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.
When the company was actually incorporated, the split was no longer undefined.
The VC deserves whatever percentage the founders are willing to sell to them for the millions they put up. I don't think it's usually an unfair trade, given that VC as an asset class has lost money historically.
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.
reminded about that story of a guy painting a wall at a startup here around 10 years ago. Though the equity in that case was done in writing.
In the case of Cruise, without even going into detailed merits of the case - there are lawyers and judges for that after all - i think Cruise has simple question - go for less than 100% of $1B or go for the whole 100% of nothing. Do they honestly think that their half-baked system - at best practically equivalent to the system of an average Grand Challenge team 10 years ago - is really worth $1B? They got lucky that GM is that stupid, desperate and rich. Greed can scare easily that luck away.
> Choe, ..., chose to receive company stock in lieu of cash payment for the original Facebook murals.
A different thing entirely, if that's what you were thinking of.
The owner of the tree now sells the tree. Am I now entitled to a portion of those proceeds?
A real estate developer bought the other piece of land. He hired a lawyer who filed a lawsuit saying that after a number of years of access that farm lane had become a public road even though those kids were illegally accessing that other piece of land.
The real estate developer won his case and had the farm lane paved and declared a county road. The developer then started a subdivision and eventually purchased my bosses land to extend it. If my boss had kept his farm gate shut and padlocked none of it would have happened but he was trying to be a nice guy and paid dearly for it.
5 years later, when you sell your car, I show up and say I am entitled to ownership of your car because I washed it 5 years ago. There is a photo of me washing your car, so I am clearly involved. Do I own a part of your car?
Yes but washing the car without pay, is the same as working for a company without pay. In both cases there was labor without pay. Labor without pay does not mean ownership.
He didn't "found" the company, otherwise there would be legal documents proving he already has equity in the company. Basically he's saying that getting an office is the same as "founding" a company, which is similar to saying that washing a car is the same as "owning" a car.
Does that mean I could go and incorporate your company for you and give myself all the equity? After all, you didn't incorporate it and give yourself equity already.
In lieu of another contract, everyone who started the company together is an equal partner.
It clearly states that Kyle incorporated the company before even meeting Jeremy. Kyle incorporated it mid-Sept-2013, and then met Jeremy end-of-Sept-2013. Jeremy then left Nov-2013, and never worked on Cruise again.
> Until a company is incorporated, who do you think owns the company? Nobody at all?
If a company is not incorporated, then it's NOT a company. There is nothing to own. For it to be legal you need to incorporate and pay taxes.
> Does that mean I could go and incorporate your company for you and give myself all the equity?
Yes, if I have a company for years and not incorporate, and not pay taxes, and operate without the government knowing, you can incorporate a company with the same name and at the same address and give the equity to yourself. You would have to pay all the taxes, register all the trademarks etc. but at the point you are essentially doing so much work running a company anyways there's no doubt that it's essentially your company.
> In lieu of another contract, everyone who started the company together is an equal partner.
That's my point. You don't need another contract. The incorporation and the equity papers IS the contract. If he had equity, he is a partner. If he didn't, he is not. That's the contract.
Yes, everyone who did the original incorporation is an equal partner, that's fine I agree with that. But clearly Jeremy WAS NOT part of the original incorporation, and NEVER owned ANY stock after all these years. He wants to be paid AS IF he was the one who incorporated the company, AS IF he had equity.
I have a consulting company. It has clients, it has revenue, and I pay taxes on that revenue. It even has a trade name.
It is not incorporated. That does not mean that you can come along, incorporate it, and say the company actually belongs to you.
By default, the result of your work is your property. This is a central concept of property rights. You can transfer that property to others in exchange for compensation, but without a contract the work remains yours.
Thus, everyone whose work flows into a company automatically is receiving a portion of that company (it is a result of their work) unless some other agreement overrides that (ex. I agree to a vesting schedule).
You cannot be bound by a contract you didn't sign. Jeremy never signed anything agreeing to give up the equity he is automatically entitled to.
Well that seems like a personal attack. Maybe stick to the facts and not me and you?
> I have a consulting company. It has clients, it has revenue, and I pay taxes on that revenue. It is not incorporated. That does not mean that you can come along, incorporate it, and say the company actually belongs to you
Yes, exactly my point. You just proved it. In this case you (Kyle) have papers you filed with the government proving ownership of your consulting company, and paid taxes etc. It would be wrong for others (Jeremy) to come along and claim ownership of it simply because they did some paperwork that had no direct impact on the company getting clients or revenue. You just proved my point.
> By default, the result of your work is your property.
> Thus, everyone whose work flows into a company automatically is receiving a portion of that company
Disagree. If I do volunteer work for a non-profit or school, I don't own a portion of that non-profit or school. Yes, I own the work I did, and I am entitled to take it back or discontinue it, but my work does not automatically "convert" to ownership of the organization in the absence of signed forms.
If I made a magazine for a non-profit, without being paid, I own the magazine, it's my IP, and I am entitled to stop the non-profit from using my magazine at any time. But I don't get to "own" a part of the non-profit simply because I own the magazine.
Owning my work, and owning equity in someone else's company that have used my work in the past, are 2 separate things entirely.
The point is, there is a legal entity, with papers clearly showing Kyle has ownership and Jeremy does not.
You and a friend washed a car once. You didn't charge anything for it. You, but not your friend, continued washing the car every week, whether it was clean or dirty.
When you went to the owner for payment, he gave you $300 for washing it. You washed it approximately 15 times. Your friend requests 1/16th of the payment.
He also claims that without his help in the first place, this would not have converted into a paid venture for either of you (which is hard to prove), and therefore that initial input was worth more than the 1/16th, and requests an additional % of the share.
When you went to the owner for payment, he gave you $300 for washing the car. The owner gave you, not your friend. You. The owner only wants to pay you for your efforts, and at not point wanted to pay your friend.
Instead of asking the owner for payment, your friend now demands part of your $300, because you are less intimidating to bully around.
Your friend also demands a portion of all the money from all other cars you have washed after that time you washed a car together. Because if it wasn't for that first car wash together, he claims you would not have been able to figure out the sales process for washing cars for money. So he is entitled to dividends for eternity.
Years later, it turns out that this was a bona fide money tree. I think you and the city should put my name on some branches, since I was there in the beginning. If it takes 48 months for the tree to reach maturity, and I was there for the first month, then 1 branch for every 48 of your branches seems fair.
At this point, no one owns the tree. I decide to officially file for ownership of the tree from the city government, paid all the filing fees, and was granted 100% of the tree with all the papers from the government.
5 years later, on the day I am about to sell my tree, you sue me for ownership of the tree. Does that seem fair?
Or let's put this another way.
I go on crunchbase, find 30 startups in Palo Alto, take their team info and write an application to an incubator and put myself as co-founder. I tell these startups about this and some of them decide to just ignore me because it's not worth the effort to tell me to go away.
Years later, one of the startups is about to get sold. I have made zero contributions to the startups, but there is an application saying I had the title of co-founder. I decide I am entitled ownership of the company, because I helped them apply to an incubator. I sue them to block their acquisition.
Would you allow me to do this?
(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.