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This has the potential to derail the merger, not just delay it, and would explain Jeremy's position. The reason is that any acquirer will ask for the consent o

This has the potential to derail the merger, not just delay it, and would explain Jeremy's position. The reason is that any acquirer will ask for the consent of a very high threshold of shareholders for an acquisition. We're talking sometimes as high as 95% of shareholders. Note that this is not people with options, but those who are actual shareholders. In practice, this isn't a problem because usually you have the shareholders generally lined up before you start the process of sale. And you also have drag-along provisions in the various stock agreements where the stock holder agrees to vote with the majority of holders of that class of stock, so large holders can pretty much make a merger happen if they wish. In this case, Jeremy can claim that he is owed a huge percentage of the equity. Because there are no written agreements where his rights to the equity lapse, regardless of how long he worked, that putative equity is his. And in that case, more than enough for him to veto the merger. Tough spot for Kyle to be in, but I'm shocked with his prior startup experience that he didn't get this resolved earlier. It would have been easy to have something be written up and signed for next to nothing right as Jeremy left. I sympathize with Sam and Kyle over this, but unfortunately the legal world is an alternative universe, and they need Jeremy to close the deal.

delinka 11y ago
Assuming Sam's story is accurate, and given your comments: "In this case, Jeremy can claim that he is owed a huge percentage of the equity. Because there are no written agreements where his rights to the equity lapse..." This sounds like anyone can make the claim. If they set foot in the office, they have a claim. Perhaps someone substituted for the usual janitor one night; then he shows up with a claim. Maybe someone had lunch in the same restaurant nearby, chimed in with a sarcastic comment about anything, and shows up over two years later with a claim. I cannot fathom the situation being tenable. "It would have been easy to have something be written up and signed for next to nothing right as Jeremy left." And if Jeremy refused to sign? Would that have been further evidence (e.g. of Kyle trying to push Jeremy out) Jeremy can use against Kyle in this situation to say he's owed more?
- CPLX 11y ago
  > someone had lunch in the same restaurant nearby, chimed in with a sarcastic comment about anything, and shows up over two years later with a claim. There's a substantive difference between this sentence, and someone who is listed on a written, successful, YC application as a founder of the company. As such your comment is disingenuous.
  - Idontagree 11y ago
    I don't really have alot of experience in this, but sam says there that Jeremy left the YC interview, doesn't that mean he wouldn't be on the application? I'm sure there's more to it, thus why I'm asking.
    - TAForObvReasons 11y ago
      Read the post: Kyle and Jeremy applied to YC together but Jeremy left before the YC interview. I interpret that sentence to mean that the original application included both people but Jeremy left sometime between the original application and the interview.
      - CPLX 11y ago
        Yes, and since the application lists him as a founder, and "founders" in YC context are required to have at least 10% equity, it's a reasonable assumption that he had at least that much equity on that day. It's right there in writing. The next question is, on what day was that equity no longer his, and by what means? If there's no documentation of that ever happening they have a genuine problem.
        grey-area 11y ago
        It depends, did a company even exist prior to yc? If not, the claim for equity is pretty shaky as there was no equity at the time.
TAForObvReasons 11y ago
I wonder if Sam actually wants to torpedo the deal. Sam is experienced and hopefully wouldn't let emotions get the best of him in a business situation. And I can't imagine GM wants to get involved until the conflict is resolved.
- jboydyhacker 11y ago
  Oh hell no. Deals are fragile things- so are startups and I dont think what he does torpedoes it nor would he intentionally do that. He's just trying to encourage a settlement. I think GM still could close even if this drags on to court since it's a very weak claim and an escrow could be used to handle most of the problems. I think this deal still closes - my advice is if you worked for 1 month as a comfortable and it's more than like 500K - take it. My guess he's being offer ed 5m+ or so - if so he's insane not to jump at it. It could go to zero.
redshirtrob 11y ago
> Tough spot for Kyle to be in, but I'm shocked with his prior startup experience that he didn't get this resolved earlier. Same here. I'm equally shocked that YC didn't notice the missing founder when the program started and ensure the proper paperwork had been handled. I guess the lesson is that even experienced founders and investors can make really huge mistakes.
- BinaryIdiot 11y ago
  > I'm equally shocked that YC didn't notice the missing founder when the program started and ensure the proper paperwork had been handled. Well wasn't there around 80+ companies in their batch? Hard to notice everything, even when companies are split up across partners. Not that this is YC's fault but it's certainly something they could have noticed at the first meeting.
  - TAForObvReasons 11y ago
    > Hard to notice everything ... Not that this is YC's fault In the YC application both names showed up. In the interview only one person was considered part of Cruise. This is corroborated by the blog post: Kyle and Jeremy applied to YC together but Jeremy left before the YC interview The interview should've been the moment to make sure that the matter was settled. Generally these legal situations don't just magically resolve themselves. Either YC didn't notice the fact that only one person showed up and attended (which is extremely sloppy due diligence) OR YC didn't think this would be an issue (doubtful especially for veteran investors) OR Kyle lied to YC about the situation (plausible, but even so I would expect YC to demand paperwork demonstrating the matter was resolved)
    - BinaryIdiot 11y ago
      Fair enough I mostly meant with so many companies to meet with I wasn't entirely surprised but you're right they were made aware of this and it should have been topic #1 or #2 in their first meeting.
  - chetanahuja 11y ago
jboydyhacker 11y ago
One strategy that might be going on - get as much out into the public as fast as possible and gain sympathy and in turn comfort from buyers counsel. GM's lawyers are probably pretty conservative but if they can get comfortable that the claim is weak they can likely craft a structure that would allow the merger to close without resolving this dispute. Likely setting up some sort of escrow agreement to set aside proceeds until the lawsuit it settled. If they get declaratory judgement- they win and can close. If they don't it gives GM's lawyers time to figure out a structure that allows them to close anyway. In that scenario (loss on Declaratory Judgment) Kyle and Jeremy could fight it out or settle without derailing the merger.
chris11 11y ago
Shouldn't this have also come up in the preliminary research before this deal became public? I personally remember getting asked to sign some legal documents after I had been working full time. I had originally started out as a contractor, but then went to full-time. And my contracting agreement was slightly different than the agreement I signed when I accepted the full-time offer. So I think some lawyer noticed the discrepancy and decided it needed to be taken care of. I don't remember any differences being important to me personally, but from that I would assume that Jeremy's relationship and contracts with Cruise would come up prior to the public announcement as part of conducting due diligence.
- jboydyhacker 11y ago
  It doesn't sound like Kyle knew there was a claim. He probably just assumed since he had a vesting schedule which is standard so would anyone else. "only came up after deal announced".... Obviously probably regrets that assumption now.
  - chris11 11y ago
    No, I mean I think maybe GM's legal team should have figured out about this situation before the merger was publicly announcement. Sure, maybe no-one at Cruise would have thought to bring it up, but I'd expect that the due diligence process might be thorough enough to catch it.
    - jboydyhacker 11y ago
      If the Cruise team didn't even know it was a problem- no way for GM to discover it. If the corporate entity is unaware- there would be nothing for GM to discover.
whazor 11y ago
I guess Sam does not really care that much about this specific deal. But he want to make a bigger point so that we all can learn from this.
DavidWanjiru 11y ago
But if Kyle incorporated Cruise before being introduced to Jeremy as stated in the complaint, how can Jeremy claim to own stock in a company incorporated without his knowledge, and incorporated before he even knew the incorporator, unless such stock was issued to him explicitly? Like, if I went and discussed some search stuff with Google, does that give me a share in Google stock? Even if I gave Google some groundbreaking ideas/techniques for the next frontier in search that makes them bazillions, the most I can claim is they stole my idea, not that I own part of the stock. Am I right?
- HappyTypist 11y ago
  I suspect there may have been recorded verbal agreements like emails or texts saying "We will split equity evenly" that may not stand up under a court test, but may have possible merit to disrupt the takeover.
- Retric 11y ago
  His name was on the YC application. YC requires each founder to have 10% of the company. Barring any other written agreements this is clear written evidence he had a significant share at that point.
sammyneil 11y ago
Well obviously Sam Altman is on the side of wanting the merger to go trough. He's an investor himself and has a lot of his personal gains at stake. Please don't make a biased post come across as unbiased.

delinka 11y ago

Assuming Sam's story is accurate, and given your comments: "In this case, Jeremy can claim that he is owed a huge percentage of the equity. Because there are no written agreements where his rights to the equity lapse..." This sounds like anyone can make the claim. If they set foot in the office, they have a claim. Perhaps someone substituted for the usual janitor one night; then he shows up with a claim. Maybe someone had lunch in the same restaurant nearby, chimed in with a sarcastic comment about anything, and shows up over two years later with a claim. I cannot fathom the situation being tenable. "It would have been easy to have something be written up and signed for next to nothing right as Jeremy left." And if Jeremy refused to sign? Would that have been further evidence (e.g. of Kyle trying to push Jeremy out) Jeremy can use against Kyle in this situation to say he's owed more?

CPLX 11y ago
> someone had lunch in the same restaurant nearby, chimed in with a sarcastic comment about anything, and shows up over two years later with a claim. There's a substantive difference between this sentence, and someone who is listed on a written, successful, YC application as a founder of the company. As such your comment is disingenuous.
- Idontagree 11y ago
  I don't really have alot of experience in this, but sam says there that Jeremy left the YC interview, doesn't that mean he wouldn't be on the application? I'm sure there's more to it, thus why I'm asking.
  - TAForObvReasons 11y ago
    Read the post: Kyle and Jeremy applied to YC together but Jeremy left before the YC interview. I interpret that sentence to mean that the original application included both people but Jeremy left sometime between the original application and the interview.
    - CPLX 11y ago
      Yes, and since the application lists him as a founder, and "founders" in YC context are required to have at least 10% equity, it's a reasonable assumption that he had at least that much equity on that day. It's right there in writing. The next question is, on what day was that equity no longer his, and by what means? If there's no documentation of that ever happening they have a genuine problem.
      - grey-area 11y ago
        It depends, did a company even exist prior to yc? If not, the claim for equity is pretty shaky as there was no equity at the time.

TAForObvReasons 11y ago

I wonder if Sam actually wants to torpedo the deal. Sam is experienced and hopefully wouldn't let emotions get the best of him in a business situation. And I can't imagine GM wants to get involved until the conflict is resolved.

jboydyhacker 11y ago
Oh hell no. Deals are fragile things- so are startups and I dont think what he does torpedoes it nor would he intentionally do that. He's just trying to encourage a settlement. I think GM still could close even if this drags on to court since it's a very weak claim and an escrow could be used to handle most of the problems. I think this deal still closes - my advice is if you worked for 1 month as a comfortable and it's more than like 500K - take it. My guess he's being offer ed 5m+ or so - if so he's insane not to jump at it. It could go to zero.

redshirtrob 11y ago

> Tough spot for Kyle to be in, but I'm shocked with his prior startup experience that he didn't get this resolved earlier. Same here. I'm equally shocked that YC didn't notice the missing founder when the program started and ensure the proper paperwork had been handled. I guess the lesson is that even experienced founders and investors can make really huge mistakes.

BinaryIdiot 11y ago
> I'm equally shocked that YC didn't notice the missing founder when the program started and ensure the proper paperwork had been handled. Well wasn't there around 80+ companies in their batch? Hard to notice everything, even when companies are split up across partners. Not that this is YC's fault but it's certainly something they could have noticed at the first meeting.
- TAForObvReasons 11y ago
  > Hard to notice everything ... Not that this is YC's fault In the YC application both names showed up. In the interview only one person was considered part of Cruise. This is corroborated by the blog post: Kyle and Jeremy applied to YC together but Jeremy left before the YC interview The interview should've been the moment to make sure that the matter was settled. Generally these legal situations don't just magically resolve themselves. Either YC didn't notice the fact that only one person showed up and attended (which is extremely sloppy due diligence) OR YC didn't think this would be an issue (doubtful especially for veteran investors) OR Kyle lied to YC about the situation (plausible, but even so I would expect YC to demand paperwork demonstrating the matter was resolved)
  - BinaryIdiot 11y ago
    Fair enough I mostly meant with so many companies to meet with I wasn't entirely surprised but you're right they were made aware of this and it should have been topic #1 or #2 in their first meeting.
- chetanahuja 11y ago

jboydyhacker 11y ago

One strategy that might be going on - get as much out into the public as fast as possible and gain sympathy and in turn comfort from buyers counsel. GM's lawyers are probably pretty conservative but if they can get comfortable that the claim is weak they can likely craft a structure that would allow the merger to close without resolving this dispute. Likely setting up some sort of escrow agreement to set aside proceeds until the lawsuit it settled. If they get declaratory judgement- they win and can close. If they don't it gives GM's lawyers time to figure out a structure that allows them to close anyway. In that scenario (loss on Declaratory Judgment) Kyle and Jeremy could fight it out or settle without derailing the merger.

chris11 11y ago

Shouldn't this have also come up in the preliminary research before this deal became public? I personally remember getting asked to sign some legal documents after I had been working full time. I had originally started out as a contractor, but then went to full-time. And my contracting agreement was slightly different than the agreement I signed when I accepted the full-time offer. So I think some lawyer noticed the discrepancy and decided it needed to be taken care of. I don't remember any differences being important to me personally, but from that I would assume that Jeremy's relationship and contracts with Cruise would come up prior to the public announcement as part of conducting due diligence.

jboydyhacker 11y ago
It doesn't sound like Kyle knew there was a claim. He probably just assumed since he had a vesting schedule which is standard so would anyone else. "only came up after deal announced".... Obviously probably regrets that assumption now.
- chris11 11y ago
  No, I mean I think maybe GM's legal team should have figured out about this situation before the merger was publicly announcement. Sure, maybe no-one at Cruise would have thought to bring it up, but I'd expect that the due diligence process might be thorough enough to catch it.
  - jboydyhacker 11y ago
    If the Cruise team didn't even know it was a problem- no way for GM to discover it. If the corporate entity is unaware- there would be nothing for GM to discover.

whazor 11y ago

I guess Sam does not really care that much about this specific deal. But he want to make a bigger point so that we all can learn from this.

DavidWanjiru 11y ago

But if Kyle incorporated Cruise before being introduced to Jeremy as stated in the complaint, how can Jeremy claim to own stock in a company incorporated without his knowledge, and incorporated before he even knew the incorporator, unless such stock was issued to him explicitly? Like, if I went and discussed some search stuff with Google, does that give me a share in Google stock? Even if I gave Google some groundbreaking ideas/techniques for the next frontier in search that makes them bazillions, the most I can claim is they stole my idea, not that I own part of the stock. Am I right?

HappyTypist 11y ago
I suspect there may have been recorded verbal agreements like emails or texts saying "We will split equity evenly" that may not stand up under a court test, but may have possible merit to disrupt the takeover.
Retric 11y ago
His name was on the YC application. YC requires each founder to have 10% of the company. Barring any other written agreements this is clear written evidence he had a significant share at that point.

sammyneil 11y ago

Well obviously Sam Altman is on the side of wanting the merger to go trough. He's an investor himself and has a lot of his personal gains at stake. Please don't make a biased post come across as unbiased.