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Comment by patio11 | Hacker News Reader

This would be a very penetratingly insightful criticism if you had never heard of Airbnb, Dropbox, Twilio, etc etc. Some people at the current classes of YC and 500 Startups may well find themselves working for AmaGooBookSoft in 4 years, and may that be a happy outcome for all concerned, but you've got to torture the math to come to the conclusion that hiring acquisitions are where most of the money is changing hands.

That said, it totally makes sense for AmaGooBookSoft to pay at least some engineers amounts of money which historically were not awarded to technical employees. This should be priced into everyone's expectations, startup-affiliated or no.

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"you've got to torture the math to come to the conclusion that hiring acquisitions are where most of the money is changing hands."

Wait...what? You're cherry-picking the top 10% of startups (maybe the top 1%), and criticizing this guy for torturing math? For every one Dropbox, there are perhaps a handful of others that get aqui-hired, and dozens more that just fail silently. That's just basic VC economics. Maybe the bulk of the money gets transferred to the success stories, but that's little comfort to the hundreds of pretenders to the throne who don't go anywhere.

TeachStreet is a perfect example -- I met Schappell a startup breakfast in Seattle shortly after he launched the site. At that same breakfast were at least a dozen other startup founders. I've followed many of them since then, and nearly all have given up (in fact, one of those founders now works at TeachStreet). Schappell made it to acquisition by a company for which he used to be a director. There are usually reasons that these things happen.

Dropbox's last valuation was about $4bn, so if a "handful" of startups have talent acquisitions, which tend to be in the $5 to $50m range, that would confirm his argument.

"Maybe the bulk of the money gets transferred to the success stories, but that's little comfort to the hundreds of pretenders to the throne who don't go anywhere."

Yeah, I was kind of enjoying this oddball view of the universe, however much handwaving it required, until we hit the last paragraph, where the author tried to address the phenomenon of startups that actually work out:

It’s from among those ugly ducklings that the swans of the new age emerge: FB, Goog, Twitter, Yahoo! and others — no one wanted them at first — then they couldn’t get enough of them.

There is only so much handwaving that one can get away with. "Ugly ducklings" that "no one wanted"? You just can't pretend that existing companies didn't, e.g., know that Facebook was worth serious money, pretty quickly. They offered Zuckerberg real money for Facebook. According to a book quoted by this extremely-irritatingly-formatted article at Business Insider, the buyout offers started four months after Facebook started:

http://www.businessinsider.com/all-the-companies-that-ever-t...

And Dropbox? Everyone and his brother has dreamed of buying Dropbox. The most famous rumored suitor is Apple:

http://www.macrumors.com/2011/10/18/dropbox-indeed-balked-at...

Agreed. He should have read PG's YC Numbers [1]. The overwhelming majority of value in YC's portfolio comes from the top 10% all of which have likely turned down numerous acquisition offers. YC would much rather an IPO or late stage acquisition vs. acqui-hire liquidity event.

[1] http://ycombinator.com/nums.html

so... wouldn't it make sense for the other 90% to be acqhired vs taking up space in the bottom 90% of the yc stable?

Yes, but the company doesn't necessarily know whether it's going to be in that top 10% when acqui-hire offers occur. They usually occur on the upward trajectory of a company. So most investors would rather the company roll the dice on a bigger exit later than "settle" for the acqui-hire now.

The entrepreneur's perspective may be different.

The real question, I think, is when investors are figuring out whether to go into the startup scene, what are the dominant influences on their decision?

If there's a long tail of Airbnbs that drives most of the expected profits generated by an investment strategy, then the status quo understanding of things--buy a bunch of lotto tickets, and make a bundle when one hits the jackpot--is probably an accurate representation of the market strategy.

If the median investor isn't going to make any money from getting a big hit, though, it's a different story. Most value is going to come from talent acquisitions. In which case, the article is right, and the incredible sea of funding available today is effectively a pooled set of resources by big corporations that are funneled to VCs in exchange for recruitment and building of effective teams. Which would make VCs the best-compensated HR managers in history.

There's also no reason both can't be true. Maybe the majority of profits are generated by Dropboxes, but the typical VC understands that those are lotto tickets and is relying mostly on the latter scenario.

It's an interesting point he makes, but you're right, he has no numbers to back it up. Doesn't anyone keep data startups and acquisitions?

Crunchbase has a section on acquisitions. Never used it personally though.

http://www.crunchbase.com/acquisitions?page=1

> Doesn't anyone keep data startups and acquisitions?

Pretty much all of the M&A guys have a column in the table which lists $$/head.

The number is in the nosebleed sections of valuation lately, as near as I can tell. I doubt it will end well.

It's somewhat disingenuous anyway, since Amazon, Google, Facebook, and Microsoft were all started within living memory, and Facebook hasn't even really exited yet.

This would be a very penetratingly insightful criticism if you had never heard of Airbnb, Dropbox, Twilio, etc etc.

i.e "if you had never heard of the 1% of exceptions to your rule...".

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