Tesla Lawsuit: The Incredible Importance of Being a Founder

Wade through the 146 pages of Tesla Motors founder Martin Eberhard’s lawsuit against Tesla, and its current CEO, Elon Musk, and one thing is clear: Eberhard wants his legacy as the founder (along with co-founder Marc Tarpenning) of Tesla to be widely known and acknowledged. More specifically, he wants to tell the world that Musk is not the founder of Tesla. Eberhard cites dozens of media articles (almost three-quarters of the document consists of attached media articles) that he says have inaccurately named Musk as the founder or inventor of the company, and he accuses Musk of trying to “rewrite history” by trying “to take ownership of the idea behind Tesla Motors.”

While the document includes a lot to raise eyebrows about (Business Insider calls it the “Silicon Valley equivalent of a McDonald’s coffee lawsuit”) the accusation begs the questions: What is the definition of a founder, and why is the title so important to entrepreneurs?

I asked several founder friends for their thoughts and got back some good insights that I wanted to share. The clearest answer is that a founder is the one (or ones) who generated the idea, first developed the concept, and created or invented the product. Beyond the concept, “founder” is also an actual title, like CEO or director of business development, that is agreed upon and even negotiated. And that’s where the line can get fuzzy in some startups; it’s actually not that uncommon for people who come onto a company shortly after the original founder, to want, ask for, or even receive founder status.

If there are two official “co-founders” of a company (like Eberhard says there are for Tesla) then it means those two people had an agreement that both of their contributions were vital for the creation of the idea, regardless of the fact that perhaps the nugget of the concept might have come more from one than the other. When early members of a team end up parting ways on negative terms, it naturally increases the chances that there will be a disagreement, confusion or misrepresentation about who the founders are.

In its conceptual meaning, the question of who really founded a company is debatable, to a degree. But the question of who holds the formal title of founder is not. I won’t pretend to have much insight into the technicalities of Eberhard’s lawsuit, but his complaint largely seems to be about Musk allegedly representing himself conceptually as a founder, not that Musk is using the official title of founder. (If you look at Tesla’s Team page there is no mention of Musk as “founder.”) It seems like appropriating the concept of being a founder would be pretty difficult to prove legally and could be more of a case of ethics than the law.

Why Is the Founder’s Title So Valuable?

For those not used to the entrepreneurs in Silicon Valley, you might be wondering why someone would go to such great lengths to be recognized as a founder? There are a couple reasons. First off, the founder is often the one who puts up the most risk — financially, reputation-wise and through time commitments. At the beginning of a company, the founder is carrying the weight of the idea on his or her shoulders. Most of the time, the founders have the most equity. If the company flops, the founder bears the brunt (lost time, reputation, money) and if the company succeeds, the founder can reap the most rewards (money or reputation). In Eberhard’s argument, the risks and hardships were high to start Tesla, and now that the company is well-known and is producing vehicles (arguably successful by some standards), he wants recognition for that early risk.

Along with reputation and reward, founder is also a title that makes it easier to generate future wealth in the entrepreneurial ecosystem. It’s easier to raise money, attract a higher salary, attract talented employees, and in general to start another business after being a successful founder.

For entrepreneurs, recognition as a founder also holds deeper, personal value. It’s linked with being the creator of something that leads to progress (whether that’s in a niche business or on a greater scale), and joining the ranks of game-changing innovators. In Eberhard’s case, as with many entrepreneurs, the sense that he has contributed to progress seems to shape his identity. He describes himself as “a technological entrepreneur who has spent his life studying or creating innovative technology to improve human society and the environment.”

The notion of being a founder and contributing to progress is one that is at the heart of U.S. culture. In the United States, creating a business is prized above keeping a business going, thriving within an existing company, or fixing a failing business. (As one founder I asked pointed out, look at the tepid to negative attitudes toward the execs trying to fix broken businesses in the current economic crisis.) Another founder I talked to pointed to the Founding Fathers as examples of the roots of U.S. culture being tied to founding something, taking risk and delivering progress.

With so many financial and social implications attached to the founder title, I’m actually surprised that lawsuits between feuding founders don’t emerge more often in Silicon Valley.