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Finding a cofounder is often like dating. You sometimes need to "date" a few people before you find a "girl/boyfriend" (aka cofounder). It's too early for contr

Finding a cofounder is often like dating. You sometimes need to "date" a few people before you find a "girl/boyfriend" (aka cofounder). It's too early for contracts or equity splits at this point, which results in enough ambiguity later on that these issue can arise. I hate the formality of contracts, but is there any good procedure early on for avoiding this in the future? It seems every billion dollar company has a "secret" cofounder that shows up when the money does. I know I've definitely shared ideas and even code with friends, long before my startup became an incorporated startup. I'd feel silly and presumptuous if I started handing out contracts, of course. Maybe something more along the lines of the YC handshake protocol, as opposed to a formal contract? Does it legally matter if you say "Hey, just wanted to acknowledge we talked a lot about this, and wanted to make sure you were okay with [terms]" and record the response?

jonathanwallace 11y ago
Like http://friendda.org/ http://friendda.org/ ?
- gojomo 11y ago
  I wonder if something even better is possible, for the common case of mixing ideas/work for a brief exploratory period, but then deciding to go separate ways (for any of hundreds of reasons). It'd be something that's short and works for early, barely-formal collaborations, that may never form a company. It'd end cleanly – protecting either side – as soon as other more formal contracts/entities are put into place. It'd probably include a mutual non-disclosure aspect, but the heart of it would be: * either party has discretion to end the temporary collaboration * each party has an irrevocable right to further develop/exploit any ideas/plans/proposals that can be shown to have been created during the collaboration period * granting each other that right is the full and only compensation due each other for the collaboration, in the absence of other superceding written agreements regarding stock, employment, compensation, patents, etc. Taking the current case as an example, the former collaborator (Guillory) would have the right to independently develop/license/etc anything shown to have been part of the original discussions. (That is, the content of those discussions – not refinements/extensions added later.) But, after either side having clearly said good-bye, there'd be no further claims on equity/licensing-fees/later-developments.
mikeryan 11y ago
I hate the formality of contracts, but is there any good procedure early on for avoiding this in the future? It seems every billion dollar company has a "secret" cofounder that shows up when the money does. Yes get a lawyer involved at the beginning to draw up a partnership agreement with standard vesting terms. Outside of that no. All that being said its a slippery slope for every guy "who helped find an office" there's a guy who "prototyped our mobile app" or "wrote the first version of our backend". Its very hard to pick the point where someone becomes a founder.
- debacle 11y ago
  It's not about being a founder. It's about creating value. The value creation around finding an office might be 2-5k depending on the area. The value creation around prototyping a mobile application is massively different.
  - morgante 11y ago
    Is it? You can hire a developer to prototype many mobile apps for 2-5k.
gist 11y ago
Contracts will not prevent people from using leverage that they have or being opportunistic. It's helpful for sure (just like locks on your house are). [1] [1] This comes from experience in business (traditional business) for more years than for example SAMA has been alive with a wide variety of characters.
jsprogrammer 11y ago
It seems like it was more than an idea, a joint application was submitted and Jeremy delivered (and possibly financed) the company's first office, according to the article. The big issue I have with this story is the foundation on which Sam's claims about Jeremy's claim sit: >In my opinion, Jeremy’s claim is completely baseless and opportunistic—it obviously comes at a bad time for the company with the merger still pending, and Kyle understandably wanted to avoid a protracted litigation. That a founder doesn't want to argue facts in court, or that an investor thinks it is obvious such a claim would come at a bad time for the company, do not have any bearing on the veracity or pertinence of Jeremy's claim. Yet, this is what the blog post states.
- weaksauce 11y ago
  I disagree. The baseless part is because Sam doesn't think that finding an office space and potentially filling out a YC application being worth value especially since the shares would be somewhat vested after 1 year of work. The opportunistic part comes because of the timing; he was either looking to put the max strain on cruise to get his payout or it was simply odd timing. I would say that it's more likely that it was opportunistic timing to force their hand. I don't think it's common for a company to buy another company with pending litigation over ownership of ideas. At the very least, left unresolved, it would devalue the company by some factor. It has the underpinnings of a shakedown in my eyes. I'd like to hear the other side of the story but I can see this type of situation happening fairly frequently.
  - jsprogrammer 11y ago
    I haven't seen the application, so I can only speculate that it may contain language that acknowledges Jeremy as an owner of the company. The shares wouldn't vest as a result of acceptance into YC, but would have already been Jeremy's by right of his prior founding of the company that applied to YC. Acceptance into YC would have nothing to do with Jeremy owning shares in Cruise. It may very well be a shakedown, but the blog post admits that there was a prior Cruise relationship with Jeremy and that he performed actual work; the article stops short of claiming that Jeremy contributed no funds to the company -- which you'd think would be a point that would be harped upon, especially given the bombastic language used in the preemptive legal filing being discussed. I don't know all of the facts in this case, so, it will be interesting to see what Jeremy says, if he responds.
atom-morgan 11y ago
> Finding a cofounder is often like dating. An important note when so many people criticize hiring for culture fit.
fraserharris 11y ago
The University of Waterloo has provided some free legal documents for this case: "IP Assignment - Potential Collaborator" and "IP Assignment - Joint Venture". They have been crafted for Canadian law, so see a lawyer before using them in other jurisdictions. http://wiki.velocity.uwaterloo.ca/Legal http://wiki.velocity.uwaterloo.ca/Legal
- Everhusk 11y ago
  This is amazing, thank you for sharing!

jonathanwallace 11y ago

Like http://friendda.org/ http://friendda.org/ ?

gojomo 11y ago
I wonder if something even better is possible, for the common case of mixing ideas/work for a brief exploratory period, but then deciding to go separate ways (for any of hundreds of reasons). It'd be something that's short and works for early, barely-formal collaborations, that may never form a company. It'd end cleanly – protecting either side – as soon as other more formal contracts/entities are put into place. It'd probably include a mutual non-disclosure aspect, but the heart of it would be: * either party has discretion to end the temporary collaboration * each party has an irrevocable right to further develop/exploit any ideas/plans/proposals that can be shown to have been created during the collaboration period * granting each other that right is the full and only compensation due each other for the collaboration, in the absence of other superceding written agreements regarding stock, employment, compensation, patents, etc. Taking the current case as an example, the former collaborator (Guillory) would have the right to independently develop/license/etc anything shown to have been part of the original discussions. (That is, the content of those discussions – not refinements/extensions added later.) But, after either side having clearly said good-bye, there'd be no further claims on equity/licensing-fees/later-developments.

mikeryan 11y ago

I hate the formality of contracts, but is there any good procedure early on for avoiding this in the future? It seems every billion dollar company has a "secret" cofounder that shows up when the money does. Yes get a lawyer involved at the beginning to draw up a partnership agreement with standard vesting terms. Outside of that no. All that being said its a slippery slope for every guy "who helped find an office" there's a guy who "prototyped our mobile app" or "wrote the first version of our backend". Its very hard to pick the point where someone becomes a founder.

debacle 11y ago
It's not about being a founder. It's about creating value. The value creation around finding an office might be 2-5k depending on the area. The value creation around prototyping a mobile application is massively different.
- morgante 11y ago
  Is it? You can hire a developer to prototype many mobile apps for 2-5k.

gist 11y ago

Contracts will not prevent people from using leverage that they have or being opportunistic. It's helpful for sure (just like locks on your house are). [1] [1] This comes from experience in business (traditional business) for more years than for example SAMA has been alive with a wide variety of characters.

jsprogrammer 11y ago

It seems like it was more than an idea, a joint application was submitted and Jeremy delivered (and possibly financed) the company's first office, according to the article. The big issue I have with this story is the foundation on which Sam's claims about Jeremy's claim sit: >In my opinion, Jeremy’s claim is completely baseless and opportunistic—it obviously comes at a bad time for the company with the merger still pending, and Kyle understandably wanted to avoid a protracted litigation. That a founder doesn't want to argue facts in court, or that an investor thinks it is obvious such a claim would come at a bad time for the company, do not have any bearing on the veracity or pertinence of Jeremy's claim. Yet, this is what the blog post states.

weaksauce 11y ago
I disagree. The baseless part is because Sam doesn't think that finding an office space and potentially filling out a YC application being worth value especially since the shares would be somewhat vested after 1 year of work. The opportunistic part comes because of the timing; he was either looking to put the max strain on cruise to get his payout or it was simply odd timing. I would say that it's more likely that it was opportunistic timing to force their hand. I don't think it's common for a company to buy another company with pending litigation over ownership of ideas. At the very least, left unresolved, it would devalue the company by some factor. It has the underpinnings of a shakedown in my eyes. I'd like to hear the other side of the story but I can see this type of situation happening fairly frequently.
- jsprogrammer 11y ago
  I haven't seen the application, so I can only speculate that it may contain language that acknowledges Jeremy as an owner of the company. The shares wouldn't vest as a result of acceptance into YC, but would have already been Jeremy's by right of his prior founding of the company that applied to YC. Acceptance into YC would have nothing to do with Jeremy owning shares in Cruise. It may very well be a shakedown, but the blog post admits that there was a prior Cruise relationship with Jeremy and that he performed actual work; the article stops short of claiming that Jeremy contributed no funds to the company -- which you'd think would be a point that would be harped upon, especially given the bombastic language used in the preemptive legal filing being discussed. I don't know all of the facts in this case, so, it will be interesting to see what Jeremy says, if he responds.

atom-morgan 11y ago

> Finding a cofounder is often like dating. An important note when so many people criticize hiring for culture fit.

fraserharris 11y ago

The University of Waterloo has provided some free legal documents for this case: "IP Assignment - Potential Collaborator" and "IP Assignment - Joint Venture". They have been crafted for Canadian law, so see a lawyer before using them in other jurisdictions. http://wiki.velocity.uwaterloo.ca/Legal http://wiki.velocity.uwaterloo.ca/Legal

Everhusk 11y ago
This is amazing, thank you for sharing!