"It actually seems a lot more unfathomable to me that an expert & thought-leader in startups would (1) be wrong & (2) risk his personal reputation just to make a bit more money. Finally, given the timing, it's pretty obvious Jeremy is shaking down his (ex?) friend for some money."
People can also be delusional and think they are in the right. No amount of so called 'success' can prevent that.
Regardless of who is right in this situation, this is a completely distasteful post.
This has the potential to derail the merger, not just delay it, and would explain Jeremy's position.
The reason is that any acquirer will ask for the consent of a very high threshold of shareholders for an acquisition. We're talking sometimes as high as 95% of shareholders. Note that this is not people with options, but those who are actual shareholders. In practice, this isn't a problem because usually you have the shareholders generally lined up before you start the process of sale. And you also have drag-along provisions in the various stock agreements where the stock holder agrees to vote with the majority of holders of that class of stock, so large holders can pretty much make a merger happen if they wish.
In this case, Jeremy can claim that he is owed a huge percentage of the equity. Because there are no written agreements where his rights to the equity lapse, regardless of how long he worked, that putative equity is his. And in that case, more than enough for him to veto the merger.
Tough spot for Kyle to be in, but I'm shocked with his prior startup experience that he didn't get this resolved earlier. It would have been easy to have something be written up and signed for next to nothing right as Jeremy left.
I sympathize with Sam and Kyle over this, but unfortunately the legal world is an alternative universe, and they need Jeremy to close the deal.
> I'm equally shocked that YC didn't notice the missing founder when the program started and ensure the proper paperwork had been handled.
Well wasn't there around 80+ companies in their batch? Hard to notice everything, even when companies are split up across partners. Not that this is YC's fault but it's certainly something they could have noticed at the first meeting.
> Hard to notice everything ... Not that this is YC's fault
In the YC application both names showed up. In the interview only one person was considered part of Cruise. This is corroborated by the blog post:
Kyle and Jeremy applied to YC together but Jeremy left before the YC interview
The interview should've been the moment to make sure that the matter was settled. Generally these legal situations don't just magically resolve themselves.
Either YC didn't notice the fact that only one person showed up and attended (which is extremely sloppy due diligence) OR YC didn't think this would be an issue (doubtful especially for veteran investors) OR Kyle lied to YC about the situation (plausible, but even so I would expect YC to demand paperwork demonstrating the matter was resolved)
Fair enough I mostly meant with so many companies to meet with I wasn't entirely surprised but you're right they were made aware of this and it should have been topic #1 or #2 in their first meeting.
> Well wasn't there around 80+ companies in their batch? Hard to notice everything
If this is the reasoning proffered, then is there any point pretending that entire value of YC resides purely in the branding. Any investor (especially an incubator who claims to provide significant help to the founders in early stages) worth their salt should have caught and resolved this issue at very early stages.
Oh so everything is ok then, they just took on more work than they were capable of handling and made a fundamental mistake.
Honestly how is this not YC's fault?
It's a fundamental aspect of their business. You sould think instead that there would be a healthy amount of embarrassment and shame coming from Sam; not a tone I detect at all.
Assuming Sam's story is accurate, and given your comments: "In this case, Jeremy can claim that he is owed a huge percentage of the equity. Because there are no written agreements where his rights to the equity lapse..."
This sounds like anyone can make the claim. If they set foot in the office, they have a claim. Perhaps someone substituted for the usual janitor one night; then he shows up with a claim. Maybe someone had lunch in the same restaurant nearby, chimed in with a sarcastic comment about anything, and shows up over two years later with a claim.
I cannot fathom the situation being tenable.
"It would have been easy to have something be written up and signed for next to nothing right as Jeremy left." And if Jeremy refused to sign? Would that have been further evidence (e.g. of Kyle trying to push Jeremy out) Jeremy can use against Kyle in this situation to say he's owed more?
> someone had lunch in the same restaurant nearby, chimed in with a sarcastic comment about anything, and shows up over two years later with a claim.
There's a substantive difference between this sentence, and someone who is listed on a written, successful, YC application as a founder of the company. As such your comment is disingenuous.
I don't really have alot of experience in this, but sam says there that Jeremy left the YC interview, doesn't that mean he wouldn't be on the application? I'm sure there's more to it, thus why I'm asking.
With YC, the applications are closed from editing and locked down before the interviews. The application can't change at/after the interview. Also the interview is only 10-20 minutes so you don't have a lot of time to talk about legal issues etc.
Kyle and Jeremy applied to YC together but Jeremy left before the YC interview.
I interpret that sentence to mean that the original application included both people but Jeremy left sometime between the original application and the interview.
Yes, and since the application lists him as a founder, and "founders" in YC context are required to have at least 10% equity, it's a reasonable assumption that he had at least that much equity on that day. It's right there in writing.
The next question is, on what day was that equity no longer his, and by what means?
If there's no documentation of that ever happening they have a genuine problem.
> This sounds like anyone can make the claim. If they set foot in the office, they have a claim. Perhaps someone substituted for the usual janitor one night; then he shows up with a claim. Maybe someone had lunch in the same restaurant nearby, chimed in with a sarcastic comment about anything, and shows up over two years later with a claim.
Sam admits Jeremy was part of the Cruise story:
Jeremy Guillory collaborated with Kyle ...
Sam clearly has a financial interest, so I definitely would take his post with a grain of salt, but both sides agree that Guillory was a part of Cruise. This isn't a "janitor substitute" or some other pathological situation.
But if Kyle incorporated Cruise before being introduced to Jeremy as stated in the complaint, how can Jeremy claim to own stock in a company incorporated without his knowledge, and incorporated before he even knew the incorporator, unless such stock was issued to him explicitly? Like, if I went and discussed some search stuff with Google, does that give me a share in Google stock? Even if I gave Google some groundbreaking ideas/techniques for the next frontier in search that makes them bazillions, the most I can claim is they stole my idea, not that I own part of the stock. Am I right?
I suspect there may have been recorded verbal agreements like emails or texts saying "We will split equity evenly" that may not stand up under a court test, but may have possible merit to disrupt the takeover.
His name was on the YC application. YC requires each founder to have 10% of the company. Barring any other written agreements this is clear written evidence he had a significant share at that point.
Well obviously Sam Altman is on the side of wanting the merger to go trough. He's an investor himself and has a lot of his personal gains at stake. Please don't make a biased post come across as unbiased.
Shouldn't this have also come up in the preliminary research before this deal became public? I personally remember getting asked to sign some legal documents after I had been working full time. I had originally started out as a contractor, but then went to full-time. And my contracting agreement was slightly different than the agreement I signed when I accepted the full-time offer. So I think some lawyer noticed the discrepancy and decided it needed to be taken care of. I don't remember any differences being important to me personally, but from that I would assume that Jeremy's relationship and contracts with Cruise would come up prior to the public announcement as part of conducting due diligence.
It doesn't sound like Kyle knew there was a claim. He probably just assumed since he had a vesting schedule which is standard so would anyone else. "only came up after deal announced"....
No, I mean I think maybe GM's legal team should have figured out about this situation before the merger was publicly announcement. Sure, maybe no-one at Cruise would have thought to bring it up, but I'd expect that the due diligence process might be thorough enough to catch it.
If the Cruise team didn't even know it was a problem- no way for GM to discover it. If the corporate entity is unaware- there would be nothing for GM to discover.
One strategy that might be going on - get as much out into the public as fast as possible and gain sympathy and in turn comfort from buyers counsel.
GM's lawyers are probably pretty conservative but if they can get comfortable that the claim is weak they can likely craft a structure that would allow the merger to close without resolving this dispute. Likely setting up some sort of escrow agreement to set aside proceeds until the lawsuit it settled. If they get declaratory judgement- they win and can close. If they don't it gives GM's lawyers time to figure out a structure that allows them to close anyway.
In that scenario (loss on Declaratory Judgment) Kyle and Jeremy could fight it out or settle without derailing the merger.
I wonder if Sam actually wants to torpedo the deal. Sam is experienced and hopefully wouldn't let emotions get the best of him in a business situation. And I can't imagine GM wants to get involved until the conflict is resolved.
Oh hell no. Deals are fragile things- so are startups and I dont think what he does torpedoes it nor would he intentionally do that. He's just trying to encourage a settlement.
I think GM still could close even if this drags on to court since it's a very weak claim and an escrow could be used to handle most of the problems. I think this deal still closes - my advice is if you worked for 1 month as a comfortable and it's more than like 500K - take it. My guess he's being offer ed 5m+ or so - if so he's insane not to jump at it. It could go to zero.
sama: can you comment on the various personal and financial interests you have in this case? Would you name and shame for a YC company in which you had not invested as an individual? One not run by a personal friend? One not about to be acquired for huge money and become another home run for YC?
Or similarly, you note in this post that you spent a whole day dealing with this issue. Hanging around HN we frequently read about how YC partners' time is in high demand, many applications to YC are viewed for literally only seconds, office hours are in fact not hours, etc. Would any YC company get such a chunk of your time?
I certainly don't mean to be some jerk on the internet telling you how you may or may not spend your hours. That's a) not my place and b) a topic I'm not qualified to philosophize on.
Nonetheless, it's more than a bit disconcerting to read a blog post which starts out with "here are some of my various connections to an interests in this company" followed by "and I'm doing them special favors, apparently at risk to myself, including writing this blog post."
This blog post gave me quite a sense of "well, sama and YC have a solid moral compass and plenty of self confidence but don't always follow the rules." The "I'm making an exception of my usual don't-be-on-YC-company-boards policy to be chairman of two YC companies" post from a year ago [1] had a similar vibe. Both posts made me wary of YC.
[1] http://blog.samaltman.com/energy Maybe I should clarify that I'm rooting for Helion and UPower and hope they go far with Sam. But a policy of I won't be on YC boards unless it's for my favorite company in one of my favorite application areas sounds a lot like I've given up desserts and other refined sugars (except warm brownie sundaes with ice cream and chocolate sauce).
Sometimes you have to be willing to risk your personal reputation to stand up for what you believe in.
Yes all day every day I do things for YC companies I'm not close to, but our biggest exit ever for sure gets extra attention. In any case, I think you'd be surprised to see my calendar. We paradoxically spend the most of our time on the least successful companies, and trust that doing so will help us get to fund the next Airbnb.
I do try to always disclose conflicts. And it's definitely true that areas like nuclear energy that I'm personally passionate about and believe I can contribute to will get extra attention from me.
I can personally attest that Sam helps out all the companies I've seen that ask, whether or not it helps him in any way. That sort of person is rare in the ecosystem and should be celebrated, not questioned like this. We're attacking him for being honest and giving full disclosure? Really?
The obvious parallel one could draw here is Ron Conway -- these folks help startups because they can, not because they're profiteering. The suggestion is almost offensive given what Sam has done here, which I don't think most people would have had the guts to do. I doubt any legal counsel would have suggested he post this, anyway.
Few folks put in more time, energy, and effort than Sam does to help startup founders, and I think that's partially how he's built up such a world-class reputation.
Sam is making a bold move here with this blog post, given the case. We should be celebrating him doing the right thing here. A lot of folks wouldn't want to publicly touch a topic like this given the legal case.
Any startup would be lucky to have his help, and he's probably the most gracious and helpful person in the startup ecosystem you'll be lucky enough to meet. The fact he's been an investor in the past is, I suspect, more a byproduct of the fact he meets with so many startups as he does. If you spent all day meeting with hedge fund managers, for instance, you'd likely end up being an LP or advisor for at least a couple of them. That doesn't affect the quality of your hedge fund decisions or advice.
Sam has helped me when he had no vested interest in doing so, and I'll always be grateful for that.
In interviews and watching YC develop, i've admired how measured and thoughtful you have been in contrast to my reactive style. The judgement has always been excellent in hindsight.
This is obviously emotional, professional and personal for you and I think that limited your objectivity. It isn't that this needed to be objective, but that your role is as an enabler. In my opinion this should have been written by the founder, and your post should be a comment or set of pull qoutes attached to the article or referenced by Cruise.
It is a worthy cause (or seems so) but at least sharing the post or contributing to a founders post allows the perception & impetus to be on the company, with your direct support.
That said, the message and what you've conveyed seems correct, just not up to your usual standards.
I'm a cofounder of a YC company. This June will be the sixth anniversary of when we did YC, and our company isn't exactly a billion-dollar darling (to put it mildly). Nor do we have any interest in going public or being acquired, so the odds of YC seeing any sort of financial return from us are slim.
Nevertheless, we commonly get email responses from YC partners (including Sam) inside of five minutes, and I've met and gotten helpful advice when we needed help from six partners (including Sam) in just the past year or so.
YC doesn't only help the huge successes: They also do a tremendous amount to help tiny companies, and even if they're still tiny many years after YC.
To be fair, Hacker School / Recurse Center is a considerably large brand name and is doing imperative work in the programming education sector.
Regardless your anecdote does parallel other YC companies' in that a Brian Chesky email is tantamount to a first year YC founder's or as you mentioned a founder from batches over half a decade old.
It might have been wise for Sam just to sit and wait for other people to play this situation out.
He's a young guy and whilst I am sure very clever, probably has wisdom to gain.
One of the hardest things to learn is "how to do nothing".
I'm guessing the lesson for him coming out of this will be to not risk his reputation for wise leadership trying to intervene in someone else's battle. If you suspect something is going to get legal then it really makes sense to sit on your hands even though it is tempting to speak out.
Rallying support for a participant in a fight..... well it just doesn't look good.
It would be easy to read this post and think "Rich young influential Silicon Valley powerbroker wielding his power to force someone to give up their claim, so that he may cash in on a deal." I'm guessing that's not the way Sam wants to be seen.
I'm not sama, but I did attend YC a few years ago so I will try to chime in a bit here based on my experiences.
First, you are right - every YC partner has very limited time, and if you expect to get a lot of it for anything and everything you will be disappointed. YC wouldn't scale that way, and it would be a waste of the partners' time.
That said, if you ever NEED a partners time, they will bend over backwards to make it happen, regardless of whether you just sold for $1b, were personal friends with them, or whatever else.
YC has drastically increased the number of partners to meet the demand of a growing batch size. I've seen partners do more publicly for new garage startups (new YC companies) being strongarmed by large companies. Totally no surprises here.
This is interesting to hear. As an aside, my company is a Techstars company and we have had the exact opposite experience in terms of getting the attention and/or help of the folks that run the organization. Sigh that we didn't apply to YC...
TS seems generously like the best B-list incubator. I've never understand the pull, given that they have none of the status and thought leadership demonstrated so regularly by YC.
This is all kind of ridiculous. For starters, Sam is a human (hard to believe, I know).
Really now, would it make any sense (whatsoever) Sam or anyone at YC (or anyone in the world!) to give equal time to every person/company/thing/other?? No, of course not. That would be ludicrous.
And this isn't any ole company that Sam or YC has an interest in. It's multiple time YC participant that has built something awesome and achieved one milestone on its journey as YC's largest exit to date (hopefully).
Even though I disagree with Sam on this, I find your comment very distasteful.
For one thing, Sam would emphatically not be doing his job as a VC if he didn't make himself fully and readily available to the most successful YC companies. He would be doing a huge disservice to YC's LPs if he didn't provide any assistance possible in preserving literally millions of dollars for them.
It was certainly not my intent to be distasteful; the feeling was not meant to be bring out the pitchforks but instead Sam I believe you are a top notch fellow, this seems slightly odd, put me at ease. If I phrased anything poorly, I apologize. Indeed, the other comments have done a pretty solid job of that.
If the question itself is distasteful, well, that's surprising to me and I clearly still have much to learn. Enlighten me?
It comes across as mud slinging. Like asking a rape victim in a very public situation "I know it is not really my business, and I do not mean to call you a whore, but how many men did you screw before this guy? And how were you dressed? And how much did you drink?"
You know, the most damning things are usually veiled accusations -- the sort of thing where it puts the accused in a position of looking like an overly defensive lunatic reading in something not there if they try to defend themselves while thoroughly dragging their name through the mud.
If it really doesn't matter to you, leave it be. Your curiosity does not have to be satisfied. Since he has stakes in this and this is apparently idle curiosity on your part, it just looks bad.
(I don't really care. I have zero skin in this game. I am just hoping that answers your question. I am weird like that about certain things. Shrug.)
We obviously only know one side here, and this issue will doubtless bring all the contrarians and tinfoil-types to the yard.
However, even if we entertain the notion that Jeremy had some sort of de-facto equity interest in the company (a claim for which there is seemingly zero present evidence); can we at least agree that is uniquely shitty to suddenly level these claims days after the acquisition is announced?
One does wonder why this moral injustice wasn't righted promptly in the days, weeks, months, or years following his involvement in the company. More facts will likely emerge, but the timing alone seems like prima facie evidence of rank opportunism on his part.
>can we at least agree that is uniquely shitty to suddenly level these claims days after the acquisition is announced?
Would you prefer that he wait until after the acquisition closes and then have to fight a multi-billion dollar corporation and a newly minted billionaire cofounder? He obviously feels he is owed something, and strategically, it was now or never.
I cofounded a company, named it, was listed as the inventor on the company's patents, wrote its first product, had a written equity deal, and still got screwed on an acquisition like this. It wasn't for billions, but it was for more than $60 million. The acquirer was a multi-billion dollar company and once the deal was done (I didn't find out about the acquisition until after the fact) it was impossible for me to fight them.
I don't know what the merits of his case are, but looking at this from Jeremy's side, having been similarly positioned, he had no choice but to do this right now. Once GM has the company, unless Jeremy has some insanely wealthy backers willing to fund a very expensive legal fight for many years, all bets are off.
"He obviously feels he is owed something"
Does he feel he is owed something just now? Why didn't he feel he was owed something at their sizable Series A [1]? It all just seems Opportunistic, someone just waiting to maximize their returns.
Again, I don't have any insider knowledge here, but: you pick your battles. After the sizable Series A, the company was still going to potentially fail, and thus it may not have been worth Jeremy's time to fight it. Here, it is clearly worth his time. Spending a ton of time fighting for a small amount of nothing is clearly not worth it for anyone, and thus he may have chosen not to fight it until now, when it's clearly not worth nothing.
I find that business is opportunistic in general, and those who are successful are generally opportunistic. To constrain oneself and to not take advantage of opportunities likely means your going to get beat by those that do.
> I meant opportunistic in the "You knew you had no leg to stand on but are now trying anyway because the stakes are higher", sort of way,
This fully describes most of the VC-backed startup world. 95+% of the businesses fail and a few get lucky. Part of making that happen is trying just about anything and shooting for the moon.
What exactly was he waiting for? Hedging his bets? I get that this may be legal, but he seems to have only become interested in his stake because it might suddenly be worth something (alot). I'm actually surprised he's not worried that his sudden claim might not cause enough problems to lower it's value, i.e. scaring off GM.
Keep in mind you're talking about Kyle Vogt, cofounder of Justin.tv and Twitch.tv, acquired by Amazon for $1B, and Socialcam, acquired by Autodesk for $60M.
I guess he probably isn't a billionaire if he only got a percentage of those acquisitions but he isn't some poor college kid hacking away in a garage either.
Note that I am not saying anything about the merits of this case one way or the other, just pointing out who we're talking about.
The question is not why didn't he wait until after the sale closed. The question is why he didn't bother to come forward and ask for his equity at any point during the previous 2 years.
Yup, and the whole point of doing it right now is that it gives him the most leverage. No one wants to stop the merger and the longer you wait, the more risky it gets (buyer's remorse, another startup comes up with a competing product, etc.) so you might be willing to pay a small but substantial sum to make the problem go away.
Given he didn't take the offer of a sum to make it go away and instead let it drag longer in a way which affects the merger, either that wasn't his logic, or he executed it poorly.
Fair point, but from the way Sam wrote it up it sounds like he ignored them and let it get far enough that they filed a suit against him, whereas if his plan was to be something they can get rid of quickly before the merger he surely would have come to the negotiating table before it became too late.
Would you mind sharing a bit more about what happened to you with your startup?
Were you due millions and got nothing, or did you just lose some of what you felt you were due? What would you suggest others do in order to avoid that situation of yours?
I lost nearly $13M in equity. I got $0, plus I spent most of what I had at the time trying to pursue it legally. Basically, my business partner (who was already very wealthy before we started the company) and I had a personal falling out (believe it or not, over a woman). He decided that since he had financed everything, that it was his. He pushed me out, but I still had my equity.
It turns out, however, that the moment I was out he transferred all of the company's IP to a different corporate entity that he owned 100℅ of (same exact company name, just a different structure). He eventually sold that entity. The only thing he couldn't erase was my name being on the patents, but apparently the acquiring company never bothered asking who I was. But in the end it didn't matter, I simply didn't have enough resources to see it all the way through.
I'm really interested by these kinds of IP transfers... is there any reading material about them? This is not the first time I've heard of them, it sounds like one of the only viable ways of removing shareholders that you don't want in the company.
But it also sounds batshit crazy... shareholders should have more than just 'trust' that a founder isn't going to screw them over so easily.
It is of course actionable, but that assumes that everyone involved is on equal financial footing. Me, independent developer, vs a $13.65 billion market cap company and a cofounder worth more than $100 million usually won't end well no matter how egregious the conduct was.
You can hire lawyers on a contingency basis, which means they don't get paid unless they win. Typically they want half of the settlement money. $7 million dollars is still a lot, and it could be more if there are damages.
I know someone who went up against a Dow 30 tech company like this, won $8 million, and walked away with $2 million after tax. Let me know if you want more details, I'll email you.
Yeah, I made that post out of frustration. After that post I start putting personal and borrowed money into it that I couldn't afford to lose at the time, and nothing came of it. Complete stonewall. The additional details I offered above (the transfer of the IP to a different company bearing a similar name etc) came out as a result of the legal leg work that was done, but I couldn't afford to pursue it further, and now the statue of limitations has long passed.
So yeah I wasn't going to name names, but since you posted this old link, in my opinion, no one should ever do business with Allan Camaisa. He is the CEO of a different tech startup today in the mobile space, and I can only assume he is screwing people both inside and outside the company in the same way and possibly new and improved ways.
If you would like to see the ire this guy inspires in business associates, look no further than http://eyevelocity.com . This was a dot com era implosion that he was the CEO of. Allan blew through $40 million of "smart" money - Intel Capital, Chase H&Q, etc. and the company went bankrupt. A spurned employee bought the old domain and 15 years after they blew up is apparently still bitter based on the home page lol (HTS was the parent company of Eyevelocity). His very next venture after that disaster was the one we started together.
If we were being 100% generous to Jeremy, one possible explanation is that he legitimately believed he held stock in the company, and wasn't made aware of the fact that he didn't until he inquired about it prior to the merger. It's not like it's typical to be in physical possession of stock certificates or anything like that.
In any case, it's just more evidence that getting something in writing re: ownership is worth it from the first conversation you ever have about a potential startup. If these two guys did something simple and standard like 50/50 with vesting, this wouldn't have been a problem.
I would guess that from his perspective (which may not be what the court decides is the right perspective, of course) he might be thinking something like, "hey, we started this together, I had these 10 ideas, we parted ways because we have the wrong personalities to work together, now I see 8 of my 10 ideas in the finished product (even if it's out of, say, 100 total ideas or whatever) -- and I feel like you never actually compensated me for about a month of genius that I provided. By helping you start this thing it was secretly our baby all along, and I was okay with you doing whatever you pleased with it while it was a bunch of crazy ideas that hadn't proven their mettle; but now that they have, this is my last chance to speak up for my fair share."
Again, that's not necessarily the truth, but if you want to understand the psychology of how someone can claim this stuff and feel reasonable about it, that's how. We've very much only heard one side of this discussion and while Altman's side is very reasonable, it'd be interesting to see the other side.
We were involved in a fracas something like this, but on a smaller scale.
One of my key learnings was exactly this. Our lawyer (a magnificent guy who stewarded through the ugly process) said early on "you can bet that the other guy's lawyer is getting an entirely different story from what you've told me".
Much as we (especially techies) like to think of ourselves as binary,rational types, the fact is that two intelligent people can each hold conflicting, but sincerely held worldviews. Its very hard to get your head around this - the natural thing is to got full on fight instinct - he's a bastard, he's lying, he's out to screw me and my family, he'll say anything.
Add on top the fact that things often are gray - likely in this case there are two sides to the story, other guy probably has a rightful beef about this.
> the fact is that two intelligent people can each hold conflicting, but sincerely held worldviews.
THIS! A thousand times over. The mere fact that a generous settlement was turned down seems to indicate both sides sincerely believe they are in the right and not some "out of the woodworks charlatan as sama has us believe..."
> One does wonder why this moral injustice wasn't righted promptly in the days, weeks, months, or years following his involvement in the company.
Both the following statements are true: 1) lots of these cases are filed right before a merger because plaintiffs hope to maximize defendants' incentive to settle a weak claim; 2) lots of these cases are filed right before a merger or acquisition because until then the defendant has no money and there is little incentive to bring even a strong claim against them.
"can we at least agree that is uniquely shitty to suddenly level these claims days after the acquisition is announced?"
Assuming someone has been legitimately wronged, they are entitled to surface their claims at the time that would give them the best chances of righting that wrong - ie, the time at which they have the most leverage.
There are legal arguments bearing on delayed claims (eg laches) but those are for the court to resolve.
I think there are many valid ways to attack this behavior, but I don't believe you chose one.
It could be as simple as the plaintiff living a busy life and realizing this was his last chance to make things right before he'd be facing GM's lawyers. GM is definitely of the size where they can bring a trial outside the means of an individual to litigate.
The valid reasons to attack are listed at the bottom of Sam's article.
I agree with you, although: it's got to be a pain in the ass and a huge expenditure of social capital to try to negotiate some equity in a contentious situation like this. Most startups will not result in a meaningful financial outcome, so it sort of makes sense waiting to go through this mess until it's clear that it's going to matter because there's money on the table. (Whether the claim is legit is another matter...obviously extraordinarily shitty to do this if your claim is bogus)
> Most startups will not result in a meaningful financial outcome, so it sort of makes sense waiting to go through this mess until it's clear that it's going to matter because there's money on the table.
That's not how it works. We have great, special-built instruments for this purpose, commonly known as stock options. They come in many flavors, but all of them share the important feature of defining terms of ownership before it's obvious what the final value of a company will be. These tools exist for the express purpose of avoiding shadow claims and massive litigation every time a company is bought or sold.
Unfortunately, very early-stage founders don't always do paperwork before starting to work together (which seems to be the case here, although it seems very little work was done). Obviously, it would be easier if they did.
Or, a result of the fact that there is now something to receive. Why waste everyone's time correcting stock accounting if the stock is effectively worthless?
> Why waste everyone's time correcting stock accounting if the stock is effectively worthless?
If you know for sure that the stock is effectively worthless, obviously there's no point.
If the stock might be effectively worthless, or might not, then there is a point: you are establishing your claim before its value is known. That puts you in a much better position to rebut accusations that you don't really have a valid claim but are trying to milk it for whatever you can.
I am curious whether Jeremy reached out to ask for money first, or whether instead what happened is Cruise asked Jeremy to sign a waiver of rights and Jeremy wanted money to sign. I suspect it is somewhere between these variants. It does not make sense to me that Jeremy would just reach out "from the shadows" to demand a vig from this acquisition. If he did, and the alleged facts are true, shame on him.
But I wonder, how is Cruise concerned about Jeremy using their trade secrets if he never signed anything with the company? If they disclosed something to him when he was not an employee, and there was no NDA, then how is it a trade secret? Seems more likely that the acquirer saw Jeremy's name in diligence but without any signed NDA/Invention Assignment Agreement, and asked Cruise to close the gap by getting Jeremy to sign a waiver; then Jeremy asked for money to sign that (just speculating here). If this is how it went down, it's within normal bounds for Jeremy to request a payout. Maybe he asked for too much, but that is something that is purely a commercial dispute and I don't think deserves any moral outrage.
I may be missing something -- and probably am, having seen only this article and Cruise's complaint. But there is something that smells a bit off, when there's a rush to smear this guy using all the power of sama's fame, and the $ to hire a big lawfirm to terrorize the defendant into submission.
If GM legal team is like legal teams I worked with in big companies then Jeremy name will definitely surface. And GM will ask guarantees that Jeremy will not pop up after acquisition is finished.
Depending on the situation some lawyer might even suggest to Jeremy to be quiet till acquisition is finished and then the law firm will hit GM with lawsuit.
So I think Jeremy signature is needed for acquisition to go thru and he probably asks a little more $$ for his signature than Cruise investors are willing to fork.
So here's the thing: I actually think some of this is Kyle's fault, even if that doesn't feel "great" to say. We had a similar situation with a third cofounder for a few weeks (who is still one of my closest friends, though admittedly it's been a while since we caught up). Our lawyers recommended having us (and him) sign a document when we incorporated and receive compensation (it was like $25 each) for the IP created prior to incorporation.
That would have resolved this whole issue, if they had thought about it before it really became a problem, no?
This was a particular situation that Kyle & co. clearly knew about, and it could very easily have been prevented. That's very different from an unforeseen legal circumstance that occurs solely due to bad luck or an outside bad actor; they knew Jeremy was with them for the first month, and they knew he left.
I have been in similar situations, with competent legal advice, and was not advised to make the described arrangements (token compensation, etc.) I certainly did not think of it on my own. Luckily for me my company failed so I did not have to deal with anything like this.
Perhaps I was given other advice that was unique to my lawyers. That would be nice, because when somebody got caught out because their lawyers did not give similar guidance, I could congratulate myself on having done the obvious.
Oh come on, you're saying you could not have predicted that a person with whom you began work on a company may one day sue you?
Think ahead a few moves. My lawyers did not tell me 'hey you should deal with this situation,' they just told me how best to deal with it after I asked.
Why was this not discovered in due diligence with YC and VCs? Or did Kyle never mention this former cofounder in their fundraising discussions?
I understand Cruise raised over $17M of capital through two rounds, plus the accelerator. In theory that is three stages of due diligence from well-regarded firms in silicon valley who either missed this deal-breaker or gave the wrong advice.
According to sama's post he was named as a cofounder on the company's YC application so clearly they knew about him. As for why they didn't get an agreement to waive or buy out any claim he might have early on, well...
I understand that Y Combinator keeps recordings of YC interviews so that they can go back and analyze their decisions for failed investments or anti-portfolio companies. This would be a very good time for them to go back and review that interview, and I wonder if it will be brought up in court.
I do due diligence for a living (for PE and VC) and you'd be surprised how little diligence is done in VC and when it's done, how much is often missed. Especially in VC when the model is a portfolio approach it's usually not worth the burden.
Right, and I don't mean to 'victim blame.' Mostly, I put this here as a harbinger for other folks who may find themselves in a similar situation in the future.
We don't know that. We know that Kyle says that's true. Did Jeremy create the original logo? Did he come up with a particular idea? I'm sure these will all be things that come out in the case, but I hesitate to take one particular side's 'truth' as the whole truth.
Anyway, I'm just trying to inform folks that this is a possibility, and that they should take care of this sort of stuff early. It doesn't take long, and it isn't expensive.
I did make you a beautiful logo, didn't I ;) Yes, it's been a while.
One of the reasons I signed and took your $25 offer was because I wanted to live in a future where I didn't feel massively entitled to someone else's successes. At some point it makes sense to lock in your friendship with your friend-who-you-decided-to-maybe-cofound-with-but-stayed-in-Boston-instead and move on with your life, before money gets in the way.
That said, every story is different. Just because all I made for borski was a silly logo, doesn't mean that this Cruise fellow didn't make a more significant contribution. For better or worse, it looks like that story will play out rather publicly now.
From personal experience, the moment someone does any work on a project they have a claim. The state of CA is extremely worker friendly in this regard. I've made this stupid mistake twice in two different startups unrelated to Immunity Project. The first time, we had someone interview for a job and attend a few meetings. We ended up not offering them the job and they filed a complaint. We fought it and ended up spending nearly six figures on legal + more then you can possibly imagine to settle. It know this sounds insane, but its true.
The second circumstance was a co-founder who stole cash from the company and was booted. Similar end result. In both cases we had no documentation (classic startup excuse), and strongly believed in the premise that if you didn't do the work, you don't deserve to be paid. We lost in both cases. One of the primary drivers in both cases was the dreaded contingency attorney. Anytime someone is able to get an attorney to take a case on contingency with minimal out of pocket cost, they have little reason to be reasonable. And because filing is the nuclear option in the first place, they don't care about fallout. Contingency attorneys are paid a % of the resulting settlement so they will drive the case as hard as needed to extract the maximum outcome. In some cases the attorney will manipulate their client in pursuit of this outcome even if its not in their clients best interest long term. It was smart for Kyle to file first because it makes it harder for the other party to retain a contingency attorney who will cover defense in the deal. This will dramatically increase the other parties cost to litigate the case.
Lessons learned:
1. ALWAYS put stuff in writing.
2. NEVER have anyone do any "work" without some written agreement on compensation.
3. The only winners in litigation are the lawyers.
4. 3pt14159 makes a great point: ALWAYS settle early. The longer you let something drag, the more it will cost. Its always best to try to settle prior to either party filing a lawsuit. In this case it sounds like Kyle tried to settle first but was unsuccessful.
ALWAYS settle early. By leaving it be you're exposing yourself. Eyes get wider and wider as you raise more and more. When that $2m wire clears, if it means writing a $300k cheque or agreeing to a $1m payout over 5 years, just do it. Don't be idealistic when there are real stakes on the line. True, they can still bring you to court later, but you'll be in a _much_ better position.
Offering to cover defense increases their overall cost. If they agree to provide defense up front prior to anyone filing, and they are able to file first, they are able to make the bet that the opposing party won't file a counter. If the opposing party has already filed, they cannot make that bet, and as a result they are less likely to cover defense in the contingency agreement.
Ok, I tried to answer questions here for awhile. I've got to head into other meetings for the rest of the afternoon.
BTW, my working assumption here is that Jeremy is a good person getting bad advice. I'm certainly not out to destroy his career, and I would talk to him about his next thing. We tried hard to keep this from being a public matter, but one things about YC good or bad is that we will do everything in our power to defend the people we fund if we think they're in the right. Since this was going to become public anyway, and Kyle can't say much, I wanted to clarify how hard Kyle worked to solve this privately.
"I'm not out to destroy someone's career, I'm just calling his actions one of the least sensible professional situations I’ve ever been involved with. On my very influential blog."
I think you guys are impacted by the US law allowing anybody sue anyone for anything, always. In EU if someone has no contract/shares/employment in some sort of a paperwork, I feel like there'd be no problem whatsoever. I doubt one could even sue at all. If someone without % of the company can request anything, that's slightly worrying.
Knowing very little about the case, it's hard to take a side without legal due process. Statistically, from other similar cases, there's a good chance this Jeremy guy is probably full of shit. But this rubbed me the wrong way:
> Still, it’s important to the way Silicon Valley works that such behavior not be tolerated.
You're not above the law, nor should you have more say than any other resident in Silicon Valley (but by all means, vote in elections and write your congressman). If someone makes a legal claim, that's up for the courts to decide. They have every right to make such a legal claim. And investors have the right to fire back publicly, sure.
But this attitude is now starting to make me think that there's more to this:
> Kyle made an extremely generous offer to settle this claim by offering to give Jeremy a lot of his own money.
Smart people don't settle if a claim is baseless. Baseless claims get thrown out quickly and easily.
Edit: from another top-level comment,
>To that point, the fourth cause of action is regarding "Trade Secrets" in the possession of the Defendant and states that "Plaintiffs have reason to be concerned that Defendant may attempt to use such trade secrets in his further endeavors"
Which does prompt a question of how a person who never had any involvement in the company and its technology came to be in possession of its trade secrets.
And now I already have some reasonable doubt that makes me want to think a bit harder.
To re-iterate, I still think this Jeremy guy is most likely full of crap. But I am not a big fan of the attitude and public shaming of YC here. What this tells me is as follows: if I have anything to do with a successful YC company in the future and I get involved in a legal claim that looks unfavorable, some popular top investor could write a blog post shaming me and ruining my reputation for other startups. Not professional if you ask me.
> Smart people don't settle if a claim is baseless. Baseless claims get thrown out quickly and easily.
That isn't true at all.
If you have a larger merger hanging in the balance or if the lawsuit would be expensive and long, it can make sense to settle even if you're "right." A lot of businesses settle for things which they may be innocent of because it makes financial sense (and there are a lot of smart lawyers around filing lawsuits every day knowing they're ultimately baseless but still cheaper to settle).
Mergers are a prime time for frivolous lawsuits because people know that the business will be under undue pressure to settle it so the merger can go through.
PS - This post isn't about this specific case, I don't know if it is frivolous or justified, I am talking more broadly.
How many cases are thrown out versus those that are filed? Is a baseless case immediately frivolous and dismissed or does it take tens or hundreds of hours of billable time to show a judge that it is baseless?
Depends on why the case is baseless. There are three inflection points in a civil suit: motion to dismiss, summary judgment, and trial. Motion to dismiss is relatively quick and considers only a limited universe of evidence: basically, just the allegations in the complaint, answer, and certain attachments. You may win on a motion to dismiss based on a legal issue (i.e. "you can't sue for that" or "the law doesn't make that illegal") or when the plaintiff can't even make credible allegations that would give rise to liability if they were true. Summary judgment is where you can get claims where the allegations can't be substantiated with enough evidence for a jury to reasonably find them credible. Trial is where evidence is weighed to find what is more likely than not to be true.
Getting to summary judgment is usually pretty expensive because it usually comes after discovery (reviewing peoples' emails, deposing witnesses, etc). It would be very difficult to dispose of a case like this before summary judgment, because the issues are all factual: what was the nature of the agreement between these co-founders?
Which is another reason to paper these things up from the beginning. It's very expensive to figure out after the fact what two people thought the arrangement between them was. When you have an agreement in writing, you can: 1) put in an arbitration clause which might let you get you the benefit of resolving the dispute in the more loosey-goosey world of arbitration; and 2) might give you hope of getting rid of a case on a motion to dismiss on the basis of the terms of the contract.
The latter! And, even apart from the billable hours, you can lose months just to court delays.
More importantly: these aren't especially easy cases to dismiss. To first approximation: getting a case dismissed requires an argument that regardless of any evidence that might be admitted at trial, the opponent can't possibly prevail simply on legal grounds.
Here we have the case of someone who claims to have had a partnership agreement that predates Cruise's incorporation. That agreement may have been oral, or it may have been memorialized in some casual way.
It's also important to observe that it's Cruise suing here, not the person claiming an equity stake. That's because the person making that claim can wait until the least convenient possible time to file suit. The leverage they have in this case is probably just torpedoing the deal, not relief in court.
It's a bit more complicated than that. Approximately 100% of civil cases see a motion to dismiss early on, essentially the legal argument that the suit is obviously unfounded. Since it wastes everyone's time, attorneys don't tend to bring those sorts of suits, so the great majority of motions to dismiss don't go through. Judges tend to think that the suits actually brought to court should be heard out.
So while settling isn't at all an admission to the claims of the case, it's at least done in recognition that a reasonable person would probably want to hear out both sides of the argument before deciding.
It is a pretty strict standard, and I'm not a lawyer so I couldn't say what exactly would qualify for dismissal outright. Maybe something like "this person has never even met my client" or "this company doesn't even exist".
Typical basic motions to dismiss usually fall into these main categories:
1. This isn't the right court (jurisdiction)
2. We're not the right parties (standing/jurisdiction)
3. It's too late (statute of limitations)
4. No law has been broken (failure to state claim)
5. Nobody was really harmed (failure to state claim)
Typically it's numbers 4 and 5 that would matter for a frivolous lawsuit. If you want to see what that kind of lawsuit and a successful motion to dismiss look like here's a good example:
"the law under which you are suing does not exist"
but short of one of these it's pretty easy to make a plausible case. the standard in civil cases is 'preponderance of evidence' rather than 'beyond a reasonable doubt'
That stat doesn't really tell us anything about how easily baseless claims are dismissed, because judges can (and do) schedule pre-trial meetings for the purpose of encouraging a settlement by discussing a case's chances with both parties.
> Still, it’s important to the way Silicon Valley works that such behavior not be tolerated.
All I meant was to express my view there, but you're right, I don't like the way that reads either. I'm going to update it.
> Kyle made an extremely generous offer to settle this claim by offering to give Jeremy a lot of his own money.
I think that happens in nearly all of these cases, which is part of why I find them so upsetting. People know that you can pressure people under extraordinary circumstances, like an acquisition closing, to give you something.
>To re-iterate, I still think this Jeremy guy is most likely full of crap. But I am not a big fan of the attitude and public shaming of YC here. What this tells me is as follows: if I have anything to do with a successful YC company in the future and I get involved in a legal claim that looks unfavorable, some popular top investor could write a blog post shaming me and ruining my reputation for other startups. Not professional if you ask me.
We tried every non-public method we knew of first. When it came time for the seal to be lifted, I wanted people to know how hard Kyle tried to settle. My original plan was to write a general post about this problem with no specifics after this settled, which I didn't like but thought was 95% likely to happen.
> We tried every non-public method we knew of first.
Does this include empathizing with his position, considering the possibility that he isn't just greedy and crooked and actually believes he is in the right? Did this include truly putting yourself in his shoes and understanding where he is coming from?
I assume since you are biased to one side, you are not capable of such empathy. I know I wouldn't be. So, this goes to the point of public shaming, do you really think it is justified? Do you really think you are capable of being objective about this?
> I wanted people to know how hard Kyle tried to settle.
Sometimes, trying to settle is actually more hurtful to the other party. It comes from a place of "you are a nuisance, here is some nuisance change to go away." If this was truly about money and greed, he probably would have settled. The fact that Jeremy didn't tells me that he probably feels entitled...which means to really reach him you have to speak to his position, not your own.
I guess the real question becomes...does Jeremy actually believe he is entitled to that stake? If he does, and if you were in his shoes...would you accept a dismissive, though generous, offer or would you sue for what you believe is yours.
I don't know either side, but I can see how both sides would dig their heels in the ground if they both believe they are in the right.
I think airing this dispute out publicly, especially in your position and with your admitted bias, should be rethought and considered...because I can see no good coming from this.
The frustration is understandable, it's a shitty situation and I've also had a "useless" "co-founder" try and hold onto equity that didn't vest, after he left and contributed little.
> I think that happens in nearly all of these cases, which is part of why I find them so upsetting. People know that you can pressure people under extraordinary circumstances, like an acquisition closing, to give you something.
Yeah, this is a topic that deserves its own post for sure. Timing-wise though, if Jeremy has any claim at all, he needs to make it now before facing the acquirer's lawyers, so there's that angle too. I definitely think there's some nuance here, and am not sure what a superior system would look like.
> We tried every non-public method we knew of first. When it came time for the seal to be lifted, I wanted people to know how hard Kyle tried to settle.
Do you see the logic of my last point though, why people would perhaps not look favourably of your public disclosure of this topic, even if you're right? Moreover, what was going public on the individual supposed to accomplish? Because it could sort of look like someone in power trying to strong-arm someone not.
Regardless, I wish the Cruise team and yourself the best, and a speedy departure from this issue. It looks like technology and legal claims are going to continue to interact in increasingly complex ways down the road.
> I've also had a "useless" "co-founder" try and hold onto equity that didn't vest, after he left and contributed little.
What I am about write is blasphemy in this community, but needs to be said.
Contributions to a startup are not quantifiable. There are truism that float around the startup community like, "Ideas are worthless, execution is everything." these are helpful motivation tools but they create a black and white world, in a universe that is multi-dimensional.
When someone has an idea and someone else executes and the guy with the idea wants his "fair share" or in less extreme cases, like leaving before shares vest, there is this belief that one side is entitled to all equity and the other side didn't contribute anything.
In truth, the other side sees things differently, and that doesn't make one side right and the other wrong. It is never that black and white and general ideas like, "execution is everything" are great as general ideas but don't translate to every situation and each case needs to be evaluated independently.
If someone contributed to a startup and the other side has a different opinion about the value of that contribution. This is what the courts are for. Their job is to help decide, in this specific instance the value of that contribution was and how it relates to the nature of the agreement made between the parties.
Truism are not legal arguments and it's a mistake to assume that situations about contribution levels can be settled with them. Both sides believe they are in the right and are being wronged by the other party.
There are two ways to proceed from there. You can dig your heels in the ground on your position and try to pay to make the problem go away...Or you can accept that the other side also has a leg to stand on... try to understand their position and come to terms that leaves no one happy, but everyone satisified. Thats what compromise is about.
I think the startup community and this post is evidence of it believes that what they know is above the law.
This is a simple case of a dispute about money. Pretending it is about good guys and bad guys is being dishonest to yourself and others.
I agree with most of your post. I was trying my best to find common ground with sama's perspective in his. Because I have had similarly crappy situations that did make me incredibly frustrated. You bring up good points though:
> What I am about write is blasphemy in this community, but needs to be said.
> Contributions to a startup are not quantifiable. There are truism that float around the startup community like, "Ideas are worthless, execution is everything." these are helpful motivation tools but they create a black and white world, in a universe that is multi-dimensional.
Amen, who gives a damn how fast you clmb the ladder if it's placed in the wrong spot? And it's such a simplistic point; often times the whole point of execution is to find a better idea. These ideas could be discovered through a combination of mental reflection, talking to customers, building prototype, ...
> I think the startup community and this post is evidence of it believes that what they know is above the law.
> This is a simple case of a dispute about money. Pretending it is about good guys and bad guys is being dishonest to yourself and others.
Yep. I don't care how many Airbnb's and Dropbox's you fund, you don't get to say what constitutes good and bad in a community.
At the end of the day, I think Sam got frustrated, acted a bit impulsively, and probably regrets how things turned out with the original post. But hey, mistakes build leaders, so if someone as public as him can reflect on it then all the better.
> so if someone as public as him can reflect on it then all the better.
I eagerly await this much anticipated reflection. For what I can tell he is a sincere, integrity driven, human being. Money has a way to messing with us and causing us to do all sorts of things we regret. I just hope he can see past his blind spots once the initial frustration wears off.
>Because it could sort of look like someone in power trying to strong-arm someone not.
If like the post suggests, both sides expect the merger to occur on schedule, what other purpose does going public at this moment serve that wouldn't be better served by a more detailed post after a resolution has been reached?
> I wanted people to know how hard Kyle tried to settle.
Why?
Why is it so important that everyone knows that Kyle is the good guy and Jeremy is the bad guy? You're taking a preemptive step to defend Kyle's reputation by tearing down Jeremy's, for no tangible benefit (and to be honest, at the cost of your reputation and YC's).
What do you think that Kyle or Cruise (or you, or YC) gain from this post?
And even if you really needed to defend your man, there was the opportunity to write a post that said "This suit has been filed, we wish there had been some other way forward but every attempt to resolve this amicably has failed. I have personally been involved in those attempts, and I believe that Kyle, Cruise, and YC have taken every possible step we could to avoid a law suit, without success."
> We tried every non-public method we knew of first
And when you ran out of non-public methods, you filed a suit. And that's where you should have stopped. The post is not about finding a solution, it's about declaring your (and Kyle's) moral superiority in this matter.
> I find them so upsetting
This, I think, is the key statement. You are emotionally (and financially) invested in this, and you want to rant about it publicly, but it's not helpful.
Your emotions have caused you to take steps that don't contribute to the solution, but your job in this is to do everything you can to get to a solution.
I'm troubled by this post, actually, because of the implication and usage (overt or otherwise) of the HN audience. Especially with an earlier revision with that line about not tolerating such behavior in Silicon Valley, and the general tone of the post including going after the defendant's professionalism. This post smells pretty bad, and is pretty much just dirty laundry or posturing.
This is a really, really surprising post for Sam to write, and I think even he knows it's wrong with the lawyers bit. They would stop him for a multitude of reasons, some legal, some tactical, some ethical. All of them would be valuable legal advice.
I'm troubled by a mix of things here: the wide audience afforded an investor in the plaintiff simply by name recognition in this community, the aforementioned characterizations of the defendant (who most of us have never heard of, and therefore are relying on the post to describe), and the circumvention of process that this post demonstrates, whether intentional or otherwise, not to mention the implicit attempt to steer public sentiment on a person. I'm not ascribing any malice here, to be clear, I'm just still processing the frame of mind that would consider this post a good idea at all. I actually disagree that it should be pulled, because the gun has been fired now (and pulling it makes it worse).
There are only two explanations of overall motive here, and neither is kind. Nobody wins here, Sam, Cruise, Kyle, or Jeremy. Especially not Jeremy, and one need only scroll down to find the number of comments that bought in immediately to Sam's narrative and are talking about refusing to work with Jeremy in any capacity.
> This is a really, really surprising post for Sam to write
It's actually not surprising if you follow YC and HN for any length of time. The prevailing tone coming from sama, pg, and the mods at HN is that:
- They and they alone are in a position to speak on behalf of all of "Silicon Valley".
- They are above the law (see for example all of the mental backflips and excuses given regarding AirBnB's clear-cut and widespread facilitation of lawbreaking).
You can see this arrogance peeking out here and there, such as the now-deleted statement you highlighted (side note: isn't it also incredibly arrogant to think that they can simply delete things from the internet and pretend they never said them?). It feels like it's been happening more and more lately. I expect that in the absence of any kind of reality check, it will continue to come out more and more.
Oddly enough I'm reading this after the AirBnB next door, one of whose many guests has broken their front door, smashed it closed two meters from where I'm sleeping at 1:40AM. YC reaching out from the physical world and I wake up and visit HN.
Indeed. This looks a lot more like a high profile investor using his audience to litigate the issue in the court of public opinion and dragging some guys name (who may or may not have a claim to Cruise) through the mud.
Personally, I've seen in the past people who have contributed significantly to projects which later became successful and did not reap the rewards of their work because of, among other things, harassment via the legal system. IMO, this doesn't look good for sama.
I'll say it: if I were in a position to take his investment, this post would give me serious, serious pause.
To be clear, I'm all about transparency and talking about things like this in the open, but not like this. There's a lot we need to talk about as an industry, but this doesn't help.
Most founders would LOVE an investor help defend in a situation like this. Typically founders are left charging off into battle countless times with little but moral support. "yeah you go fight that battle for us- thanks and let us know how it goes".
Good for Sam for actually at least attempting to help and take a few of the arrows for the founder/ CEO. Sam is actually taking a bit of risk doing this legally and PR wise and while I'm not saying his approach is perfect (he already edited a few lines) - It took a lot of balls to wade in here, I rarely see investors do so- and I think it will help settle the case faster which is really good for both sides.
> Most founders would LOVE an investor help defend in a situation like this.
There's a lot of value in having an investor try and solve the problem. That should include offering advice like "don't let this derail the acquisition, make him a reasonable offer and get it all sorted out", and being willing to actively participate in the process of hashing out an agreement.
Sam can, and should, defend the value of Cruise as an entity, but he's gone beyond that to defending Kyle by attacking Jeremy. That's no longer about solving the problem - now it's about people and emotions.
Nobody wins in a court case. If Sam uses PR to put enough attention on what has occurred to settle it that's a legitimate tool. The other side doesn't have that tool but they can come here and post their side of it. As these posts show, plenty of folks here are willing to play Devil's Advocate. I'd love to see the other side - i.e. was there a demand letter and was it sent- and to whom?
I can tell you- the ONLY thing that I can think of that would trouble me is if we find out the guy never even had a lawyer. Then it would appear to be an over reaction. It's not clear exactly what actions the other side has taken (or not done).
But on the face of it- nothing wrong with using PR to settle this. It could also get sympathy from GM and they just get creative around using an escrow to just close without settling any of this.
I'd bet there is a 50% chance that Sam's post will help settle the case before it gets to a judge. Most of the time Judges don't even want to hear the case since legal battles are bad for both sides- they do all sorts of things to force two sides to settle. The guy worked there a month with imo should be the headline- and if there are no facts missing (which is likely and possible) my bet is this will help resolve this before a court acts.
People know that you can pressure people under extraordinary circumstances, like an acquisition closing, to give you something.
Seems like a great opportunity to learn something: don't expose yourself to such risk. Involve lawyers early when fundamentals of your business are concerned. Don't just wait until you really really need to clear everything up fast, because there's a big pot of monery with an expiration date.
I know, hindsight and all that. But still, I don't see a priori why it should be morally wrong to "pressure people" in extraordinary circumstances. Jeremy couldn't build that pressure himself, Cruise started the merger thing and basically handed a loaded weapon to him.
And if it weren't just an individual, but some public company on the other side, there might be fiduciary duties to exercise that "unfair" pressure – not exactly in this situation, but pressuring people isn't amoral per se, I think.
I think part of the problem is that Sam isn't able to talk about the tactics that Jeremy might be using, such as "pay me or I screw up the merger."
I think Sam probably should have realized that he couldn't explain why he is so upset and therefore should have just not said anything.
I do agree on one thing though, calling the guy out by name like absolutely reeks. "I'm going to destroy you for attacking one of my investments!!" Please. I think it would have been much better if he never used his name, which of course is now going to show up in Google Searches.
Smart people don't settle if a claim is baseless. Baseless claims get thrown out quickly and easily.
This is categorically false. Equity disputes kill deals. Even if you're right, it can take upwards of a year to resolve a claim, especially without documentation. Offering a settlement is usually the rational response.
>> Smart people don't settle if a claim is baseless. Baseless claims get thrown out quickly and easily.
Ok this is not remotely true. Baseless claims in court can go on for years - then they can be appealed and appealed again. It's often offensive to settle but that's why it's called "settling" since you don't have an optimal outcome. Are you just trolling?
> parted ways ... and well before the company had achieved much of anything.
There are many shareholders of Thumbtack who left voluntary (or not) "well before the company had achieved much of anything," because companies take a long time to achieve big things. That doesn't mean they didn't have critical early contributions or that they aren't entitled to their equity.
I'm not saying that means this guy is entitled to anything, clearly the courts will figure that out, but I think writing off early contributions in a nascent company as having no value is also wrong.
That's right. Late employees build on the shoulders of early employees. The idea that founding team members are somehow inherently less entitled to their equity doesn't make sense. Indeed, they often forgo salaries in exchange for it.
Edit: getting some downvotes. I'd like to hear why you think I'm wrong.
>some popular top investor could write a blog post shaming me and ruining my reputation for other startups. Not professional if you ask me
I think it would have been more professional to state, in neutrality, the status of the legal proceedings - rather than implicitly accuse the man of being greedy by refusing a "generous" settlement.
When there are large sums of money at play, who among us wouldn't work in their best interest? If you have a lawyer telling you that there's a case to be made, you would be a complete and utter moron to not take that route. Do you guys think any angel in such a situation would give it a second thought?
Silicon Valley Exceptionalism is the product that YC sells, and boy do they sell it well. They want you to believe that SF is a magical place where you're expected to reject the opinion of a lawyer saying you have a claim to millions of dollars-- because Silicon Valley is a totally chill place, bro. No assholes in the bay!
When large sums of money get involved, lawyers get involved, and your actions are masked by your lawyer. I am not going to judge this guy at all. I feel like the author is trying to make the case that this guy is an asshole, and implicitly, because we all know YC doesn't like to help assholes-- and because that's an agreeable ideal, we're supposed this guy as the enemy.
But maybe it's the case that he's really a good guy that realizes that he has the opportunity to convince a court to award him a life-changing amount of money.
I really hope the motivation between this post is not to give him an ultimatum. I really hope the reasoning is not, "I have the ability to get a post on the front page of HN, and I can use that as leverage to make this guy's lawsuit more of a gamble-- I can drag his name through mud and stick it on the top of HN, such that he will have more difficulty getting a job in SV after this lawsuit. Unless, of course, he drops the case."
Because if that's the motivation, then I think it's pretty clear who is being an asshole.
I don't know anything about the dispute. Sam Altman sounds genuinely angry. That said, I thought YC would alwready have in place strict agreements, especially mandatory arbitration clauses, when they dole out the money?
As to settling, I think about this farmer who was sued by Monsanto for stealing intellectual property.
He, and his wife had a dream of a small organic farm somewhere in the south. They were situated next to a big farm that used Monsanto seeds. Pollen from the adjacent property blew onto his property/crop. Monsanto took some of his corn crop and looked for their patented genes. They found some. (I'm unclear of the science behind their claim. I didn't think just pollen from the Monsanto field could take over an entire separate crop of plants?)
Anyways, the young couple wanted to vociferously fight the suit. Within weeks they were pretty much beaten up by Monsanto lawyers, detectives, and henchmen (paid witnesses).
His neighbor's reluctant advice was unless you want to spend a half million defending your innocence; just settle the Monsanto suit.
They have enough money to keep you in court for years. The neighbor didn't even want to be seen with the guy--Monsanto has detectives in the area, and supposedly keep detailed logs on these farmers.
If anyone is interested it's all in a documentary, called Eating Alabama.
Not disputing you, but I have heard this story recounted a lot in various ways, but when I remember digging deeper into it, there were things that just didn't match up (basically, the amount of crop that could blew to their fields vs what was found out was very different and most likely had to be intentional). Also, if I remember correctly, Monsanto didn't really sue them. There are a lot of contradictory sources around, but from: http://www.dailytech.com/Monsanto+Defeats+Small+Farmers+in+C...
> Wrote the judge, "[the allegations] are unsubstantiated ... given that not one single
plaintiff claims to have been so threatened." She also complained that the farmers had "overstate[d] the magnitude of [Monsanto's] patent enforcement", which documents indicated entailed 13 cases last year, which she opined "is hardly significant when compared to the number of farms in the United States, approximately two million."
ps: not taking sides, just letting you know that MAYBE you have been mislead (as I was)
I read the full details of a Monsanto-vs-farmer court case not that long ago that sounded a lot like the one you describe.
If we're talking about the same case, the missing part of the story is that the farmers knew they had Monsanto seeds mixed in to their crop and then intentionally isolated those seeds and replanted only those seeds for the next year. Specifically, they sprayed with pesticides that kill "organic" crops but that Monsanto crops are engineered to be immune to, for the purpose of having genetically-engineered seeds for the next season without paying the required licensing fee.
Maybe it's not the same case. But it's worth being aware that people do present their side of a case in the most positive light, even when they're clearly in the wrong when all of the evidence is revealed. (This could apply to either side in this dispute, FWIW.)
I think it is fine for Sam to post something like this. It's not illegal and people will think twice before opportunistically suing companies that are backed by Sam.
Anyone with power that flexes it will be accused of abusing it. In this instance, I don't think it is abuse (although I can also argue that any use of power is an abuse of it). I appreciate that Sam is willing to flex his power to protect companies he is vested in. It makes me clear on his values.
I also don't think the appropriate response to legal action should be to "leave it up for the courts to decide". Legal action is meant to right injustices, but in the real world people use legal action for all sorts of other reasons, and you're handicapping yourself and living in your ideals if you think people don't use legal action for their own benefit. You're defining a marching formation to go to war and you'll get trounced by people who don't constrain themselves in that way.
Legal action has results well beyond the courtroom. In this case, it can stop a merger. It causes libel. It defames reputation. Even if you win the case, you lose. If you settle out of court, you lose. And there's almost no recourse for unquantifiable damages or loss of reputation caused by the claims.
I'll admit taking legal action is one of the few ways injustice can be righted and that is a value that should be upheld. But, by nature, a system that makes sure injustice is dealt with fairly also is really easy to abuse by pretty much everyone else.
> nor should you have more say than any other resident in Silicon Valley
I'm fairly sure Sam meant in terms of the startup ecosystem rather than the real estate. I also bet you're aware of that and decided to write that anyway.
This show the incredible value of YC in general. Two of my friends ended up in a similar situation when were selling their companies and their VCs essentially told them something like: "Don't you dare to fucked up this merger, give them the money they're asking for."
Having a VC that stands behind you during time like this has an incredible value and should be considered by any founder(s) when thinking about applying to YC.
Wow, I took the complete opposite from this post. YCombinator is acting extremely unprofessionally here by trashing someone someone publicly because he dared to sue one of their companies. This sort of bullying behavior is a huge red flag and I would be hesitant to get involved with a firm who would engage in it.
read more closely. The company is suing, not the other way around. The outsider is refusing to settle, so the company and founder took the logical and necessary step of bring a lawsuit for declaratory relief. On the facts as presented, the only bully would be intransigent pseudo-founder who worked with the real founder for six weeks more than two years ago, well before any funding rounds or even seed investment.
It is a case of (improperly?) using a position of some authority / popularity to force someone to change their behavior that he doesn't like.
We have courts for a reason. This is bullying and shaming and most likely a distortion of fact in which he has, I assume, a not insubstantial financial interest.
I'm guessing if this case ever goes to trial, Sam is going to regret writing the blog post since he'll have to explain exactly what he meant by "Jeremy Guillory collaborated with Kyle" and "well before the company had achieved much of anything".
An alternative viewpoint (with the caveat that I know about the specifics of this case) is that if you leave a YC company, then not only can you be denied compensation for your work, but you may be sued for trying to make a claim for it.
That's not true at all. Speaking as someone who left a yc company shortly before a vesting cliff, yc did a very good job helping the company and I find a reasonable arrangement. They short circuited a lot of the potential bullshit that comes from inexperience.
> did not make any meaningful contributions to the company
The post never explained what his contributions were or were not. If there was any amount of work done prior to any equity agreements being in place I fail to see how, legally or morally, he would not have at least some piece of the company.
There have been plenty of times where I've advocated for the founder that has left a company, but not when they left after a little over a month. That's the reason we have vesting cliffs in the first place.
The 1 year cliff is a standard SV term that should be reconsidered IMO, because it distorts incentives significantly. A founder/employee who decides between months 6-12 to leave the company has a substantial incentive to stay on in coast mode until the cliff hits. Meanwhile the company continues to lose equity and salary to someone who is no longer committed. Standard vesting already aligns incentives well without a cliff.
Everyone should have a cliff, even founders (generally 4-yrs total. 1-yr cliff, then vest every month thereafter).
If I recall correctly, every company that goes through YC have cliffs built into their legal documents - or must have them built in when the program commences - for both founders and employees.
This is "current founder friendly" behavior on the part of Sam. I would argue if you're founding a company that's optimal for you, and you shouldn't be planning for a contingency where you will become an ex founder.
That's naively optimistic. Circumstances can change, and relationships can sour; often, it can happen through no fault of your own. It could a simple a disagreement in the face of mounting stress, somebody needing a quick exit due to life-changing events like an illness, or even just a deadlock over a key decision. Startups are stressful in general, and they usually move at high speed: things change, often quickly.
Shareholders' agreements and other contracts (such as those with early consultants and employees, like Jeremy Guillory with Cruise) are meant to protect against this uncertainty. Simply ensuring that there's a clear exit strategy for the founders can ease possible tensions before they arise just through the knowledge that they exist. And if things do go south, it ensures that an exit is as painless as possible for all involved.
If you assume things are going to go smoothly, at some point, you're going to be in for a very painful surprise. You should always figure out an exit strategy. Anything less is just dancing on the edge of the volcano.
Making decisions that optimize outcomes for current founders over ex-founders is not the same as assuming there won't be founder disputes or exits. I just think it creates better incentives.
I might have misread your intention then, but there shouldn't be a tradeoff between the two at all. If I understand your point correctly, then your agreements would prioritize founders after an exit by eliminating the likelihood of an equity dispute later on but not at the expense of the person who exited at the time of their exit. If that makes sense. In general, shareholders' agreements are all about fair dealing and codifying the nature of your relationships and potential business interactions with one another. They'll cover all sorts of different scenarios that go well beyond buy-sell provisions. Here's a very thorough sample from the ABA [0] for a closely-held corporation. Your attorney would work with you to tailor an agreement to your needs, obviously.
In the end, you're just buying out their equity in the company at the time of the sale. Nobody really comes out "ahead." But because nobody really knows how they could arrive at that situation, it's important to ensure that your likely contingencies are covered and that the actual process is clearly defined. For instance, you want to make damned certain that someone can't come back for a second bite at the apple after the fact. Even if their claim is specious, it will still derail a deal.
I have seen my fair share of co-founder disagreements, and I have issues with several parts of Sam's comments:
Even if Jeremy had signed a stock agreement, he wouldn’t have reached the standard 1-year cliff for founders to vest any equity
Sam, are you recommending that co-founders with no salary be subject to a 1-year cliff? I have always argued that it's a bad idea, and today's case is the perfect example: if someone who is not paid leaves before 1 year, they receive absolutely nothing for their work. That's not right. I'm fine with a 1-year cliff for early employees who get a salary (see FAQ section of http://foundrs.com)
To play devil's advocate, you need to hear both sides of that story. Of course one month is not much time. But if I'm the one who said the one magic sentence that made Elon Musk fall in love with Mars and told him how to get there, and I can truly claim that without me, SpaceX wouldn't exist, do I deserve something? Hard to tell. By default, if two people start working on something, they are partners, 50/50. That wouldn't be right either, but maybe the truth is not a 100/0 split.
EDIT: after having read the legal complaint, it sounds like that person was not an original co-founder, but someone who had some discussions after the startup was incorporated. The only "oops" moment is having listed him as a co-founder on YC's application. You can imagine the scene in the courtroom: "did you or did you not list Mr X as a co-founder in the company's YC application? If so, are you lying to us now when you say he is not a co-founder or were you lying then?"
Did anyone else read the linked complaint that was filed with the court? What I found interesting is it spends seven pages essentially painting the guy as a villain and claiming he had nothing to do with anything the company did then in prayer for relief it says they are worried he is going to take Cruise's trade secrets and use them in his own venture.
How can anyone claim that someone simultaneously had no involvement in your business and yet you are worried they have knowledge of and are going to use your trade secrets?
The whole complaint is very light on specific facts and contains a good dose of ad hominem language assailing the defendants character w/o alleging any specific actions taken by the guy to support the claim. It also alleges that the guy is interfering in the acquisition but doesn't specify how.
It seems like there is more to this story, unless they just managed to hire the world's worst lawyer.
As a repeat solo founder and bootstrapper, I have an intense desire to spend the maximum amount of time satisifying my customers by helping them solve their problems. Sure, this approach often leaves a bundle on the table, but so what; lots of us just want to accomplish a lot and have fun building stuff and helping others, regardless of the payback.
I'm so glad I chose this way when I read stuff like this:
...long and sordid history...
...should own a substantial amount of Cruise’s equity...
...interfering with the pending Cruise/GM merger...
...offering to give Jeremy a lot of his own money...
...avoid a protracted litigation...
...worked incredibly hard to settle this claim amicably...
...obvious ridiculousness of it...
...incredible bummer these situations have to happen...
...least sensible professional situations...
...unfortunately these situations are not uncommon...
...I place myself at risk talking about this...
...say something before the lawyers can stop me...
Soliciting the levels of financial investment needed for Cruise to be successful would be difficult if the founders expressed the same sentiment, that they're trying to solve a problem regardless of the payback.
I don't think any business is immune to legal trouble. I sincerely hope you don't experience any yourself (ever), but if you do you may find yourself using similar language.
Knowing absolutely nothing about this case, and assuming Sam is 100% right, I think it is a bit unfair for Sam to use his huge PR advantage. Obviously, it's just business, and it's good to see Sam and YC putting their considerable PR weight behind one of their companies, but it's also problematic, especially at this point in time, where it doesn't seem like the other side has done any PR (otherwise this move is perfectly understandable). Maybe Jeremy will withdraw his claim? Maybe he'll take the next settlement offer? Maybe he's an opportunist, but maybe he truly feels he's been unjustly harmed (and maybe both)? And maybe he's just so angry with himself for dropping out that he just can't let it go? Is it really necessary to air this in public, possibly destroying a person's reputation, when you might well win anyway (and it is unlikely that this post would change the outcome one way or the other)? Or is it just a form of deterrence to others?
It does feel a little unfair; I have a huge advantage, no doubt.
I basically tried every other method I knew of, even encouraging Kyle to file the suit under seal to keep it private as long as possible. When the guy stopped talking to me, and to Kyle, and to Ron, and Cruise need to proceed with the lawsuit so that they could close the merger, I felt out of options. Today they lifted the seal on the suit.
And, I think it's time people talk about these things publicly. They are a rising undercurrent, but I would have preferred to talk about them in the general case.
OK, but I still don't understand what it is that you're trying to achieve with this particular post. Social pressure on Jeremy to settle? Deterrence to others? Is there a strategy here or just an expression of frustration (which is absolutely legitimate, but would be better served by a less official position)?
This is YCombinator's largest exit ever. Sam seems to be asking for the support of the crowd, both against Jeremy, and in support of the acquisition with GM.
It makes sense, but it's also airing their dirty laundry. It comes across as a bit embarassing that some of the top advisors, investors, and lawyers in Silicon Valley allowed this potential deal-breaker through their due diligence process. It sounds like if it was dealt with at the Seed or Series A stage, this ex-founder would have left on much simpler terms.
> > I think it's time people talk about these things publicly
The strategy is deterrence. This is similar to how the justice system "makes an example" out of certain cases by pressing extremely harsh penalties. So while this effects Jeremy negatively, he is not the target here.
Deterrence. Ok, what exactly is the behavior to be deterred here? Working with sama? Or ycombinator in general? That's what I get from this ill-advised post, at least...
Unfortunately the company and its investors didn't clear this situation years ago with a release document, and then GM didn't do their complete due diligence, so the defendant now can drag his heels until the case(s) get resolved.
The GM deal hasn't closed yet so wouldn't due diligence on their part still be underway? It's not GMs fault... It's the lawyers, advisors, and investors who didn't step in until now, and the founder for not realizing this could become an issue.
The reality is likely more complex than we understand it but "deterrence to others" is the greatest value gained here. Assuming what's written is more or less close to the truth Jeremy is an opportunist and a bully. It seems important that people like that shouldn't be allowed to interfere with legitimate business through baseless legal accusations without consequence.
I'd feel better if the matter was resolved in a more controlled objective and less personal way. That being said it does appear that trying to extort money from someone through legal harassment is a pretty safe play in terms of personal risk which doesn't seem right to me.
I think we'd be much better off culturally if litigious behavior were not as acceptable as I perceive it to be.
"Assuming what's written [by one party in a dispute, in this case the most powerful] is more or less close to the truth," especially when huge piles of money are at stake, is a terrible way to settle disagreements, or to find out the truth. Whoever is right in this thing -- I don't know anyone involved, and don't really care who wins -- this is an aggressive, preemptive PR move by sama.
Says you. The site's guidelines/FAQ don't give any instruction on their use, and the founder of the site has stated on multiple occasions that he agrees with downvoting to disagree (example: https://news.ycombinator.com/item?id=117171)
(Maybe your way is better, but persuade the mods of that and get the guidelines changed, don't just tell people your way is the way they should be doing it anyway.)
That's pretty strong langauge ("don't just tell people your way is the way"), based on some comment by pg that happened almost ten years ago. The fact is many websites that have down-voting, for example reddit, have issues with users using it for disagreement when it should be primarily used to move comments down that don't help the discussions, or involve rudeness - kind of like your attack.
Note the exact quote: "I think it's ok to use the up and down arrows to express agreement. Obviously the uparrows aren't only for applauding politeness, so it seems reasonable that the downarrows aren't only for booing rudeness." (pg)
It appears to imply that the intention is actually for booing rudeness, but, in order to be symmetrical with agreement, it's not only for that. At least this seems to be pg's intention eight years ago, maybe we can grow beyond that. For example, I've seen plenty of down-voting when people are trying to be funny, and the mod telling this people off, because this is not reddit. It all points to wanting a constructive debate, which doesn't work if everybody just agrees.
Maybe I'm just not being sensitive enough, but I don't read my previous comment as being an "attack", nor even rude (maybe a little blunt).
I was (attempting to) point out that a policy such as "don't downvote comments just because you disagree" can only work if either the entire community agrees, or if the people who run the community dictate it. Here on HN, neither of those is the case, therefore while we're all free to follow that guidance if we prefer, posting a comment asking other people to do it isn't going to change much.
Downvoting isn't clearly defined. It is in the eyes of the beholder. A good trigger though is being negative against any of the HN legacies without the appropriate deference.
It's going to be amusing if GM realizes that Cruise doesn't have much technology and bails on the deal. GM/CMU has successfully demonstrated a Cadillac driving around Washington DC in traffic.[1] Cruise crashed into a parked car in San Francisco.[2]
As someone who used to build the kind of R&D technology that you pointed to at CMU, it is VASTLY different from what Cruise is doing, being so close to customer deployments. In fact, this was brilliant on GM's part, they short-circuited a lot of work trying to convert their fractured list of R&D projects into actual products.
P.S: I'd be worried if there WEREN'T crashes on your record if you're building an autonomous car for me. How much testing did you do?
While I also think that the GM/Cruise acquisition is terrible, it should be noted that the linked accident occurred during "Conventional" mode and not "Autonomous" mode.
Read the report. The automation swerved to the left, then to the right, then the driver took over, but too late. Yes, the vehicle was on manual at the point of the crash.
I refer to this as the "deadly valley". Autonomous vehicles cannot rely on the driver as an immediate backup. This is what happens if a system does that.
Finding a cofounder is often like dating. You sometimes need to "date" a few people before you find a "girl/boyfriend" (aka cofounder). It's too early for contracts or equity splits at this point, which results in enough ambiguity later on that these issue can arise.
I hate the formality of contracts, but is there any good procedure early on for avoiding this in the future? It seems every billion dollar company has a "secret" cofounder that shows up when the money does. I know I've definitely shared ideas and even code with friends, long before my startup became an incorporated startup.
I'd feel silly and presumptuous if I started handing out contracts, of course. Maybe something more along the lines of the YC handshake protocol, as opposed to a formal contract? Does it legally matter if you say "Hey, just wanted to acknowledge we talked a lot about this, and wanted to make sure you were okay with [terms]" and record the response?
I hate the formality of contracts, but is there any good procedure early on for avoiding this in the future? It seems every billion dollar company has a "secret" cofounder that shows up when the money does.
Yes get a lawyer involved at the beginning to draw up a partnership agreement with standard vesting terms.
Outside of that no.
All that being said its a slippery slope for every guy "who helped find an office" there's a guy who "prototyped our mobile app" or "wrote the first version of our backend". Its very hard to pick the point where someone becomes a founder.
It's not about being a founder. It's about creating value. The value creation around finding an office might be 2-5k depending on the area. The value creation around prototyping a mobile application is massively different.
The University of Waterloo has provided some free legal documents for this case: "IP Assignment - Potential Collaborator" and "IP Assignment - Joint Venture". They have been crafted for Canadian law, so see a lawyer before using them in other jurisdictions.
It seems like it was more than an idea, a joint application was submitted and Jeremy delivered (and possibly financed) the company's first office, according to the article.
The big issue I have with this story is the foundation on which Sam's claims about Jeremy's claim sit:
>In my opinion, Jeremy’s claim is completely baseless and opportunistic—it obviously comes at a bad time for the company with the merger still pending, and Kyle understandably wanted to avoid a protracted litigation.
That a founder doesn't want to argue facts in court, or that an investor thinks it is obvious such a claim would come at a bad time for the company, do not have any bearing on the veracity or pertinence of Jeremy's claim. Yet, this is what the blog post states.
I disagree. The baseless part is because Sam doesn't think that finding an office space and potentially filling out a YC application being worth value especially since the shares would be somewhat vested after 1 year of work. The opportunistic part comes because of the timing; he was either looking to put the max strain on cruise to get his payout or it was simply odd timing. I would say that it's more likely that it was opportunistic timing to force their hand.
I don't think it's common for a company to buy another company with pending litigation over ownership of ideas. At the very least, left unresolved, it would devalue the company by some factor. It has the underpinnings of a shakedown in my eyes. I'd like to hear the other side of the story but I can see this type of situation happening fairly frequently.
I haven't seen the application, so I can only speculate that it may contain language that acknowledges Jeremy as an owner of the company. The shares wouldn't vest as a result of acceptance into YC, but would have already been Jeremy's by right of his prior founding of the company that applied to YC. Acceptance into YC would have nothing to do with Jeremy owning shares in Cruise.
It may very well be a shakedown, but the blog post admits that there was a prior Cruise relationship with Jeremy and that he performed actual work; the article stops short of claiming that Jeremy contributed no funds to the company -- which you'd think would be a point that would be harped upon, especially given the bombastic language used in the preemptive legal filing being discussed. I don't know all of the facts in this case, so, it will be interesting to see what Jeremy says, if he responds.
You can look at what the YC app entails if you click on apply at the bottom of most HN pages. If they filed it together there is definitely talk about equity and ownership of the company among founders. founder required to have at least 10% ownership. IANAL so I don't know how binding applying to an incubator is if you don't have a partnership agreement filled out prior to the application. Without it in writing explicitly it's very gray. I imagine it's not as cut and dry as it seems; especially with legal definitions and practices sometimes going against common sense.
I'm not sure about whether the YC documents become binding on the ownership of the company, but it would indicate that YC has had knowledge of another owner for awhile.
Yeah, I doubt it becomes binding but it could show evidence of intent in the case of undocumented partnerships like it seems they were before incorporating. A valid partnership can be formed without paperwork(though things like this can happen without proper contracts in place).
Contracts will not prevent people from using leverage that they have or being opportunistic. It's helpful for sure (just like locks on your house are). [1]
[1] This comes from experience in business (traditional business) for more years than for example SAMA has been alive with a wide variety of characters.
I wonder if something even better is possible, for the common case of mixing ideas/work for a brief exploratory period, but then deciding to go separate ways (for any of hundreds of reasons).
It'd be something that's short and works for early, barely-formal collaborations, that may never form a company. It'd end cleanly – protecting either side – as soon as other more formal contracts/entities are put into place.
It'd probably include a mutual non-disclosure aspect, but the heart of it would be:
* either party has discretion to end the temporary collaboration
* each party has an irrevocable right to further develop/exploit any ideas/plans/proposals that can be shown to have been created during the collaboration period
* granting each other that right is the full and only compensation due each other for the collaboration, in the absence of other superceding written agreements regarding stock, employment, compensation, patents, etc.
Taking the current case as an example, the former collaborator (Guillory) would have the right to independently develop/license/etc anything shown to have been part of the original discussions. (That is, the content of those discussions – not refinements/extensions added later.)
But, after either side having clearly said good-bye, there'd be no further claims on equity/licensing-fees/later-developments.
Every lawyer in Silicon Valley knows the biggest threat to your startup is your co-founder. Not VC's. Not competitors. Not Copy Cats. Not Google or FB. It's your co-founder! If you don't want to believe that, read the countless stories and lawsuits in SV about co-founder disputes.
Stories like this should give you the confidence you need to be a solo founder. Start solo & hire your co-founders after you get your paperwork done. It's not about equity or greed. It's about starting smart & protecting your investment.
I can't believe he made a public statement either. If you want a baseless lawsuit to go away quickly, you do not give the opposition ammunition (which is what this public statement is). The lawsuit sounds like bullshit to me but I can see this statement costing Cruise a lot of money.
Honestly I believe it would've taken minimal effort to obfuscate the players and turn it into a venting / warning regarding best practices in the industry, and, in some ways, perhaps have been more constructive.
"I recognize that I place myself at risk talking about this, but it’s time that someone speaks publicly about situations like what is happening at Cruise. And so I’ve decided to say something before the lawyers can stop me."
I don't understand. What is the great risk to @sama here? For all intents and purposes, this looks like a public naming-and-shaming of a previously unknown person by a prominent VC because they made a legal claim against an investment.
> Even if Jeremy had signed a stock agreement, he wouldn’t have reached the standard 1-year cliff for founders to vest any equity.
How is someone not fulfilling hypothetical terms of an agreement that doesn't exist an argument that they don't have a claim? "Furthermore, had they signed an agreement stating that they wouldn't get compensation, they wouldn't get compensation. Therefore, they shouldn't get compensation."
I don't think that is true. Intellectual property has value associated with it, and if it hasn't been transferred/compensated then they have some implied ownership.
Specific clauses of a vesting agreement, however, are not implied or 'owed' by default.
That's not true because every standard employee agreement in VC backed companies (and in most other ones) also contains an IP assignment. So if you're going to claim that you would have signed a hypothetical employee agreement, it also would have come with a hypothetical IP assignment.
One of my friends knows someone at Cruise, and he was incredulous about the deal. He believes that most of the $1B will be related to hitting milestones in the future, and isn't just straight cash or equity up front. Does anyone know anything about this?
He basically said they don't have a working product, they have a prototype that works on one specific model, so the idea that this would garner $1B is insane unless there's some earnouts associated with it.
I guess it will be in GM's financial statements so I'll be on the lookout for that.
I'm gonna get a lot of hate for this opinion of mine:
This seems like a great way to muddy the waters for any potential future jury trial.
What a shameful move on the part of Sam Altman, using such a soapbox to publicly put somebody's personal ethics on trial, and for personal monetary gain.
These terms have legal meaning, and the deal is probably structured as a merger. Since GM is so much larger than Cruise, I would speculate that they're forming a new wholly-owned subsidiary that Cruise is merging into, or some other sort of triangular merger.
An investor who also has at the very least a strong personal motivation in proving that SV and YC are capable of creating value in "hard tech": http://blog.samaltman.com/hard-tech-is-back
> And so I’ve decided to say something before the lawyers can stop me.
I hate when people say things like this. Maybe he meant that other people's lawyers will prevent him from saying something, but often people are referring to their own lawyers. Your lawyer can't stop you from doing anything. Your lawyer can only encourage you to not say anything which might damage your case. And people often take that advice in the interest of self-preservation or greed or damage control instead of speaking candidly. They then blame the lawyers as if the lawyers are the reason they can't talk.
It sounds like Jeremy was part of the company before any of these 'vesting schedules' were agreed upon. It would be nice to read Jeremy's side of the story.
It's strange that somebody as wealthy as Kyle (who sold Twitch for $1 billion) would make such a fuss over what is probably only a couple of millions... It would be interesting to know exactly how 'extremely generous' his settlement offer was.
Also it's really strange/suspicious that the founder of Cruise would put himself on a vesting schedule... Is this common practice?
Kindof off topic, but I find it odd that they are referring to Cruise/GM as a merger. GM is a behemoth compared to Cruise. Isn't that more of an acquisition? Is merger a legal term? If so, can anyone clarify why this is a merger and not an acquisition?
The terms are usually used interchangeably. If it's an actual merger, then they'd be merging with a GM subsidiary and not GM itself. Most public companies like GM (most companies in general, even) have a number of subsidiary companies for various reasons, such as asset protection or other financial considerations. GM's subsidiaries are listed on their 10-K filing with the SEC [0].
Sometimes, there might be a specific reason for structuring a deal as a merger rather than an outright acquisition. It could help a company get around a minority shareholder who would otherwise kill a deal if there's no drag-along provision in their shareholders' agreement, for example. But that's unlikely to be the case here.
Wow, this is incredible transparency on YC's part, and an interesting tactical decision naming names. I assume this post went by several of YC's lawyers.
EDIT: Had asked about Jeremy's complaint; see sama's comment below
As far as I know he hasn't filed a complaint yet, it's just been verbal/emails (which is still more than enough to interfere). I assume he will file something soon.
RE naming names, the complain is public anyway, but still it's not something I feel great about. However, behavior like this is becoming more common (I spend far more time dealing with related issues than I'd like) and it needs to stop.
If you want some horror stories, go find a CPA that works with primarily small businesses.
You will hear about the families fighting or deadweight partners that bring the company down and force it to close shop. Choosing who to go into business with is one of the most scary things when starting something new.
If you find a good solution to reduce the rate of this happening, please share! It is a huge problem and a major barrier to why many businesses are never started or die a premature death. People are inherently unstable and difficult.
Realistically there's a 0.0% chance this sort of thing is going to stop. Not when there's a ton of money on the table.
Which makes being so public about this particular dispute pointless and ultimately damaging to YC's reputation. This post was a mistake and it won't help anything.
If you are thinking that the lawyers wouldn't want you to say something you probably should have not barged ahead and become public with this type of situation. What do you expect will happen exactly? That the "aggrieved" party will read it and have a change of heart?
As a naive entrepreneur I allowed someone to become involved with my business and quickly discovered they were not the right person to work with. Their behaviour became a concern and I had to sacrifice millions of dollars to prevent the destruction of what I have worked for. By taking an acquisition offer in an effort to remove them from a position of control I lost a lot and they made a lot. I deeply sympathise with the decision Kyle made to offer Jeremy his own money to end this. I have many regrets about involving that person in my business but to this day I do believe that the decision to allow them to walk away with a lot (of undeserved money) was the right one. The business lives on.
The person on the wrong side of my experience went on to deceive many other people and has left a trail of negative experience behind them, even using their involvement in my business to help deceive. I take comfort in knowing that my business survived their involvement and regardless of how they profited from my work they will likely never find honest success.
"I’ve decided to say something before the lawyers can stop me."
Is this really a smart decision that the HN community should model? To view your friend's lawyers in a multi-million $ lawsuit as obstacles that should be routed around?
Posting to the HN community about this seems like an emotionally-driven decision. With so much at stake, wouldn't it be better to (a) follow your lawyer's advice and (b) do a post-mortem on it after the acquisition closes?
Here is how understand what I was told regarding these kind of problems.
- When acquisition happens, then acquirer will do due diligence. They will want that all people which were involved in the development without the contract to sign a waiver / transfer IP.
- If people involvement in the development were working for free and there were not contract, then, by default, they are eligible for part of equity.
In short if co-founder leaves and was not paid you must ask him to sign waiver / transfer of IP (not sure exactly what: ask your lawyer - then can craft that). I believe the key here is whether is that person was compensated or not.
Can't see any mention of what Jeremy did for Cruise apart from help find an office, he must of done something else? Would like to hear the other side of the story tbh.
Wondering if the risk Jeremy posed was identified in the duedil at any stage for previous rounds, and if the risk was identified if it was used as leverage for lower valuation at all, or if it was not identified or underestimated. Would of thought seasoned investors would of wanted to snub out any future issues like this before handing large amounts of money over.
We don't know what made Jeremy leave the company and how he helped before YC.
If this is a case Jeremy was present at incorporation, he contributed to the product (in some way) and his shares were eventually diluted, this will be similar to Saverin's case.
So the claims in this case are based upon the fact that they made the YC video application together and clearly mentioned in the YC application on what each cofounder's contribution was ?
Hmm...this is very tricky. Because I'm very sure they attributed some concrete work to each founder . in fact if i remember correctly, they ask how much code each cofounder wrote.
As a side note, having read the actual court filing, this kind of language in legal complaints always rubs me the wrong way:
1. This case arises out of Defendant’s opportunistic and brazen attempts to extort money from Cruise and Mr. Vogt. As alleged below, after mutually parting ways with Mr. Vogt over two years ago, Mr. Guillory emerged from the shadows with his hand out within days of the March 11, 2016 news that General Motors Company (“GM”) intends to acquire Cruise. As explained below, Mr. Guillory should put his hand back into his pocket; he does not have any stake in the Company.
2. Defendant’s shocking and opportunistic claim is an attempt to thwart, interfere or otherwise delay GM’s merger acquisition of Cruise for his own pecuniary benefit. Knowing that his claim could interfere with the GM transaction, Mr. Guillory hopes to leverage his extortionist claims to achieve a pay-off from the Company. Declaratory relief is therefore necessary to remove potential uncertainty regarding equity ownership, partnership interests, intellectual property and trade secrets of the Company...
Given that such inflammatory language will have no positive effect on the judge, and if anything distracts from the actual precise legal arguments, it seems calculated entirely for the attention of the press and/or general public.
I have no opinion on the merits of this one obviously, but in my experience, when you see a complaint with language of that kind it's often a sign that there's more to the story.
To that point, the fourth cause of action is regarding "Trade Secrets" in the possession of the Defendant and states that "Plaintiffs have reason to be concerned that Defendant may attempt to use such trade secrets in his further endeavors"
Which does prompt a question of how a person who never had any involvement in the company and its technology came to be in possession of its trade secrets.
In fairness, it's certainly plausible that its basis is solely in claims made by the Defendant, and not meant to imply there is any actual IP in his possession.
Or, it could mean that during the acquisition his early role came to light and he was asked to sign away any potential IP by the acquiring company and declined to do so without compensation, since he might want to do a similar project in the future. Did he reach out when he heard the news, or did the company reach out to him during acquisition due diligence?
That's complete speculation, but we have no choice but to guess, since unlike a typical complaint to commence a legal action, this particular one doesn't contain an affidavit or make any attempt to establish an underlying factual record at all.
Instead of saying he "emerged with his hand out" it could state "contacted X via email asking for Y on Date Z" in the style of an actual legal argument rather than of a press release. Rather than referencing "baseless allegations" and "shocking and opportunistic claim" it could just state the claims he made.
So, what shocking thing did he say? What is his stated rationale for compensation? On what date is there the first written evidence that he's making a claim of equity? Why aren't there any exhibits attached? Why aren't there any quotes from the emails he sent?
The exuberant language used is totally normal and common for this kind of legal filing.
This is a (fairly common) example of where HN and legal matters don't mix - HN is awesome because lots of really smart people can exchange ideas based on logic and reason.
But legal matters (like this) come down to custom & practice and precedent -- all of which are facts that have to be learned not derived from logic.
Logically you are totally right that a judge isnt going to be swayed by such verbiage but that's how injunctive relief/etc is played out in court papers.
> The exuberant language used is totally normal and common for this kind of legal filing. ... a judge isnt going to be swayed by such verbiage but that's how injunctive relief/etc is played out in court papers.
Lawyer here (former litigator and current arbitrator). It's actually just the opposite: People who work in the judicial system have heard it all before, and so inflammatory adjectives and adverbs usually impress approximately no one, except in a negative way.
A good brief writer will lay out the facts so as to tell the story in a sober, NPV way that leads the reader to the desired conclusion, without histrionics. As Prof. James McElhaney, one of the all-time great teachers of persuasive legal writing, put it: [1]
<quote>
Facts, not opinions, are what convince the reader. When you start interpreting the facts—characterizing what people said and did—you’ve stopped guiding your reader through the thicket of the lawsuit. Instead, you’ve popped out the legs on your traveling sales case, hung up the sign on the front of the case and wound up a dozen or so of your little walking dolls, hoping sales will be brisk.
But you don’t want to be the street corner huckster; you want to be the guide your reader can trust. So be careful about every sentence you write.
Understate rather than overstate. Better yet, don’t evaluate at all. Let your reader do it for you.
Avoiding characterization is one of the keys to good editing. When you go back over what you’ve written, cross out every modifier—every adjective and adverb—you can. It’s surprising how words that were meant to lend strength to your message actually get in the way.
Nouns and verbs are the gut-stuff of a good story. Adjectives and adverbs are often discounted as the paid-for feelings of a professional advocate.
IANAL, but I read a lot of litigation documents, and I think you're right. The quoted part reads more like a tabloid piece than a proper, professional laying out of facts.
as u/dotBen has said, this type of language is common in court filings. Put differently, although it seems abnormal to read this type of language for us, it would be abnormal for a judge to not read this kind of language in a legal complaint.
It's not the way I wish the world operated. However, it looks like they have legal counsel that will do what's required to win.
I've seen that sort of language in general in legal filings. Do you have professional experience here that this is unusual?
(To be clear, I have no professional experience, and I also find that style weird personally, but I have no idea if it's well-accepted in context, and it may well be.)
From the filing it looks like they only collaborated for one month. Assuming that's true - it's a pretty offensive shakedown. It sounds like Kyle tried to offer some portion of the proceeds to make it go away but it was declined. Out of curiosity how much was he asking for?
Also in what form did the claim take- Did Jeremy hire lawyers to write a demand letter? Why isn't that in the filing? DOes Jeremy have a lawyer or was he just talking.
Further, isn't there a way to close on the merger given the specious nature of the claim and just ignore the claim and this whole thing? I mean- they knew each other a month.
Obviously I don't have the full context, but I don't see the benefit of an open discussion on this legal issue. It's just going to have to work its way through the legal process.
The more money the higher the stakes. There was a founder that left under potentially unfavorable conditions? Then they definitely should have done their due diligence before going forward on a mega, billion dollar deal.
This has nothing to do with silicon valley. These guys can learn something from the way investment banks prepare and close deals. Get all of your ducks in a row before putting that much money on the table.
> According to Kyle, Jeremy did not write any code or build any hardware during this exploratory period.
He'd better be 100% right about this. I imagine it wouldn't look good for Kyle if it comes out that Jeremy wrote some code, no matter how insignificant. Because if 'no code written' = no equity, 'some code written' could turn out to be a gateway to having some equity.
My spidey-sense for business works like this (probably wrongly); as a geek I assume it's normal for investors to screw me over if I haven't done due diligence of contracts and also for every single former employee to come back if there is a chance for a pay day.
It's sad but I don't find it that surprising; I'm surprised we don't hear about this more.
This shouldn't hold up the deal. GM can write in the agreement that Cruise shareholders have an unresolved potential obligation which they will cover with proceeds.
I had to deal with this at a previous company and it in no way blocked or slowed down the sale. Just a pain in the ass and something that is unfortunately too common.
You can never be too careful with starting your business.
The sheer amount of misinformation in this thread is astounding.
He wrote no code, literally did not prototype anything, contributed nothing.
Self driving cars take 100s of moving pieces and complex algorithms. You can literally just check the github repo to see who has contributed what. There is no one IDEA that is the silver bullet. Its an entire system working together.
Obviously I can't say much as most is hearsay (though I do believe what I've heard), but the one part of this story that irks me the most is that this all started when Jeremy (allegedly) drunk at a party, bragged to Cruise's counsel that he could stall the GM deal if he really wanted to. Can't believe its actually come to this.
I feel for the engineers there. All their hard work, and likely they will have to lose a large portion of their shares due to indemnity clawbacks when the deal goes through.
Sure, but Sam Altman is biased here. He is a share holder and has a lot to gain from the merger going through, and not being delayed or derailed. So it's hard to read this as if it were neutral, which is how he is presenting it.
Looks like that Jeremy guy is gonna have some splainin' to do in his next job interview. Pretty sure other startups won't want to touch him with a 10' pole, regardless of the veracity of the allegations made.
I have no idea who's "right" here, but the idea that someone should have job prospects harmed for trying to get something that he believes is deserved is disgusting.
>regardless of the veracity of the allegations made.
So, even if he is actually entitled to the equity, he should be punished for making the claim? What the hell...
I agree there's another side to this, but yes, someone who believes in something awful (if that turns out to be the case) should be evaluated for doing so.
If you put these 700k in Vanguard, you could get ~3.21% per year forever. That works out to 22k$/year. Perhaps it's below poverty line in US, but for some countries that could be upper part of middle-class income.
Jeremy deserves nothing in principle. You cannot ask for millions of dollars of someone's hard work when you have barely put in 1 month of effort. A billion dollar exit requires a lot of hard work and execution. Even if the core idea was Jeremy's, ideas are dime a dozen. Heck, several billion dollar ideas popup in my brain every day. Building on that idea and getting it to market is where the value is. I have no sympathy for Jeremy. He is an opportunist. And Sam is 100% correct.
This made me smile, maybe the future isn't so grim. I hope this doesn't end with an undue amount of fallout for sama such that he's discouraged from doing something like this again should the situation require.
Seems like there should be some kind of project before company type of agreement. Kind of like "modeling agreements" photographers get you to sign before taking your picture.
There is no value in making this public. It is going to be decided by a judge, arbiter, or parties themselves. Public opinion has no say in that matter.
Nobody should ever find themselves in a situation like this. Unfortunately, it's altogether too common even when everybody involved is acting in good faith. I can say from experience that if things ever get to the point they did with Cruise, everybody involved has made a series of blunders.
I've been on the other side (sort of; the situations aren't analogous) as someone pushed out by two other non-technical founders after they'd discovered a cheaper option in a startup-in-a-box (best description I can come up with). I wrote about this on here a year or two ago, but there's nothing like discovering that on the day your grandmother dies, and having to deal with their bullshit while focused on her funeral.
I didn't pursue the matter for a number of reasons (one of the two was a lawyer with sufficient resources to draw out any dispute, etc.), but as angry as I was at them for their actions, I realize that had I been more proactive, the entire situation could have been avoided. Instead of accepting repeated excuses and prevarications like "we'll deal with the legal documents soon, just after X" because the one was a good friend, I should have pushed to get everything out of the way first. I knew better, and I ignored my better judgment for what was largely emotional reasons. In hindsight when I look at how things went down in the end, and I look at the events leading up to it, I'm of the opinion that I was going to be be screwed no matter what. But I suppose that I got the last laugh, as they didn't get a line of code I wrote and they've more or less stagnated since a launch that few noticed and fewer cared about. They might not be dead, figuratively speaking, but they're certainly on life support.
Good contracts that are highly specific might seem insulting to some people (they're not), or they might seem like an unnecessary delay, but they're incredibly important even when everything goes right. They spell out duties and roles, and make absolutely certain that everyone is on the same page with no confusion or misunderstandings so that you can focus on building things without any uncertainty.
Basically, pay the lawyers and get things done right from the beginning. You don't have to go to a large firm and pay out $500/hr for this sort of work. There are plenty of small, solo practitioners who focus on business formation. When circumstances change, or you learn more about the business's nature and the risks you need to mitigate, you can always amend or replace your agreements at a later date.
We usually don't think in these terms, but getting involved in a startup without contracts in place is akin to writing complex code without tests. You can do it, but you're making a huge mistake that'll bite you in all sorts of unexpected ways.
"Mr. Guillory emerged from the shadows with his hand out within days of the March 11, 2016 news that General Motors Company (“GM”) intends to acquire Cruise. As explained below, Mr. Guillory should put his hand back into his pocket; he does not have any stake in the Company."
Maybe Jeremy could go build his own company. There's plenty of wealth to create, you don't have to take.
> a lot of strategy and insight can be transferred in a month
Not just that, a fair amount of work can be done in a month (bearing in mind that '1 month' is probably a rounding down).
It sounds as if Cruise has gone from being worth very little to an awful lot in around 24 months.
Going through something similar with a pseudo ex-cofounder. He has been behaving extraordinarily passive aggressive.
For a long time, he hasn't been picking up phone calls, responding to emails, or completing tasks that he agreed to do. Sometimes he'll send a text, like seven days later, asking for a clarification on a requested-task that has now already been completed.
Things are finally starting to pick up. I don't know what to do. Technically he owns 50% of the "venture" but it's not like we've issued stock, etc. Things are hairy.
Its too late for you now, but one thing that gets specified up front sometimes is a "roulette clause". More or less, either party can make an offer to buy the second party out at any price they like. The second party must either accept the offer, or buy the first party out at the same price.
Its one way to avoid the deadlock situation where one founder mentally checks out, offers no value, but refuses to be bought out at any reasonable price.
Is this a common thing? Never heard it before, it is very clever though.
How would you prevent a founder from bluffing though? Say founder B knows that founder A only has $X, so he offers to buy it for $X + some number. Makes it hard for founder A to keep any ownership of his company without taking out an expensive loan and paying way more than the company is worth.
An option is to try and make them a not-so-psuedo ex-cofounder. An amicable way to do this is to 'simply' try to buy them out - make an offer.
Their actions show they're either unwilling or unable (due to other commitments?) to keep doing the hard work of being a founder, no matter how much they might still like the idea of being a founder.
If you're lucky, they're aware of this, or can be made aware of this. Maybe they've only been sticking around out of a conflicted sense of obligation. "I can't just leave them in the lurch!" (nevermind that's exactly what they're doing by their actions, good intentions be damned.)
A buyout offers them an out.
If you're unlucky, at worst they'll probably want more money.
Talk to lawyer, they will have suggestions. A buyout seems a plausible outcome.
My previous company with two 50% cofounders had a provision, where in case of an unresolvable disagreement both parties would make a blind offer to buy out the other party, and the higher offer wins.
Interesting! I'd always dismissed the idea of having a cofounder out of hand as "too risky", but that kind of provision would make the idea much more palatable.
And this, right here, is why this post is bad, bad, bad news. You're allowing someone to dictate your interaction with someone you've never met due to circumstances with which you're not involved based on a single-sided narrative and public record.
That'd be bad enough, but then you're taking it further and telling the rest of us to blackball a person as a forum. A person. With a career.
Do you not see how absolutely crazy that is? I won't invoke his name because it's passé, but that shit happened in Congress once, and it didn't go well.
Second this. This post from sama was very bad idea. It came across nothing more than vindictive and publicly shaming Jeremy because of sama's personal interest in seeing deal through.
If there was any incentive for Jeremy to quietly settling the issue, this post just took it away. Now he should go for jugular- half of Kyle stake and then turn around and sue sama for defamation and crimping his ability work in SV in the future.
If you look at the facts, it seems obvious that Jeremy is entitled to some compensation. He worked for the company for 1 month, without compensation. That would automatically entitle him to equity in the company. Now, they could have (and should have) signed a stock agreement with a cliff in it, but the did not. The cliff only exists if they agree to it.
I have no idea what Jeremy is asking for, but it seems like he should absolutely be entitled to some equity. He never agreed to give up the equity he earned from working on it for a month.
I suppose this underscores the importance of having legal agreements with anyone who works on your company, especially anyone you jointly apply to programs with.