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).
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?
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.
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.
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.
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?
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?
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.
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.
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).
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.
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.
> 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)
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.
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?
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.
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.
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.
> 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.
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.
>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.
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.
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...
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'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]
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?
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 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.
[+] [-] morgante|10 years ago|reply
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.
[+] [-] cookiecaper|10 years ago|reply
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).
[+] [-] flyosity|10 years ago|reply
[+] [-] codingdave|10 years ago|reply
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.
[+] [-] xigency|10 years ago|reply
[+] [-] davros|10 years ago|reply
[+] [-] unknown|10 years ago|reply
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[+] [-] unknown|10 years ago|reply
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[+] [-] joslin01|10 years ago|reply
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.
[+] [-] not_that_noob|10 years ago|reply
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.
[+] [-] redshirtrob|10 years ago|reply
Same here. I'm equally shocked that YC didn't notice the missing founder when the program started and ensure the proper paperwork had been handled.
I guess the lesson is that even experienced founders and investors can make really huge mistakes.
[+] [-] delinka|10 years ago|reply
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?
[+] [-] DavidWanjiru|10 years ago|reply
[+] [-] sammyneil|10 years ago|reply
[+] [-] chris11|10 years ago|reply
[+] [-] jboydyhacker|10 years ago|reply
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.
[+] [-] TAForObvReasons|10 years ago|reply
[+] [-] whazor|10 years ago|reply
[+] [-] Tarrosion|10 years ago|reply
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).
[+] [-] _sentient|10 years ago|reply
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.
[+] [-] downandout|10 years ago|reply
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.
[+] [-] ryanbrunner|10 years ago|reply
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.
[+] [-] rayiner|10 years ago|reply
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.
[+] [-] fiatmoney|10 years ago|reply
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.
https://en.wikipedia.org/wiki/Laches_(equity)
[+] [-] awakeasleep|10 years ago|reply
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.
[+] [-] nsedlet|10 years ago|reply
[+] [-] pron|10 years ago|reply
Or a result of feeling the full weight of his mistake/perceived injustice.
[+] [-] zekevermillion|10 years ago|reply
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.
[+] [-] borski|10 years ago|reply
That would have resolved this whole issue, if they had thought about it before it really became a problem, no?
[+] [-] naveenspark|10 years ago|reply
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.
[+] [-] sama|10 years ago|reply
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.
And as a takeaway--put stuff in writing!!
[+] [-] zxcvvcxz|10 years ago|reply
> 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.
[+] [-] Someone1234|10 years ago|reply
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.
[+] [-] sama|10 years ago|reply
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.
[+] [-] blazespin|10 years ago|reply
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.
[+] [-] tptacek|10 years ago|reply
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.
[+] [-] jboydyhacker|10 years ago|reply
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?
[+] [-] birken|10 years ago|reply
> 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.
[+] [-] thejaredhooper|10 years ago|reply
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.
[+] [-] doh|10 years ago|reply
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.
[+] [-] jl87|10 years ago|reply
Who are you to say what is or is not tolerated in SV?
Sam, you and YC seem like good people, but language like that makes me not want to be your fans.
It sounds very elitist.
[+] [-] alain94040|10 years ago|reply
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?"
[+] [-] pmorici|10 years ago|reply
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.
[+] [-] edw519|10 years ago|reply
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...
...such behavior not be tolerated...
...personally involved all day on Friday...
...time pressure because of the pending merger...
[+] [-] pron|10 years ago|reply
[+] [-] Animats|10 years ago|reply
[1] http://www.cmu.edu/news/stories/archives/2014/june/june24_co... [2] https://www.dmv.ca.gov/portal/wcm/connect/bc21ef62-6e7c-4049...
[+] [-] gkoberger|10 years ago|reply
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?
[+] [-] damonpace|10 years ago|reply
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.
[+] [-] 6stringmerc|10 years ago|reply
Note to self to etch into brain: Do not emulate this in serious matters.
I can understand the compulsion though, no doubt.
[+] [-] chetanahuja|10 years ago|reply
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.