Cruise
blog.samaltman.com
blog.samaltman.com
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.
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).
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.
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.
Founders get real stock, not options.
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.
The owner of the tree now sells the tree. Am I now entitled to a portion of those proceeds?
(Obviously that's very different from, and much smaller than, a nontrivial equity stake.)
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.
I'm assuming that Kyle is in the wrong, because he made an offer, which could be construed as an admission that Jeremy is owed something.
> He worked for the company for 1 month, without compensation.
> That would automatically entitle him to equity in the company.
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.
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.
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.
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.
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.
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
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)
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.
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.
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?
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.
Sam admits Jeremy was part of the Cruise story:
Jeremy Guillory collaborated with Kyle ...
Obviously probably regrets that assumption now.
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 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.
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).
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.
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.
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.
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.
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.
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.
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.
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).
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.
If the question itself is distasteful, well, that's surprising to me and I clearly still have much to learn. Enlighten me?
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.)
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.
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.
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.
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?
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.
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.
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.
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.
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.
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.
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.
Or a result of feeling the full weight of his mistake/perceived injustice.
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.
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.
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.
That would have resolved this whole issue, if they had thought about it before it really became a problem, no?
The set of shitty situations is unbounded, and therefore so is the set of hindsight legal techniques to avoid them.
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.
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.
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.
VCs involved included Spark Capital, SV Angel, Felicis Ventures, Signia Venture Partners, Founder Collective, Quotidian Ventures, AME Cloud Ventures, Initialized Capital, Y Combinator, Homebrew Ventures, Maven Ventures, Zillionize, and Flight VC.
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.
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.
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.
Why would that change the calculus for an attorney considering a contingency agreement? (Honest question. I have 0 legal experience.)
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!!
> 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.
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.
In fact, it's false. The majority of cases, both criminal and civil, are settled in the US before going to trial.
That seems like a rather significant "bug not a feature," of the legal system.
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.
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.
> 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.
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.
Edit: spelling
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?
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.
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.
What a complete shit deal, all around.
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 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.
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.
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.
Edit: getting some downvotes. I'd like to hear why you think I'm wrong.
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.
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.
> 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)
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.)
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.
This. I also don't understand why he never signed a separation agreement.
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.
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.
If this action scares other people like Jeremy away from YC companies, that would be wonderful :)
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.
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.
Anyway I do believe that by this being so public it will encourage at least some founders to consider proper paperwork early on.
Provided you're on the side that stands to benefit alongside YC. I don't think this Jeremy guy is finding much value.
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.
What makes it even more funny is that these are actual Silicon Valley people. From 10,000 feet, this is a very Silicon Valley-type story.
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?"
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...
...such behavior not be tolerated...
...personally involved all day on Friday...
...time pressure because of the pending merger...
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.
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.
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.
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.
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.
I think we'd be much better off culturally if litigious behavior were not as acceptable as I perceive it to be.
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.)
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.
[1] http://www.cmu.edu/news/stories/archives/2014/june/june24_co... [2] https://www.dmv.ca.gov/portal/wcm/connect/bc21ef62-6e7c-4049...
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?
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.
Yes it was manually driven at the instant of the accident, but this sort of thing will happen ALL THE TIME during the teething years of SDCs
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?
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.
You can hire a developer to prototype many mobile apps for 2-5k.
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 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.
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.
[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.
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.
An important note when so many people criticize hiring for culture fit.
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.
Note to self to etch into brain: Do not emulate this in serious matters.
I can understand the compulsion though, no doubt.
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.
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."
Specific clauses of a vesting agreement, however, are not implied or 'owed' by default.
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.
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.
Also, as an aside, is it really a "merger"? I see it as an acquisition--one company buying the other out.
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'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?
[1]: http://www.investopedia.com/university/mergers/mergers1.asp
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.
0. https://www.gm.com/content/dam/gm/en_us/english/Group4/Inves...
EDIT: Had asked about Jeremy's complaint; see sama's comment below
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 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.
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.
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.
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?
- 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.
Am I right here?
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.
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.
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.
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?
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.
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.
</quote>
[1] http://www.abajournal.com/magazine/article/legal_writing_tha...
Sam said elsewhere in this thread that to his knowledge no actual claim exists yet. What filing are you referring to?
edit: Sam was saying that Jeremy hasn't filed anything, but the founders filed for declaratory relief.
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.
(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.)
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.
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.
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.
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.
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.
We are seeing one side of the story from an investor set to make a large sum of money with the merger.
We have no idea from here where the truth actually sits.
>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...
[1] A bird in hand is worth two in the bush must be his thinking as well.
It is in Angel investors interest that people coming out of the wood works be entitled to nothing.
A stern reminder to us all to get a release whenever you part ways.
It cuts both ways. Plenty of founders make promises of equity in the early going that never materializes.
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.
I briefly read the original post - it mentioned a month - 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.
- jeremy left after a MONTH, never went through the YC interview with kyle
- >>> jeremy never signed any agreement over equity breakdown, etc <<<
- jeremy never inquired about equity when kyle raised previous rounds, only after the $1b exit.
pretty straightforward.
- j was never compensated
- j was never forced to legally release rights to anything when he left
- legally, if j contributed anything of significance, even ideas, cruise is about to learn a very expensive lesson
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 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.
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.
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.
Best of luck!
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.
1) Don't work with Jeremy Guillory
2) Be extra careful with paperwork and understandings early on. (Although it doesn't look like they could have done anything more.)
3) If you possibly can, you want Sam Altman on your side. not just for when things are going badly, but also when they go world changingly well.
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.
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.