grellas

Startups by and large have held fast to this requirement.

A few, such as Pinterest, have agreed to extend the 90-day expiration period out for several years. This allows employees who hold vested options having potentially significant value to leave their employment and not have to face the choice of losing such options, on the one hand, or doing an immediate exercise that might trigger a large tax while being left with no near-term ability to liquidate the underlying stock so as to pay that tax (and further facing the risk that the underlying stock might decline in value, leaving them having paid a gratuitous tax on stock that may subsequently have little or no value).

This is an important and very good fix but it does destroy the ISO status of the options and converts them to NQOs.

If the 90-day restriction, therefore, is not built into default plan documents, the company cannot offer ISOs to its employees. It is thus not normally an option for startups to eliminate the restriction wholesale. Any discussion of this issue needs to take this into account because there are various trade-offs in doing it one way or the other, at least one of which may not be good for employees.

Of course, as your comment correctly points out, a liquidation preference has value, even immense value for its downside protection. And this value is reflected in the valuation. It just isn't the reason for a huge upward spike above the historical norm.

Hope this clarification helps.

Liquidation preferences do not drive up valuations. Of course, they offer "insurance" to preferred stock investors against downside risk. But they have being so for several decades in the Valley (and elsewhere) and this has nothing to do with valuations as such.

Indeed, when valuations are at their very lowest (such as post dot-bomb in the early 2000's), the liquidation preferences became so high as to be regarded as absurd (e.g., 3x or even higher). This was often coupled with the idea that the preferred stock would be participating, meaning that the investors in any M&A deal get their 1x (or 2x or 3x or whatever) back and also get to take their proportionate share of the merger consideration on the M&A deal itself.

The reason there are $1B+ valuations is primarily because the VCs believe the ventures will come to dominate major areas of commerce, will typically go public with sky-high valuations, and will continue to grow and dominate even after all that. Investing $100M at $1B valuation is risky but pays hugely if the company later becomes valued at $100B+. Yet, when a company goes public, the terms of the preferred stock typically require conversion into common stock and, in that case, the liquidation preference goes away altogether and confers no benefit on the investor.

In short, very incorrect analysis and not really worth reading.

1. The code is as they say it is, entirely independently developed as opposed to code that infringes the employer's copyright because it has been stolen.

2. No moonlighting took place. If it did, the IP is so related in its broad subject matter that, even under the liberal California law, it could be said that it involved a reasonably anticipated extension of the employer's existing products or IP development, in which case it would belong to the employer even if the employees developed it strictly on their own time and strictly using their own resources while employed.

3. The Shred products do not embody proprietary trade secret information belonging to the former employer. For the employer to have a legitimate claim on this prong, it would have to show that it had non-public information (e.g., special algorithms, techniques, etc.) that gave it a decided competitive advantage, that were not known to others in the field, and that were the subject of special efforts by the employer to keep them confidential. If an employee who is bound by a typical confidentiality agreement learns of such trade secret information or techniques only while employed, or even develops or discovers them while being paid by the employer, all such trade secrets belong exclusively to the employer, even if the employee is capable of walking away with the secrets "in his head" only. If, however, the techniques, insights, information, etc. that the employee later used to develop the new products following termination of employment consisted of things known or derivable by any person skilled in the field were derived exclusively using that person's general skills and expertise, and not from taking any employer's proprietary information, then the employer has no claim on any of this. In particular, if someone was already an expert in the field before beginning the employment, and applies what he knows for the benefit of his employer while employed, that employee continues to own what he came in with and can use it as he likes in any post-employment situation. He does not lose what is his just because he passes through a particular employment situation. So, summing up, if the post-employment products derive exclusively or primarily from a former employer's "secret sauce," the employer has a claim; if they derive only from the general skill and expertise of an employee, the employer has no claim.

4. Nothing in the new products infringes any patent belonging to the former employer.

5. No other acts of unfair competition took place that would have tainted the new venture (e.g., no raiding of other employees by soliciting them while employed, no post-employment violation of any express non-solicitation clause, no customer theft based on misappropriation of trade secret information and the like).

6. The founders have a practical way of dealing with the legal costs and the impact of the lawsuit cloud on their ability to develop as a company. If the case is a clean one from their perspective, this usually means the employer will not be able to get any type of preliminary injunction to stop the venture during the legal fight. In that case, if the new venture can generate revenue, this can help fund things or can possibly be sufficient to assuage concerns of investors so as to convince them it is worth their while to fund the venture in spite of the lawsuit. The dollars involved in such a defense are large for a small venture but can be managed in the right situations (likely in the hundreds of thousands, more if the employer is particularly obnoxious).

7. If the former employer is taking a reputational hit by pursuing the lawsuit, this works in favor of the founders as well because there is a real price to pay besides money for being a bully (if that is what is happening). After all, who wants to work for a horse's ass of an employer given a choice.

I don't know the facts here but there are several indicators that the Shred founders are being truthful in what they are saying. If this all followed from an initial rejection of the former employer's effort to own or control them, this likely indicates bad faith by the employer. The offer to have the code compared by a neutral is also important. It is true that stolen code by itself may not be the key thing but such an examination can bring to light many important things about whether a viable claim exists here or not. The employer's apparent refusal to allow this does not speak well of its motives. Even worse, if, as I understand it from public reports, the employer wants the code turned over to it in discovery, this is a very bad sign. Even if this is done under a so-called protective order, this sort of tactic is very often a tip-off that it is the employer and not the employees that is trying to engage in dirty tactics to gain a competitive advantage. Information is very amorphous and having the employer's developers scour the code directly is a sure way for them to grab key ideas/techniques that they normally would have no ability to access. Another tip-off is the employer's CEO being taped making statements that he intends to win whether the employer is in the right or not. By itself, perhaps an inconclusive statement but combined with the other factors, this does not look like good faith. Finally, YC is standing behind Shred. This, again, is only an indicator but YC has demonstrated itself to be nothing if not honorable in innumerable situations and it does not want the taint of being associated with a dirty company. Its support is thus a good indicator of what is going on here in reality.

Only time will tell who is right but, on the surface, this looks to me like a classic case of abusive litigation aimed at gaining something besides a just result on the merits.

Very thoughtful post from a very thoughtful guy. Happy birthday, Jacques.

I don't care how normal odds of winning are calculated. The above is a shell game in which the only certain losers (from a financial standpoint) are the players.

That is what a typical lottery system boils down to, in essence. It may be possible to justify them for the social causes they promote but they clearly take advantage of the players and particularly those who do not focus on the obviously horrible odds against them when they play in such a stacked game.

This may or may not be a "tax" in the technical sense but it sure is a case of the government rationalizing a system by which it (in my view) takes advantage of its citizens in the name of advancing its social agenda on other fronts.

My own view is this, and it is based on a lifetime of having made all the typical mistakes.

Steady is the best way to go for your investable funds. That means, go with stocks for a decent segment of your investments but temper this with investments that will help preserve capital when things get rocky. Keep a ratio between the two that is age-appropriate. There is a rule of thumb floating about among advisors that your stock percentage should be 110 minus your age. This may or may not be a good ratio for you but some method that helps discipline you in these decisions will help you and this is not a bad one for many people. The other major factor is to avoid impulse buying or selling and to keep transaction costs at a very low level - and this usually means going with broad-based no-load index funds for much of the ride.

Doing the above will not make anyone rich. It will, however, ensure that you have the best chances of getting decent, normal returns on average over time while helping to preserve your capital as you go. If you want extraordinary returns, get them through your startup or by doing extraordinary things in your work. For your investments, the rule is different. You do not "underperform" by hitting averages with your investments. You simply meet the goal that should be the defining goal for most people in that area.

Take time to pause, reflect, think, and enjoy your life experiences.

Even when it comes to work-related activity, there are times and places to do things quickly and there are times and places to do them deliberately. If nothing else, just for sanity's sake, it is important to pace yourself through a day, through a week, through a month, through a year, through a career. Even if speed were exactly correlated with maximum productivity and effectiveness, it is vital that you have times when you simply feel you can enjoy being at work, being with people, doing your activities, without everything feeling you have to work like a machine that will be evaluated by engineering standards only.

Even more, we all have different personalities and some people do not work well if they feel they are forced to work at some arbitrarily quick pace as opposed to one that suits their style.

Finally, even speed as a factor can vary with your activities as you develop skills in those activities. When I began years ago to try to write things, I was agonizingly slow about the process. I felt I had a quick mind but the process of getting what was in my mind down on paper made me feel plain stupid. Whatever I did, it would never come out right. Through a very tedious process of writing and re-writing, it would eventually become passable and that was it. It might take me a week in such cases to write something expository of modest length. Yet, realizing this was a weakness, I worked damned hard to fix it and, through a process of many years and countless hours of effort, I reached a breakthrough point where I could do "walls of text" (in the phrasing of some) in 10-15 minutes and produce quality stuff. I now write very quickly and effectively. But had I tried to do so years ago with my limited abilities at that time, all I would have produced was hash.

So, lighten up and do it in your own style. Yes, speed does matter. But it is only one of many factors that will determine how you do at work or, even more important, at life itself. By all means, apply yourself well - be diligent, hard-working, etc. but do it fast or slow as suits your needs and your own style. At least that is how I view it.

Adding to this on your specific question about loss: when you exercise options, your purchase price becomes the basis in your stock; if the company fails and goes bankrupt, for example, you can deduct the amount of the basis as a capital loss; this means you can offset this amount (i.e., deduct it outright) against other capital gains you might have in that same year or in future years (as part of a capital loss carryforward) but you cannot otherwise deduct it outright; in general, federal tax law in such cases allows you to deduct it at the rate of up to $3,000 in any given year, with the rest carried forward for future potential deduction (this is the capital-loss carryforward).

Hope this helps.

On the one hand, and especially touching on startup-related areas, the law can have incredible complexity. When you consider that corporate law, securities law (federal and state), tax law, contract law, employment law, and copyright law all apply in varying degrees just to do a standard corporate formation, you can imagine how many opportunities might present themselves for missteps for founders trying to guide the process themselves.

In addition, there is not merely the issue of overt error in missing legal requirements, etc. There is also the issue of omitting to make the best strategic choices from among those potentially suitable for a venture, and this means being able to stand back from one particular well-trodden path (Delaware C-corp with one class of common stock) to assess whether that path in particular is best for your venture. While many startups are well served by following the Delaware C-corp (single class of stock) path, others may not be. Believe it or not, there are some startups that are best incorporated in their own local state and not in Delaware. There are others (particularly "lifestyle" ventures, certain specialty ventures or bootstrap ventures that want to start on the cheap and convert later) that may be best served by setting up an LLC. Even in Delaware, there is the vanilla setup (and by this I mean even a savvy one like the type YC uses) and there are others using super-voting classes of stock or FF preferred or other variations. There are also fine-point decisions within a typical Delaware C-corp setup that can easily be missed. Do you axiomatically go for a cliff for founder vesting (like YC does) or do you use pro rata vesting from inception? Do you prevest some founder stock or not and, if so, in what cases? How do you handle acceleration of vesting on certain triggers occurring? How do you best deal with IP issues for various scenarios where multiple persons have worked on a venture prior to company formation? Even mundane issues such as how to handle real cash contributions sometimes made by founders without messing up the common stock price can prove troublesome if mishandled.

All that said, and on the other hand, it is true that many legal transactions today fall cleanly into well-established patterns that do not require any form of specialty legal help. While founders can and do often use law firms for such steps, it is a very legitimate question to ask, "what is the real value from the lawyers?" and "is it worth the cost?"

So you have the two sides of law: the incredibly complex and the perfectly mundane.

And here is the problem for many founders: not knowing which side of the line you are on when it comes to this or that issue in the choices you make when you form or build a venture.

Of course, when you also add the vast range of laws that apply to a venture beyond formation, the issue gets even trickier.

No one wants to spend money unnecessarily on things that don't add value commensurate with what is spent. But no one wants to make crucial legal errors either. If a big one should occur, your early-stage cost-saving efforts can quickly transmute themselves into the penny-wise/pound-foolish category.

This is where the opportunity presents itself for tools and platforms that seek to streamline and improve legal transactions and this is what I like about Ironclad's philosophical approach in particular.

The idea is not to have some end goal of replacing lawyers because that leaves founders helpless when it comes to the "incredibly complex" legal aspects of what they do in their ventures.

The goal is to streamline the process of working with lawyers while giving founders the choice to work without them, or to work with them in limited ways only, whenever they feel comfortable doing so. This keeps the founders in control of the process. Any founder who has been whisked into a legal environment where the lawyers are advising this and advising that, and are meanwhile adding a team of departmental specialists to the mix, just to handle what you might have thought a fairly basic set of issues knows the frustration of losing control in such cases. Even with the best of automated tools, that risk of losing control will never fully be eliminated, as law is indeed complex in many, many ways. But, whenever you can take that risk out for important classes of cases, you empower the founders to be much more in control than they historically have been. And that is what Ironclad seeks to do philosophically. The goal is highly commendable and should not be resisted even by lawyers. People have problems enough to deal with and no one, even lawyers, should have a stake in waste and inefficiency.

Even more, there is huge value in making legal transactions quick and efficient in their processing, whether working with a lawyer or not. If you can get your standard forms processed quickly and properly without a paper-shuffling and delays, that is a huge value in itself.

So here is hoping for elegant execution and great success. I had spoken with Jason about this back in the day when he was with Fenwick and he does indeed bring a great perspective, skill set, and passion to the task. Congrats on getting to this level and looking forward to what will follow in the execution.

To achieve a decisive victory in these cases, Newegg typically has to take the defense of its case through a full trial and possibly an appeal.

People often fail to appreciate just how risky a trial can be. We stand on the sidelines and laugh at how absurd this or that flaky patent appears. And yet - and yet - the law itself went through a phase in which such patents were almost routinely granted. Standards may have tightened over time but, still, a patent claim in a hotly litigated case will not survive to trial unless it has been able to withstand a host of pretrial challenges by which a defendant has already asked a court to rule that the patent, as a matter of law, should not stand. It is only when a court tosses the patent claim in the pretrial phases that a defendant avoids the risk of a potentially absurdly high verdict after trial. If the claim survives such challenges, then the defendant has no choice but to settle or to play it out through trial while incurring just a risk of having a large verdict entered against it. This is the point at which most defendants - even large, deep-pocket defendants who can otherwise afford to pay the costs of defense - will fold. Newegg, on the other hand, has made the tough decisions, incurred the major risks, and largely managed to defeat such patents on the merits.

In doing so, it incurs the very large costs of defense typical in such cases. And it has the guts to take the potential liability risks of going through full trials to take the cases to verdict.

Large, institutional defendants have occasionally (though rarely) adopted such policies in the past. For example, over decades, GM adopted a policy of never settling injury claims if its own experts had determined that the GM autos were not at fault. In doing this, it would often incur defense costs that far exceeded the value of the claim being defended. But it did so to send a firm message to the plaintiff's bar that prosecuted such claims - that is, "if you want to sue GM, your case had better have merit - you will get no nuisance settlement from us."

Newegg effectively is delivering the same message but with an important twist. If GM successfully defended a particular injury claim, that ended the case for that claimant but had no preclusive effect on other, similar claims. If Newegg successfully defends and defeats a patent claim by having the patent declared invalid, the law of what the lawyers call "res judicata" (meaning, "a matter adjudged") kicks in and kills that patent off forever.

So, not only does Newegg take out the garbage, it makes sure it won't accumulate ever again.

This is a true public service for which we all must tip out hats.

YC is an innovative venture capital firm whose model depends heavily on its maintaining credibility with the talented founders who run the ventures it funds. In this sense, it has caught the spirit of the age brilliantly and that is why YC stands out as one of the premier investment firms of our era.

A key element in this approach is for YC to do what it has done all along and that is to take common stock instead of the almost sacrosanct preferred stock that VC firms have always insisted on in the past. This radical innovation in VC-style funding has set YC apart from the pack of VC firms, incubators, and any and all other manner of investor wanting to hitch their wagon to the talented founders who are capable of building successful, massively scaling ventures that seek to transform all of world commerce. Its importance cannot be emphasized enough as a key to YC's success. It has enabled YC both to be in the midst of the fray and to stand above it, all at the same time. It is the founder's ally even while it benefits mightily as an investor.

What then to do after the founding stage to avoid dilution to its initial investment stake without jeopardizing credibility with founders? If YC were to pick and choose in participating in early follow-on rounds, this would selectively help and simultaneously hurt the various founders it works with. Almost by definition, the fact of such an investment would brand some YC ventures as in and others out of YC favor, a result that would prove highly damaging to the aura of goodwill that is not only helpful but absolutely indispensable for YC to maintain with its founders.

So how to maintain that goodwill and still avoid subsequent dilution in the various investment rounds that inevitably follow from the inception of star-quality companies?

Well, you can set up some fixed rules, make such follow-on pro rata investments automatic within the defined bounds that make sense for YC, and use that as a way of extending YC's leverage to help it keep the 7% (or whatever) stake it begins with in each venture.

And that is precisely what YC has done here with its pro-rata program.

Founders usually have no problem with early stage investors being able to participate pro rata in later rounds as long as they are significant investors and as long as such participation does not jeopardize their ability to raise later-stage money on good terms.

YC is of course a significant investor.

As to jeopardizing future funding terms, I believe YC has made a judgment call here that the investors it typically works with will have no problem taking something less than their accustomed full pieces in the later rounds to accommodate YC and will therefore continue to finance YC ventures exactly as before. Hence, no prejudice to founders and no loss of goodwill or credibility among founders.

I believe this is a sound calculation. YC has been able to persuade VCs to deviate from a variety of their traditional rules/requirements as part of being a part of the YC universe. This is just one more to be added to the list. It is a world of increased founder leverage and that means investors who want to stay with the deal flow need to adjust and adapt. I think they will do so here as well.

In a worst case for YC, this might prove a failed experiment. But the downside of the experiment's failing is minimal while the upside in being able to avoid later-stage dilution among a vast group of potentially valuable ventures is huge. Thus, this makes eminent sense for YC for sure and probably for its founders too. As for the VCs who will have to adapt a bit, they will survive and very likely continue happily investing just as before. At least that is how I read it.

1. This is a denial of a petition for writ of certiorari, which is a fancy legal term for a request that the U.S. Supreme Court exercise its discretionary jurisdiction to consider the appeal. This means that the court can hear it or not, as it deems fit, and only if it sees some really pressing reason to do so.

2. The above standard is very tough to meet and only the rare case will do so.

3. Here, Google had prevailed on the copyright claims at the trial level because the trial judge, rather than applying precedents mechanically, had rather bravely attempted to synthesize a byzantine body of law through what I believe was a brilliant synthesis of copyright law as applied to software interfaces that allowed him to conclude that APIs were not copyrightable (see my earlier assessment here: https://news.ycombinator.com/item?id=4050490#up_4051761). On appeal to the Federal Circuit, however, the court rejected this attempted synthesis and applied conventional precedents to conclude that APIs were indeed subject to copyright protection. Even in doing so, the Federal Circuit did not grant judgment for Oracle but instead sent the case back to the trial court to determine if Google could prevail on its defense that its mirroring of the java APIs was a fair use of otherwise protectable code and therefore not infringing.

4. In exercising its discretion whether to hear an appeal of this type, the Supreme Court considers not only the importance of the issues raised by the appeal but further considers whether such issues are ripe for determination by the highest court of the land. What that means is that the court is not interested in addressing questions that may prove academic to the litigants in the case. It is interested only in resolving cases in which the issue it is being asked to resolve is critical to the outcome of the case. Here, that standard was not met. Why? Because the appeal is from a case that Google has not yet lost. Should Google have the case tried on remand, and prevail on its fair use argument such as to win definitively on the copyright issues, then there is no need for it to obtain a determination that APIs are not copyrightable at all. In such a case, that latter issue becomes moot. Thus, in denying Google's writ, the Supreme Court may well have concluded that it is simply premature to take up the API issues until all of them have been first finally decided by the lower courts.

5. The other major fact to note here is that a denial of this sort of writ by the Supreme Court has no legal significance in terms of ruling on the merits of the claims presented. The denial simply means that the court is not interested in taking up those issues at this time. It is entirely possible that the case could be tried in the lower court, that Google could lose on all copyright issues in that trial, that Google could appeal once again, that the Supreme Court would eventually grant a future writ to hear these very issues, and that the Supreme Court could rule in Google's favor that APIs are not copyrightable at all.

6. Having lost on the copyright issue before the Federal Circuit, Google has a pretty tough fight before it in this case. For the same reasons, though, that Judge Alsup had originally concluded that copyright law should not even protect APIs, it has a potentially compelling fair use argument to make and may therefore win on that issue. If it does not, it can once again appeal to the Supreme Court for redress. That would be a long shot, but it is possible.

7. The only thing certain about this case now is that a long, drawn out legal battle will follow before anything is definitely decided. The issues are important for our tech age and, in this case and otherwise in the federal courts, only time will tell whether Judge Alsup's original synthesis (or some variation) favoring freer interface use or the Federal Circuit's maximalist IP views will ultimately prevail.

Writing a good C&D is an art and it is amazing how much more effective something can be if it communicates truly and well without taking on a needlessly stiff and formal tone. Because, in the end, there is always a purpose behind these things. Trademarks are intended to protect brand origin and if someone who is not the brand owner makes misleading use of a mark to palm off the phony for the real, well, people can understand that and even sympathize with the plight of anyone who has felt ripped off in that way. The art lies in being able to make the legal points without sounding like a bully or an ass. It can be and is done every day when people who are truly infringers do things wrong and find themselves getting slammed. But those C&Ds tend not to find their way into public view.

Here, the C&D was absurdly wrong on the law and tone deaf to boot. Kudos to the IMAX and Ars execs for finding a way to handle the thing in the end as a class act and not as a low-brow fight. Speaking even as a lawyer, it is really nice to see.

1. This is an appeal from a decision by a hearing officer of the California Labor Commissioner. Most of the time such officers spend their days hearing things such as minimum wage claims. Hearings do not follow the strict rules of evidence and are literally recorded on the modern equivalent of what used to be a tape casette instead of by a court reporter. Such hearings might run a few hours or, in a more complex case, possibly a full day as the normative max. The quality of the hearing officers themselves is highly variable: some are very good, others are much, much less than good in terms of legal and analytical strengths. In a worst case, you get nothing more than a pro-employee hack. The very purpose of the forum is to help protect the rights of employees and the bias is heavily tilted in that direction. That does not mean it is not an honest forum. It is. But anything that comes from the Labor Commissioner's office has to be taken with a large grain of salt when considering its potential value as precedent. Hearing officers tend to see themselves as those who have a duty to be diligent in protecting rights of employees. Whether what they decide will ever hold up in court is another question altogether.

2. Normally the rules are tilted against employers procedurally as well. When an employer appeals a Labor Commissioner ruling and loses, the employer gets stuck paying the attorneys' fees of the prevailing claimant on the appeal. This discourages many employers from going to superior court with an appeal because the risk of paying attorneys' fees often is too much when all that is at stake is some minimum wage claim. With a company like Uber, though, the attorney fee risk is trivial and all that counts is the precedential value of any final decision. It will therefore be motivated to push it to the limit.

3. And that is where the forum matters a lot. The binding effect of the current Labor Commissioner ruling in the court is nil. The same is true of any evidentiary findings. The case is simply heard de novo - that is, as if the prior proceedings did not even occur. Of course, a court may consider what the hearing officer concluded in a factual sense and how the officer reasoned in a legal sense. But the court can equally disregard all this. This means that the value of the current ruling will only be as good as its innate strength or weakness. If the reasoning and factual findings are compelling, this may well influence a court. Otherwise, it will have no effect whatever or at most a negligible one.

4. What all this means is that this ruling has basically symbolic importance only, representing what state regulators might want as an idealized outcome. Its potential to shape or influence what might ultimately happen in court is, in my view, basically negligible.

5. This doesn't mean that Uber doesn't have a huge battle on its hands, both here and elsewhere. It just means that this ruling sheds little or no light on how it will fare in that battle. You can't predict the outcome of a criminal trial by asking the prosecutor what he thinks. In the same way, you can't predict the outcome here by asking what the Labor Commissioner thinks. In effect, you are getting one side of the case only.

6. The contractor/employee distinction is highly nebulous but turns in the end on whether the purported contractor is actually bearing true entrepreneurial risk in being, supposedly, "in business." There are a number of factors here that do seem to support the idea of true entrepreneurial risk but that just means there are two sides to the argument, not that Uber has the better case.

7. In the end, this will be decided in superior court and then, likely, on appeal to the California courts of appeal beyond that. It will take years to determine. In the meantime, the Uber juggernaut will continue to roll on. So the real question will be: should we as a society welcome disruptive changes that upset our old models or should we use the old regulations to stymie them? Courts are not immune from such considerations and, as I see it, they will apply the legal standards in a way that takes the public policy strongly into account. It will be fascinating to see which way it goes.

Brevity promotes simplicity and simple things are much easier to understand than are those that are prolix.

So writing in a style consisting primarily of short, easy-to-understand sentences is in itself a good rule of thumb when aiming to write well.

But it is only a rule of thumb, as I see it, and when it is enshrined as something more, it can do more harm than good.

The English language is a marvel of complexity and has so many rich, diverse, and colorful elements that you cheat only yourself as a writer if you fail to give full scope to such elements in choosing how to express yourself in the written word. You want to make a driving argument? By all means, use active verbs to punch along short, compact thoughts with an aggressive rhythm. Want to weave fascinating characterization? Well, then maybe relax the feel a bit and, with Dickens, unwind a string of long, flowing sentences that carry your reader along into a wonderfully imaginative series of pictures, running page after page, that hardly turn on being short, compact, and punchy - indeed, that are the very opposite. The point is not that you want to go to one extreme or the other. The point is that, as one who seeks to write well, you should avail yourself of the rich set of tools available to you without feeling bound to adhere to any form of absolute rules about how best to use them.

So, write away! Go for feel. Go for rhythm. Go for clarity. Go for what best suits your purpose.

And, oh, yes, do keep it short and simple, except when you find it doesn't suit your purpose. A rule of thumb is just that. In the end, do what gets your point across for the long-suffering reader who deserves to have it done well.

From the 1950s and into the 1960s, cars were the thing. They were an adventure. You were some moronic kid with nothing exciting to do and, all of a sudden, you had freedom - you could kiss the parents good-bye and hightail it out to have some fun. V8 engines, lots of power waiting to be unleashed, booze in the back seat, a girlfriend or boyfriend to play with, no seatbelts, lots of cigaretts, drive-ins to go to, streets to cruise, etc., etc.

That world is gone now. Of course, any of its elements can be re-created. All the pieces are still there. But the spirit of the thing is gone. Cool people don't waste their time on Saturday nights driving around to impress people with how hot their muscle car is (though they probably do equally silly things as a substitute).

Hitchhiking in its fad sense - i.e., when "everybody" was doing it - was part and parcel of that culture. As noted in this piece, it was probably even more likely that something bad might happen to you back then than it is now for driving around with strangers. So why did vastly greater numbers of people hitchhike back than they do now. For the simple reason that it was regarded as "cool" to do so. Just like it was "cool" to smoke. And just as times have changed for the latter, so they have for the former.

Of course there is some unavoidable risk when you hitchhike or when you pick up hitchhikers. Out of millions of people in America, there are some who inevitably will be predators and who will take advantage of others. The overwhelming majority obviously don't. The risk lies in not knowing whether you will bump into the bizarre exception to the normal rule of human kindness in such situations.

But that risk, together with the alarmist publicity and paternalistic laws that can accompany it, have little to do with why far fewer people are hitchhiking now than they did back in the day. People are strongly affected by their peers and by what they are doing. Then they tend to do the same. In that older era, there was a huge social push to get out on the road in all sorts of ways and hitchhiking took wing as a direct result of that push. Now that is gone. There is no strong peer influence pushing people in that direction. There is nothing cool or adventuresome in the car culture, at least not for many.

And so hitchhiking, at least in America, is left for those who do it out of necessity and for the remaining few who truly enjoy interacting with strangers. For most people, it is a brush-off item that they would never consider. After all, "nobody is doing it."

No, this is all about class action procedures.

1. As in most such cases, the named plaintiff is there only to satisfy the technical requirement that a representative be named to represent the class.

2. The underlying claim, then, in the absence of any direct proof of discrimination in any given case, is based on an "effects" theory: Google stats show that it has an average workforce whose age is considerably lower than what other stats show is the average age of computer programmers; this "proves" that latent discrimination is happening; ergo, the class is entitled to massive damages because Google's hiring practices single out older people and treat them unfairly by rejecting them as job applicants on unlawful grounds.

3. Google recently settled an age discrimination case in which there appears to have been real evidence that they treated an older worker unfairly. This case now seeks to take the evidence in that one instance, combine it with stats evidencing a young workforce at Google, and hope this is enough to justify the class action claim.

4. This is as flimsy a basis on which to sue as one might imagine but its point is to try to pry open Google's confidential employment files to hope to find real evidence somewhere in the mix. In other words, it is a fishing expedition.

No particular sympathy here for Google. I am sure it does treat older workers unfairly at some level. The tech industry does this across the board. But that does not make this lawsuit something attractive. It is a stick-up suit, pure and simple, from all surface indicators. Given how flimsy it actually is, I predict it will go nowhere in the long term. There may yet be a potent case lurking against Google over its policies. This just is not it.

It’s John Deere’s tractor, folks. You’re just driving it.

I don't have any sympathy for what John Deere is trying to to in using the DMCA to restrict how people repair their own tractors.

But the legal issues need to be better delineated than this article attempts to do.

1. John Deere does not "own" your tractor when you buy it from them and it is not asserting that it does. Software is automatically protected by copyright. It is a tangible form of expression of something that is creative and, the way copyright law works, a developer of software does not need to do anything except his normal work in order to gain copyright protection. You code it, you own it. That is the default. If you code it while being paid by someone else as his employee hired to invent, then that someone else owns it. Or if you code it as a work for hire paid by someone else, again, that someone else owns it. The situations vary. But, almost universally, for commercial, proprietary software, the customer almost never owns the software he uses when buying and operating a piece of hardware operated by that software. We all take this for granted when we buy a computer or mobile device. We own the hardware but not the software. We license the software and that is it. That license gives us a right to use the software for its intended purposes but it is almost invariably accompanied by terms that restrict us as consumers from reverse engineering the code or otherwise using the code for any purpose beyond the limited scope of what the license itself allows. For example, we cannot reverse engineer the software to attempt to create a competitive form of software product. People may have philosophical objections to this - usually falling under the "all information ought to be free" rubric - but, unless and until that philosophy prevails and works to change the law, that is by no means what the law is today. Today, when you have commercial software, you have copyright protection and hence a lack of ability to use or do anything else with that software without the permission of the copyright holder. And that means a license.

2. What John Deere is doing with its tractors is not claiming ownership of them once you buy them. Just as when you buy a Mac, Apple is telling you, you own the hardware and you have a license to use the software during the life of the product, so too John Deere is saying the same thing with its tractors. You own the tractor and you can do what you want with it until the product dies but, in once it dies, you have no further license to use the software on anything else besides that product. That is the legal effect of what a license does. There is nothing whatever controversial about this unless you have a philosophical resistance to the very idea of copyright (I realize many people do, of course). Under the law, however, John Deere is claiming nothing more here than what every computer manufacturer has claimed since the beginning of modern computing. To say, as this article does, that John Deere is claiming to own your tractor is wrong. Since the author is hardly ignorant of this, it seems the above statement is inserted for emotional effect and not as part of any reasoned argument.

3. All that said, copyright law is not absolute and never has been. When one gets a copyright, it is time-limited (or at least should be, notwithstanding the absurdly long extensions granted in recent years under the Bono Act, etc.). It also is not absolute even while the rights exist. The huge category limiting its effect is that of fair use. In some cases, public policy requires that certain uses of otherwise copyrighted materials be permitted regardless of what a copyright holder might claim. Classic cases include digital video recording, select permissible copying from books, etc. In the case of the John Deere software, and that of every other vehicle manufacturer that seeks to monopolize the market for repair of its vehicles through use of the DMCA's non-circumvention rules, the issue is not whether its software ought to be subject to copyright protection but rather whether they can use that protection to prevent people from conducting basic repairs on the vehicles they own. And that is a public policy question.

4. So, what is the proper public policy: should the DMCA be allowed to be used as a legal sledgehammer by which manufacturers can bludgeon owners and thereby force them to do their repairs in ways that lock them forever in to the manufacturer? It would certainly seem not. Indeed, when framed in this way, the manufacturers' position becomes extreme and even outrageous. Well, EFF, et al. are doing a good job of arguing this in the relevant places to try to shape the law fairly on this point. They are to be commended for this and, in this sense, what John Deere is arguing is pretty despicable.

5. But none of this means that they own your tractor after you buy it. Nor does it mean that copyright doesn't apply to the software they develop. It can and it does. It is just that copyright has limits and, when pushed beyond those limits, loses its salutary purpose and becomes obnoxious and damaging.

6. As a final point, nothing in John Deere's position challenges the idea of "ownership" as we know it. By framing the issue in this way, this article (in my view) tries to play on common sympathies but does so in a very misleading way. I believe this only weakens what is otherwise a sound position on preventing misuse of the DMCA. It also misstates the law pretty badly. So here are my two cents trying to correct this.

1. U.S. tax law requires that incentive stock options (ISOs) have a 90-day termination tail on them - that is, the options do not qualify as ISOs if they are not issued under an enforceable agreement by which all vested options must be exercised within 90 days of termination of employment or expire.

2. As a direct result of point 1, the near-universal practice that startups use when issuing stock options is to require employees to sign documentation by which they agree that they lose even their vested options if they do not exercise them within 90 days of their termination date.

3. The original idea behind ISOs (the reason for distinguishing them from "non-statutory" or "non-qualified" options) is that they can be exercised at any time after they vest without triggering ordinary income tax for the exercising employee at the time of exercise (subject to certain monetary limits).

4. However, the "benefit" note in item 3 above, though a very real benefit in days gone by, is often illusory today because the exercise of ISOs requires that the amount of the spread (difference between exercise price and fair market value of the stock at the time of exercise) be included as an item of AMT - meaning that a so-called "ISO" exercise can result in a huge AMT tax. What this means is that an employee holding vested options in a startup whose value has risen greatly faces a dilemma. "Do I exercise now, pay a huge tax, hold only a piece of paper that may or may not be worth anything down the road, and hope that the stock price holds? Or do I wait until a liquidation event, exercise at that time, and thus eliminate the large tax risk of exercising before that time?"

5. Of course, many such employees chose to wait. If you cannot sell your stock right away, it is a very high risk to pay a massive tax on an option exercise only to wind up holding illiquid stock that may become valueless if things don't go right. This is no small issue. People committed suicide during the dot-bust era a decade or so ago after having made the wrong decision.

6. The problem is exacerbated by the 90-day expiration rule on employee termination. It is one thing to wait and wait until the liquidation event. But what if it is a long time in coming? Many employees are trapped in their employment when they face the above dilemma because leaving their employment will force them to exercise or lose potentially valuable options if they don't exercise within 90 days of termination. Even worse, if their employment is terminated by the company, they are put in the horrible position of losing something they worked very hard for because of a seemingly arbitrary and stupid rule saying that the options expire within 90 days of termination.

7. Well, guess what, the rule is stupid and arbitrary in many ways. Why? Because, though the law requires that it be made part of any ISO grant, this does not mean that the startup cannot modify the agreement for the benefit of the employee to eliminate the 90-day expiration provision and to give the employee room to exercise for an extended period. What happens when the company does this in spite of the tax rules? Well, it means that the option loses its character as an ISO. But it does not lose its character as a legally enforceable stock option. It just means that it is taxed as an NQO (non-qualified option). So, in a worst case, the employee exercising an NQO gets immediately taxed on the spread at the time of exercise. But, if that modification gives the employee the flexibility to carry the options unexercised but exercisable for a period going well beyond the 90-day period currently defining expiration of such options, the employee can leave employment, hold the options, and wait for such extended period (e.g., the 7 years discussed in the article here) before deciding whether to take the tax risk of exercising and holding illiquid shares. And, if, in the interim, the company does have a liquidation event, then the employee's dilemma vanishes and he can exercise and sell right away in order to make the profit and pay the associated taxes.

8. The net result of the startup's agreeing to eliminate the 90-day provision is that employees need no longer feel trapped in their employment once their options have vested when the stock price becomes high. They can leave and still keep the option of cashing in on their hard-earned options.

9. So why don't most companies agree to such modifications? Their lawyers will tell you that the law requires the 90-day rule and this is true but misleading because that requirement can be violated in a lawful way that simply changes the character of the options. Thus, if the parties can live with the change, why not do it routinely? Well, I leave it to everyone to draw his own conclusions. Perhaps startups want to keep their employees trapped. Perhaps they are just listening to lawyers who insist on following the rules. Or perhaps a board of directors does not feel it consistent with fiduciary duties to give employees something that appears to be a gratuitous modification that does not benefit the company. Whatever the reason, it remains true that most startups choose to leave their employees trapped in this dilemma without even giving them a good explanation beyond the fact they agreed to the condition and that the the tax laws "require" it.

In any case, kudos to Pinterest for doing the decent thing here. It is indeed all too rare to see something like this and they are to be congratulated for it.

In the modern era, when a law requires complex administration, its enactment by the legislative branch does not end the process of defining what the law will be and how it will function. For any complex area, an administrative body is set up to implement and administer the law in its details. That means appointing bureaucrats who take the broad mandate of the law and give it life by applying it to the countless details that actually affect people's lives. So, the tax laws specify broad enactments saying that people must pay income taxes, estate taxes, excise taxes, etc. But the IRS exists to give those laws life and to promulgate a mountain of regulations that tell us when this is that item constitutes an item of income or a deductible expense or an exemption from this or that, etc., etc. Of course, under the way that U.S. law works, any such agency must be given full authority to exercise discretion to give reasonable interpretations to whatever legislative enactments set up the statutory authority under which it functions. At the same time, the power of the agency is strictly limited to working within that statutory authority. Within its bounds, the agency has vast powers; outside its bounds, it can do nothing.

Thus, the essence of administrative law is the idea of reasonable discretion to promulgate and enforce regulations to see that the law's underlying purposes are fulfilled. The power of the bureaucrats who make such regulations is enormous, as long as they stay within their bounds. And courts routinely accept this. So long as the regulations adopted by the bureaucrats are deemed to be within their bounds, and not deemed to be acting arbitrarily or capriciously or without rational basis, the courts defer to the bureaucratic judgment and uphold whatever they do.

And so we now have the FCC of "we will censor this and that" and of "we will revoke your license for this or that" fame being entrusted with broad powers to regulate the internet, powers that could be legally used to do all sorts of things deemed abhorrent and restrictive of freedom but as to which the agency assures us it will use voluntary restraint in exercising.

This, I believe, is hardly a sure foundation upon which to base a long-term hope of assuring a free and open internet.

I do believe, given the political climate, that it will be a short-term solution for guaranteeing "net neutrality," whatever that means exactly.

But, in our federal system, amid the various ways the idea of net neutrality might have been won and protected, the worst imaginable way from a conceptual standpoint is to say that internet freedom can best be guaranteed by giving broad discretionary power to bureaucrats to do what they will within the nebulous confines of a communications act enacted 80 years ago that did not even contemplate modern technology as we now know it. This is the very act that has been most characterized for decades now by an orgy of lobbying by one competitive group or interest or another to gain this or that advantage over others and whose crowning glory appears to rest in a mountain of endless litigation over what this or that may mean in the act.

I have purposely framed the above comments with multiple "this or that" references because that is the whole idea behind a nebulous bureaucratic framework: it can morph and shift in ways scarcely imaginable as time passes, as vested interests mount campaigns for their pet issues, and things get carved up by insiders with the nominal aim of protecting consumers but with the normal goal of carving up the booty for those who have the biggest stakes in the process.

Even in this thread (and many others like it), we already see vigorous debates over the meaning of this or that interpretation and of the motives behind them. This is all deemed safe for the moment because it is discussing an issue over which people are passionate, an issue which is right before us, and an issue over which each of us believes we have sound reasoning that ought to be adopted in the current debate.

But take that same process, extend it to a whole range of issues that the FCC might now address, add to the mix the vigorous energies of everybody and his uncle who has a stake in getting this or that competitive advantage on the issue, and then toss it to the courts to sort out who is right, well, you then have a lethal brew that in my view leaves us vulnerable to future abuse that is hardly trivial but affects the very essence of how a free and open internet ought to function.

Remember, you always believe the "good guys" will be in charge. But give enough unrestricted power to any governmental agency with very few checks on that power and the "bad guys" may then run wild with what you have done, much to your chagrin.

I realize this is a very unpopular position in this forum. But it has to be said. I truly hope I am wrong in my concerns.

Is it wise, then, to grant unchecked, plenary power over the internet to the government in the name of trusting that those who currently exercise the F.C.C.'s power will exercise that power with self-imposed restraint? Lord Acton's dictum that power corrupts and absolute power corrupts absolutely comes to mind in considering the implications of this step. Once we grant that the F.C.C. has open-ended authority to do what it wants with the internet, where is the formal protection against abuse and who will exercise it. Certainly the courts will not. The Telecommunications Act being relied upon here certainly grants the formal authority to do this. Those who passed that Act did so 80 years ago and never contemplated that it would be so applied. But the courts will say, it was for Congress to make the law and for the appointed agency to administer it within the bounds laid out by the legislature, and that means this exercise of authority will be upheld. But so too will any attempt by the F.C.C. to impose detailed regulations over pricing, usage, and all sorts of other areas that those who favor a free and open internet clearly do not desire. Once this step is taken, all formal protections against abuses of this type are gone. What, then, is the remaining form of protection. It is that we choose to trust those who exercise open-ended power to use "restraint." They assure us they would never change the way things are. They will never succumb to the power and influence of lobbyists. They will never exercise so vast a power that is given to them without checks for any corrupt motive. After all, governments worldwide and throughout history have demonstrated that they can be trusted with unchecked power without abusing their citizens. And so we can all rest easily knowing that our benign government is and will always remain in good hands and will always keeps its promise. After all, who needs the formal protections of the rule of law when you can give all over to the discretion of leaders who will be wielding the very powers whose potential abuse we all fear. So, for those who want net neutrality at any cost, the end justifies the means and any fear in principle of giving unchecked theoretical power to an unaccountable governmental agency goes out the window in pursuit of the immediate goal of net neutrality and in trusting current leaders who tell us that they really never intend to use all those unchecked powers. I truly hope that is so but I am very saddened that people never learn the lessons of history about what can happen when political leaders suddenly find themselves with vast amounts of unchecked power.

The free internet we know today will be utterly dependent on their good graces. I for one am not so sanguine as others about where this may lead.

I can't tell you how many times in these cases founders have caved to lowball offers with horrid terms once they have gone multiple cycles with the prospective acquiring company. How does this happen? They ask for what they think they deserve and they get an offer far below that. Having concentrated their efforts on a possible exit, they sound out other channels and find there is no immediate interest. They are then high-pressured by the prospective acquirer to do the deal on a short fuse or the offer will go away. They then begin to contemplate the risks of continuing down the path of uncertainty and begin to contrast this with how nice it will be to continue the effort under the rubric of BigCo, where they will draw a steady salary and no longer have to deal with entrepreneurial risks.

By this time, they are hooked. Then the details come in. It turns out that, low as that $10M (or whatever amount) was, they as founders will have to earn all or a significant part of it all over again by having to vest their interest over xx years once they begin working with BigCo. Do they have protection from termination and the possible forfeiture of their interest? Well, no, not really - company policy forbids this. So, if they want the deal, they will just have to take their chances and, if BigCo terminates them early, that is just the risk they take.

What about elimination of risks? Well, here they must represent and warrant that certain things are true as of the date of closing on the acquisition. For example, they must warrant that their IP doesn't infringe. OK, fine. But what does this mean? In a typical blanket warranty, it means that, if you sell your company and you know you haven't done anything whatever to steal code or otherwise compromise its integrity, you still bear all the risk of financial liability if someone later comes along and asserts, say, a patent infringement claim against your IP. With a multitude of trolls infesting the world these days, this is of course possible. What does BigCo say about this? It puts on its official corporate suit and weightily intones that it expects founders to stand behind their IP and will not allow them to hedge responsibility for it. Therefore, it doesn't matter that you didn't know about the potential infringement claim - if it hits, you pay the price for any liabilities and for any attorneys' fees in defending against it. Is there a cap on this? Well, maybe, but at a high level (e.g., 50% of proceeds received on the deal). As a founder, you wind up agreeing to this once you are committed to the deal because, after all, it is not likely to happen. But as to uncertainty and risk? Well, that still belongs to you on some pretty important issues.

And this is just one issue.

The point is this: once you as a founder start to rationalize, there is no bottom. You have rationalized that you can live with the low price. You have accepted the liability risk. You have accepted the renewed vesting terms without protections. Maybe you also agree to an outsized holdback on the purchase price. And who knows what else. The point is, by this time you are fried. You have no will to fight back. You have no leverage. You are stuck with the wishful thought that it will nonetheless be great to be working for BigCo and to have a chance to continue to realize your dream, even if it does involve some serious compromises.

I have witnessed this sort of thing for years and it always comes about when founders deal with professional acquisition teams from a perspective of relative weakness. They suck you in and then you need to fight like hell to get back into a mindset where you can tell them to take a hike. Most founders in this position just can't do it. That is certainly my experience.

This essay by PG captures the perils of this process in a way that is spot on and extremely valuable as a warning to founders who might succumb to temptation. Be warned. It is exactly as PG says. A truly important essay for all founders.

The key to this sort of trademark claim is likelihood of confusion or perhaps implied endorsement in having a common-sounding name. Where it is obvious that two companies are in entirely unrelated fields, then the holder of the mark who wants to shut others down had better have a very strong mark such that any use by others of something that sounds similar implies affiliation or endorsement.

There is no way that this is the case with the "zen" prefix.

Even on a personal level, I represented companies known as Zentek Strategy and Zentek Technology, the latter of which became a $2B market cap company before having issues in 2008. We filed and got a registered trademark for "Zentek" and held this from about 1990 through 2008 when the company had some problems and shut its operations. The mark that we registered was not even in Class 9 (where most tech companies file for marks) but in another class because there was already another long-established "zentek" company that held a registered mark in Class 9.

So, wow, the claimant here says, in effect, "we have been using 'zen' since 2007 and so we have a right to claim this exclusively as our own." And it then proceeds to file formal proceedings against all sort of other companies to force them to spend large sums of money or else give up using their marks that share only a common prefix.

Call it what you will. I call this abuse, pure and simple. I can only hope that the people doing this take pride in their coolness as zen proponents even as display the height of arrogance in how they choose to act.

The letter is said to be directed to you in confidence. It is not. It is openly published on scribd for all the world to see.

The letter is said to be written by an ex-executive of the company. It is not. Or, if it is, it is written in a style that has "lawyer-written" stamped all over it.

The person making the claims is saying he is doing this to uphold company values but is far from disinterested. If he was fired for whistleblowing, that is wrongful and he gets large damages. Otherwise, not. So, maybe it is sincere and maybe not. But who knows?

The person also waited two years to write this letter. Does this undercut its premise that its goal is to correct wrongdoing? Or was it now put out opportunistically to further some litigation goal instead? Again, who knows?

Ditto for a complaint being made just now to the Washington agency responsible for fraud. Why now and not earlier if the problems were serious and pressing?

Then too, the alleged victim (Discover Card) is hardly a naive consumer, knows how to defend itself, and had known enough about this to ask questions going as far back as 2012. Is there, then, less than meets the eye concerning the claims of its having been overtly cheated?

Everything stated in this letter may be true and damning as it appears. I don't know what happened, nor do I know the people involved. But I do know when something is framed insincerely and this letter is framed insincerely. It may all be true but its style and timing do not ring true.

This has to have another side to it, in my view, and it is wrong to take it as self-evidently true without hearing that other side. What we have now is only a one-sided story that is heavily slanted in its presentation.

Certainly if I were a board member to whom this was purportedly directed, I would be highly skeptical. I would assume instead that I was not even the intended audience for the letter. And I would probably be right.

Don't be lulled that it is a big and reputable company. If they are doing their own independent development, it is relatively easy for them to claim that they developed whatever it is they later develop based solely on independent efforts and it is pretty hard for you to cut past that claim, especially when the only of doing so is to sue and spend many hundreds of thousands of dollars to try to win that suit.

It should be a staged approach. The deeper they want to probe, the more they need to declare themselves.

And, by the way, make sure that the NDA is very tightly drafted to severely limit the impact of potential weasel language, e.g., pertaining to independent development efforts - thus, for instance, make sure it says that such efforts must be capable of being documented by written evidence. On this point, though, it is impossible to advise in the abstract. See a good lawyer on this. Very important.

Convertible notes and convertible equity (SAFEs) both allow founders to meet these goals in ways that equity rounds simply do not. In this sense, they have incredible value as tools to be used by an early-stage startup.

Are they perfect tools? Well, no. Each has its own limitations and problems and each can be abused on either the company side or the investor side. Founders routinely used to take uncapped convertible notes, build value, stretch out the process, and leave the investors getting ever-diminishing rewards all the while that their money was being used to build that value. Investors wised up and began insisting on caps to avoid such abuses. They wanted to protect the idea that they would get significant extra rewards for taking the earliest-stage risk. It was not enough, e.g., to get a 20% price discount at Series A if you convert at $20M pre-money valuation when the company was probably worth no more than, e.g., $5M at the time you invested the seed money. The investor insisted on locking in that ceiling on valuation as a means of self-protection. Does this result in occasional windfalls to bridge investors who take capped notes (or SAFEs)? Yes, it does. Does this arrangement have attributes of something that resembles a liquidation preference in its functioning? Well, yes, it does. Ditto for the full-ratchet anti-dilution attributes. These things are very real attributes that do affect the value of using these tools for founders and their companies. They add to the negative side of the ledger.

But let us say that your startup had to give four times the value in Series A preferred stock relative to other investors to the hypothetical investor noted above ($20M valuation, $5M cap). What does this mean? If that early investor put in $300K and the Series A round was for $7.5M, the early investor might have gotten a windfall but the impact on the round is small because the dollars involved are not large. And if the venture did not do well and the Series A round priced at $3M, then that same investor would still get something like a 20% discount off the lower valuation instead of having had to peg his fortunes to the $5M value used for the cap as he would have had to do had he taken equity. But so what? The dollars are still small and it doesn't matter relative to the value and utility offered by using the convertible note (or SAFE) tool. And, for every "windfall" gained by such investors, you have all sorts of cases where the failure rate is particularly high because of the extreme risks existing at the earliest stages before it is even determined that a company is truly "fundable."

The value of notes and SAFEs is flexibility. Your occasional investor will get special advantages but these are not unduly costly to you as a company. And you have a good measure of control over how you do things. Your first note can be capped but, as you gain traction, later notes can be uncapped. You can raise money at any time without having to worry about creating tax risks and without having to mess up your equity pricing. You can do the number of notes and in the amounts you immediately need. You don't have to go through endless negotiations over the sorts of things that can accompany an equity round (especially protective provisions and similar restrictions on what a company can do). You avoid giving your new investors a veto right or other significant say on what you can do in future rounds, as you would normally have to do if you did an early-stage equity round using preferred stock.

Basically, there is a whole different dynamic in using notes/SAFEs versus doing an equity round. And, in most cases, it is a useful and valuable dynamic for founders and their companies notwithstanding the trade-offs. In this sense, the main idea of this piece that I would strongly disagree with is its suggestion that using convertible notes is somehow a sucker deal. It can be if done wrong but it most often is just the opposite.

Another metric for measuring the relative value of these tools is to see who is using them. Convertible notes have had massive and widely dispersed use now for many years. The most sophisticated investors have had no problem with them in general, and that includes the VCs who lead Series A rounds in which converting noteholders get the benefits of their caps and take more relative value in the round than the VCs themselves do.

As with anything else in the startup world, founders need to use good judgment. The points made in this piece are informed and technically accurate. And they do underscore some clear disadvantages in using notes/SAFEs. My point is that, notwithstanding these defects, notes/SAFEs retain great utility for founders in the context of the broader issues they need to address (minimizing tax risks, keeping stock price low, keeping transaction costs down, etc.). And so this is a good piece to add to your knowledge base but it should not deter you from using non-equity forms of seed funding as long as use of these tools meets your bigger goals. You have control at that stage. Use that control wisely.

The question answers itself. There is no earthly reason why he should have. None whatever.

Of course, the price of being a cult figure is many who follow you do not really care who you are but care a great deal about who they think you are. If you are a vital symbol for the cause, then all that you do must conform to the symbol or you become a betrayer, a hypocrite, or both. And that is unforgivable.

And so we arrive at the world of caricature where symbols rule the day, even at the expense of facts. Buck and kick all you want, there is no winning in that world once you fail to conform.

That, I think, is the point of this piece. In effect, it says: "You have made me larger than life. Well, I'm not. I am who I am and I love what I do. If you have made me out to be something more, I can't help that. I am just like the rest of you. No more and no less. If you want me to shape my life by what you think, you will be disappointed. I will shape my own life regardless of your expectations."

Who knows if this really is betrayal or hypocrisy? Usually the reality is much more complex than the caricatures make it out to be but no one really knows except those directly connected with the events.

As for me, I have no ideological axe to grind and can simply stand back and say, as many people likely feel, "that is one helluva ride for one so young to make."

Back in the day, top VCs would not be caught dead investing in an early stage seed funding. It was considered undignified. These were the firms that managed the best IPOs, that spawned the greatest tech ventures, that brought a value-add to their portfolio companies that was beyond measure as they would bring their formidable network of contacts into play for the benefit of their companies. And in return for their conferring such benefits on the ventures they expected to control things, or at least to have a formidable say in how things went. Yes, at the time of a successful IPO, they would convert to common stock just like the rest of the equity holders (though even there usually with the privilege of exercising registration rights) but before that they could and would exert liquidation preferences, conversion privileges, and control mechanisms in ways that left no doubt that they had the final say on most everything. And, if their interests clashed with those of the founders, it was not the investors who suffered. Top VCs valued their reputations and would tend to play it straight in not engaging in overt founder abuse. Yet the institutional mechanisms often gave them overwhelming leverage that left founders at a severe disadvantage: 2x, 3x, or higher liquidation preferences, full ratchet conversion adjustments on down rounds, etc. Lower-tier VCs went further and engaged in overt abuse on some occasions, to the point where the name "VC" often would make founders shudder.

Before YC, the only investors who actually took only common stock for their money were unsophisticated friends and family investors who didn't even know what preferred stock was. When YC came along, it took only common stock for its investment. Investors historically would look for ways to gain clout and squeeze founders through tactics such as 2x or 3x liquidation preferences in preferred stock rights, through lopsided conversion privileges used to wipe out founder interests in down rounds, through control tactics by which founders were put in defenseless positions and booted only to have the bulk of their founders' stock bought back at forfeiture rates, etc., etc. The persons being abused in such cases were primarily founders but the tactics wound up destroying or seriously compromising the interests of anyone who held common stock in such a venture. That sort of thing could prove very effective from an investor perspective when founders had no choice but to submit if they wanted the investors' money.

So founders basically had to come hat in hand to the VCs and play the game strictly by their rules, which amounted to the rules of a stacked deck. There is nothing inherently wrong with this. Money does indeed talk and, if founders wanted to take several million dollars as an investment from someone, they did what was needed to satisfy the investor requirements as they found them.

Y Combinator is an "accelerator" and all of that but what it mainly is is a VC firm that made the critical decision to align its interests with those of the founders right from the start.

So, out the window went the idea that a dignified VC would not soil its hands with a seed-stage investment. YC invested right from the start.

Out the window went the idea that a VC would take only preferred stock for its interest. YC took only common.

Out the window went the idea that a VC had to control the board, or at least had to have shared control, or at a minimum at least one board seat. YC left the board in the hands of the founders.

These innovations by themselves would likely have changed nothing but YC also built an incredible following of top founders inspired by Paul Graham and others who sought to build a network structure characterized by the highest level of talent. This too worked and YC companies thus got access to a rich treasure trove of resources that gave a value-add far exceeding that offered by a traditional VC firm. This in turn established YC as an omnium gatherum of much of what was and is best in the startup world.

With its interests largely aligned with the interests of founders, and with a formidable array of top founders populating its ranks, YC has set rules and norms for startup investing to which traditional VCs have had to yield if they wanted to partake in the opportunities. These have consisted of a shaking up of all the old assumptions of what VCs did or could do, with the result that top VCs today will invest early and often in funding for startups right out the gate, that top VCs will invest in convertible notes and convertible securities (SAFEs) in ways that were once unthinkable, and, of late, that top VCs (and other investors) will have to abide by some founder-friendly rules about whether or not they are permitted to use high-pressure tactics in structuring their offers, in whether or not the are permitted to yank term sheets without consequence, and in many other areas as well.

I have no doubt that YC did all this for its own interests as well as for a broader goal of using its investments to further its idea of the startup ideal. I also have no doubt that this phenomenon is fueled by broader developments by which founders are now well-connected and able to know and understand what is going on in ways that founders in, say, the 1990s had no clue about. None of it would have worked otherwise. Yet, founders are now well-connected, they know a sucker-deal when they see it, and they know value when they see it.

YC does not offer value for everyone. Many founders have no desire to give up 7% of their company for a little cash and access to the YC network. But, for many (and especially younger) founders, the value offered is phenomenal. Hence, the huge YC draw of top-talented founders. And that is where the action is. If the traditional VCs want a part of that, they perforce must conform to YC's expectations and founder-friendly rules. And they have done so.

Top VCs will continue to have enormous clout. But it is no longer lopsided the way it was a decade ago and before. It is now far more balanced and one of the big reasons is that a different style of venture firm in the form of YC came along to set new standards that now govern a big part of how the game is played. YC rethought the rules of being a VC and did it radically differently. It has paid off. The venture business will never be the same again.

While the advice may be trite, it is particularly apt here to emphasize the importance of consulting with a lawyer who is strong on IP issues.

In particular, this would normally need a careful evaluation of the contract language, which may or may not define what happens in the particular case you describe. If it should not adequately define what happens in express contract language, then there are default rules that potentially govern what happens. Those rules may or may not support your position. I have bumped into cases where the default rules basically say that the contract assigns the IP rights to the customer regardless of non-payment, with the remedy for the developer simply being to sue for payment. I am not saying that such rules govern your case because it is not possible for anyone to really know your case absent a proper legal review by a knowledgeable lawyer. I am saying you may be making assumptions about your legal rights that may or may not be correct and you should not casually just assume that they are.

It goes without saying as well that you should be cautious about using pejorative language about the person who did this in public because of the obvious risk of setting yourself up for a defamation claim. Again, in the end you may be justified but why complicate your own claims by giving those who did whatever these people did free ammunition to fight you with.

I don't mean to sound unsympathetic. It hurts to get screwed and it sounds like that happened here. Just be careful to go about it the right way in trying to correct the wrong that did occur.