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Comment by AndrewKemendo | Hacker News Reader

The most interesting thing to me is that Cruise went through YC, several funding rounds and most of a massive public acquisition - apparently before anyone did enough due diligence to find out about this being even a potential problem (if the claimant has any grounds - which it seems there are at least some amount) and heading it off at the pass.

That alone speaks volumes.

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Agreed, this is a massive fuck-up by everyone involved (Altman, Cruise Board of Directors, Spark Capital, etc). Even if the claim has no merit it should have been dealt with long ago, before the company got to this stage. Now all the employees might get screwed as a result.

I don't think it's fair to blame all of the investors. The later investors were almost certainly misled, and not informed of this risk.

YC on the other hand was clearly informed that there was an individual who was considered a founder at some point in time. Despite knowledge of this risk, they invested and they facilitated follow-on financing. Now there's a big, dumb, expensive problem. YC dropped the ball, big-time.

The fact that Sam Altman is turning this into a public spectacle is further evidence that he knows YC fucked up badly, and probably doesn't have a legal case. The only reason to write what he wrote is if you're out of actual ammo.

> The only reason to write what he wrote is if you're out of actual ammo.

This is really astute. In my experience, more often than not, when someone becomes angry at someone else, deep down they are really angry at themselves for letting something happen.

> The fact that Sam Altman is turning this into a public spectacle is further evidence that he knows YC fucked up badly, and probably doesn't have a legal case. The only reason to write what he wrote is if you're out of actual ammo.

Between this incident and pg's "startups must be allowed to break the law whenever they want or else civilization might collapse" essay a few months ago, it's getting hard to take anything the higher-ups at YC say seriously.

link to essay? I can't pick it from that description.

http://blog.samaltman.com/cruise

Which PG essay is this?

VC firms are sophisticated investors and are supposed to conduct due diligence on behalf of their L.P's. Part of what the big management fees they charge are supposed to go to is ensuring that each investment is legally sound - i.e. having their people verify the incorporation documents, cap table, etc.

So yes, the fact that this situation has become known at this terribly late stage reflects badly on all the investors in previous rounds.

I'm familiar with due diligence processes. They're why I believe the later stage VCs are likely the victims of fraud on the part of Cruise's D&Os. All of those investors would've demanded a clean separation agreement if they had any information regarding the co-founder.

This. That post was a huge red flag and after reading the claim it's very clear why he posted it.

I think this really hits the nail on the head. "The later investors" here really include everyone except for YC, insofar as investors have heretofor been able to take the YC stamp on a company as certification that these sort of issues have been worked out. I think the end result of this is that you'll see a market correction against YC companies as VC's find they have to put in extra due diligence they didn't have to before. Altman raising attention to this issue may act as a catalyst.

They did fail to identify the problem ....

But if there's any anger from screwed employees, it should be directed at the criminals who did the bullshit crime instead of the detectives who failed to identify the crime sooner, no?

In this case there is a fiduciary duty from the investors (detectives in your metaphor) to make sure that the company is free from these kinds of things. So while they aren't to blame - they aren't really off the hook either - it's more of a sin of omission.

And yes, in many cases when detectives or investigators in law enforcement are lazy with their work and miss something obvious, they often pay for it with their jobs.

Investors do not have a fiduciary duty to the employees. Members of the board of directors (which all investors presumably are not) have a fiduciary duty to the stockholders (which many employees presumably are not).

VCs have a fiduciary duty to _their_ investors.

Do they? Serious question. I mean, I assume someone involved in the VC firm has a fiduciary duty to its investors, but it's not like an employee typically has a fiduciary duty to his firm's investors.

I guess I don't see how this was so obvious.

There will be enough anger for everyone.

That's pretty crazy to me.

> That alone speaks volumes.

Move fast, break things.

I bet this is one thing that will be fixed for all future applications.

>That alone speaks volumes.

It's also pretty scary that YC are willing to railroad a co-founder in favour of a SV insider.

If you had a partner who left after a month - then do a financing right thereafter with vesting schedules and the like it's easy to assume that those same schedules apply to everyone. If it were to be caught- it would have been at the Series A but it sounds like so much time passed and his involvement was so short people just forgot about the guy.

If Jeremy never said a word about it since it would never come up. If I owned 50% of a company and it did a financing- I'd certainly inquire about my shares. Sounds like he never even did that.

Kyle probably feels like shit I am sure- it's a sickening case to read but to be honest I could see it going down exactly like that.

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