4 ms·

An alternative viewpoint (with the caveat that I know about the specifics of this case) is that if you leave a YC company, then not only can you be denied compe

An alternative viewpoint (with the caveat that I know about the specifics of this case) is that if you leave a YC company, then not only can you be denied compensation for your work, but you may be sued for trying to make a claim for it.

acgourley 11y ago
This is "current founder friendly" behavior on the part of Sam. I would argue if you're founding a company that's optimal for you, and you shouldn't be planning for a contingency where you will become an ex founder.
- Bluestrike2 11y ago
  That's naively optimistic. Circumstances can change, and relationships can sour; often, it can happen through no fault of your own. It could a simple a disagreement in the face of mounting stress, somebody needing a quick exit due to life-changing events like an illness, or even just a deadlock over a key decision. Startups are stressful in general, and they usually move at high speed: things change, often quickly. Shareholders' agreements and other contracts (such as those with early consultants and employees, like Jeremy Guillory with Cruise) are meant to protect against this uncertainty. Simply ensuring that there's a clear exit strategy for the founders can ease possible tensions before they arise just through the knowledge that they exist. And if things do go south, it ensures that an exit is as painless as possible for all involved. If you assume things are going to go smoothly, at some point, you're going to be in for a very painful surprise. You should always figure out an exit strategy. Anything less is just dancing on the edge of the volcano.
  - acgourley 11y ago
    Making decisions that optimize outcomes for current founders over ex-founders is not the same as assuming there won't be founder disputes or exits. I just think it creates better incentives.
    - Bluestrike2 11y ago
      I might have misread your intention then, but there shouldn't be a tradeoff between the two at all. If I understand your point correctly, then your agreements would prioritize founders after an exit by eliminating the likelihood of an equity dispute later on but not at the expense of the person who exited at the time of their exit. If that makes sense. In general, shareholders' agreements are all about fair dealing and codifying the nature of your relationships and potential business interactions with one another. They'll cover all sorts of different scenarios that go well beyond buy-sell provisions. Here's a very thorough sample from the ABA [0] for a closely-held corporation. Your attorney would work with you to tailor an agreement to your needs, obviously. In the end, you're just buying out their equity in the company at the time of the sale. Nobody really comes out "ahead." But because nobody really knows how they could arrive at that situation, it's important to ensure that your likely contingencies are covered and that the actual process is clearly defined. For instance, you want to make damned certain that someone can't come back for a second bite at the apple after the fact. Even if their claim is specious, it will still derail a deal. 0. http://www.americanbar.org/content/dam/aba/events/real_property_trust_estate/step/2012/materials/rpte_step_2012_07_09_Dietrich_03_ACTEC_Shareholders_Agreements_CloselyHeld_2006_03.authcheckdam.pdf http://www.americanbar.org/content/dam/aba/events/real_prope...
doh 11y ago
There is no point of me saying anything further as I know nothing about this case particularly outside of what sama just wrote. Anyway I do believe that by this being so public it will encourage at least some founders to consider proper paperwork early on.
- underwater 11y ago
  That seems to be the key.
mrkurt 11y ago
That's not true at all. Speaking as someone who left a yc company shortly before a vesting cliff, yc did a very good job helping the company and I find a reasonable arrangement. They short circuited a lot of the potential bullshit that comes from inexperience.
paul 11y ago
Read the post. Jeremy was never a part of YC, and did not make any meaningful contributions to the company. If this action scares other people like Jeremy away from YC companies, that would be wonderful :)
- underwater 11y ago
  I did. He was involved in the company prior to YC, and initially applied as a cofounder.
- BinaryIdiot 11y ago
  > did not make any meaningful contributions to the company The post never explained what his contributions were or were not. If there was any amount of work done prior to any equity agreements being in place I fail to see how, legally or morally, he would not have at least some piece of the company.
sama 11y ago
There have been plenty of times where I've advocated for the founder that has left a company, but not when they left after a little over a month. That's the reason we have vesting cliffs in the first place.
- underwater 11y ago
  Even founders have a cliff?
  - sama 11y ago
    Yes. We pretty much won't invest without that.
    - dtnewman 11y ago
      just curious... what does "pretty much" mean? Under what circumstances would you invest without this provision?
      - hornbaker 11y ago
        Traction trumps almost everything.
  - BryanBeshore 11y ago
    Everyone should have a cliff, even founders (generally 4-yrs total. 1-yr cliff, then vest every month thereafter). If I recall correctly, every company that goes through YC have cliffs built into their legal documents - or must have them built in when the program commences - for both founders and employees.
  - tptacek 11y ago
    Run, don't walk, from cofounders who refuse a cliff.
  - rajacombinator 11y ago
    The 1 year cliff is a standard SV term that should be reconsidered IMO, because it distorts incentives significantly. A founder/employee who decides between months 6-12 to leave the company has a substantial incentive to stay on in coast mode until the cliff hits. Meanwhile the company continues to lose equity and salary to someone who is no longer committed. Standard vesting already aligns incentives well without a cliff.

acgourley 11y ago

This is "current founder friendly" behavior on the part of Sam. I would argue if you're founding a company that's optimal for you, and you shouldn't be planning for a contingency where you will become an ex founder.

Bluestrike2 11y ago
That's naively optimistic. Circumstances can change, and relationships can sour; often, it can happen through no fault of your own. It could a simple a disagreement in the face of mounting stress, somebody needing a quick exit due to life-changing events like an illness, or even just a deadlock over a key decision. Startups are stressful in general, and they usually move at high speed: things change, often quickly. Shareholders' agreements and other contracts (such as those with early consultants and employees, like Jeremy Guillory with Cruise) are meant to protect against this uncertainty. Simply ensuring that there's a clear exit strategy for the founders can ease possible tensions before they arise just through the knowledge that they exist. And if things do go south, it ensures that an exit is as painless as possible for all involved. If you assume things are going to go smoothly, at some point, you're going to be in for a very painful surprise. You should always figure out an exit strategy. Anything less is just dancing on the edge of the volcano.
- acgourley 11y ago
  Making decisions that optimize outcomes for current founders over ex-founders is not the same as assuming there won't be founder disputes or exits. I just think it creates better incentives.
  - Bluestrike2 11y ago
    I might have misread your intention then, but there shouldn't be a tradeoff between the two at all. If I understand your point correctly, then your agreements would prioritize founders after an exit by eliminating the likelihood of an equity dispute later on but not at the expense of the person who exited at the time of their exit. If that makes sense. In general, shareholders' agreements are all about fair dealing and codifying the nature of your relationships and potential business interactions with one another. They'll cover all sorts of different scenarios that go well beyond buy-sell provisions. Here's a very thorough sample from the ABA [0] for a closely-held corporation. Your attorney would work with you to tailor an agreement to your needs, obviously. In the end, you're just buying out their equity in the company at the time of the sale. Nobody really comes out "ahead." But because nobody really knows how they could arrive at that situation, it's important to ensure that your likely contingencies are covered and that the actual process is clearly defined. For instance, you want to make damned certain that someone can't come back for a second bite at the apple after the fact. Even if their claim is specious, it will still derail a deal. 0. http://www.americanbar.org/content/dam/aba/events/real_property_trust_estate/step/2012/materials/rpte_step_2012_07_09_Dietrich_03_ACTEC_Shareholders_Agreements_CloselyHeld_2006_03.authcheckdam.pdf http://www.americanbar.org/content/dam/aba/events/real_prope...

doh 11y ago

There is no point of me saying anything further as I know nothing about this case particularly outside of what sama just wrote. Anyway I do believe that by this being so public it will encourage at least some founders to consider proper paperwork early on.

underwater 11y ago
That seems to be the key.

mrkurt 11y ago

That's not true at all. Speaking as someone who left a yc company shortly before a vesting cliff, yc did a very good job helping the company and I find a reasonable arrangement. They short circuited a lot of the potential bullshit that comes from inexperience.

paul 11y ago

Read the post. Jeremy was never a part of YC, and did not make any meaningful contributions to the company. If this action scares other people like Jeremy away from YC companies, that would be wonderful :)

underwater 11y ago
I did. He was involved in the company prior to YC, and initially applied as a cofounder.
BinaryIdiot 11y ago
> did not make any meaningful contributions to the company The post never explained what his contributions were or were not. If there was any amount of work done prior to any equity agreements being in place I fail to see how, legally or morally, he would not have at least some piece of the company.

sama 11y ago

There have been plenty of times where I've advocated for the founder that has left a company, but not when they left after a little over a month. That's the reason we have vesting cliffs in the first place.

underwater 11y ago
Even founders have a cliff?
- sama 11y ago
  Yes. We pretty much won't invest without that.
  - dtnewman 11y ago
    just curious... what does "pretty much" mean? Under what circumstances would you invest without this provision?
    - hornbaker 11y ago
      Traction trumps almost everything.
- BryanBeshore 11y ago
  Everyone should have a cliff, even founders (generally 4-yrs total. 1-yr cliff, then vest every month thereafter). If I recall correctly, every company that goes through YC have cliffs built into their legal documents - or must have them built in when the program commences - for both founders and employees.
- tptacek 11y ago
  Run, don't walk, from cofounders who refuse a cliff.
- rajacombinator 11y ago
  The 1 year cliff is a standard SV term that should be reconsidered IMO, because it distorts incentives significantly. A founder/employee who decides between months 6-12 to leave the company has a substantial incentive to stay on in coast mode until the cliff hits. Meanwhile the company continues to lose equity and salary to someone who is no longer committed. Standard vesting already aligns incentives well without a cliff.