The Acqui-hire Scourge
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It's been an incredible journey and all of us have grown our skills and are moving our careers forward working with the new company. It's been the best thing that could have happened to my career and all I hear on HN, and now in the media, is people bitching and moaning that these people shouldn't be acqui-hired and that all these acquisitions are bogus? Give me a break. It's business. That's all it is. This is capitalism working. Companies investing in human talent hoping to produce long term revenue and results. We built something together at our startup. It didn't work out but our new company liked what we built enough to bring us in and solve the same problem with more resources.
Downvote me, but I'm sick of hearing all this complaining about acquihires. Especially from journalists who's only job is to tell people their opinion...real tough work.
It's bad for users/customers, who frequently lose access to products they had been using as they get shut down or EOL'd as part of the acquihire.
It's bad for entrepreneurs trying to build a real business since customers will have no reason to believe that this particular company isn't just being built to flip.
It's bad for the world since it means that talented people have an incentive to build a showcase rather than something truly useful.
I strongly believe that most acquihires are a bad deal for the buyer. Or at least to the shareholders, though maybe maximizing shareholder value isn't the main reason these deals get made. Even "proper" acquisitions are horrible deals most of the time, and there the buyer is actually getting something tangible rather than an ephemeral team. I do find it almost impossible to believe that this is actually a cost-effective recruiting method. I'm sure there are exceptions, however.
And while it's not possible to categorically say this is bad, I personally find the inequality that results from acquihires a bit distasteful. Two people can do the same work at the same company as well at grossly different compensation levels due to one getting hired there, while the other got a retention bonus as part of the acquihire. A justified reward for the extra risk of joining a startup? Maybe, but it just doesn't feel like that to me.
Who can say how many of those products would have been shut down or EOL'd as part of a bankruptcy?
> It's bad for entrepreneurs trying to build a real business
As someone who recently sold his company in an acquihire, I resent your suggestion that I wasn't trying to build a real business.
> I strongly believe that most acquihires are a bad deal for the buyer.
My new boss & team seem to be ecstatic with the deal so far... maybe we're an outliner?
> I do find it almost impossible to believe that this is actually a cost-effective recruiting method.
Do you have any clue how much money the likes of the big tech companies spend on recruiting? I get the sense that you have no clue. Most acquihires are peanuts, compared to the aggregate cost of assembling a high caliber team by other means.
I won't comment on the particulars of our deal, suffice to say that our company's numbers were traveling "up and to the right" and that we had investor interest. We drank a lot of beer and lost a lot of sleep, but ultimately decided that the acquihire was the right move for everyone involved.
Never forget, startups are a Repeated Game: http://en.wikipedia.org/wiki/Repeated_game
I'm sure that your team made what is the right choice for you (congratulations!). But dglassan was asking about why there is hate for acquihires. To understand it, you need to look at it from the point of view of the other stakeholders, not from the point of view of those who benefitted from it.
That said, I'm a bit puzzled by the sense of resentment, since by your own description everything was going well for your company, and you decided to be acquihired instead. On the surface it seems like you (plural) weren't all that committed to the business after all.
I said "up and to the right" and I said "investor interest". I didn't say "hockey stick" or "feeding frenzy". Like I said, startups are a repeated game. Sometimes, you weigh the options, and decide that it's better to take a small win now to strengthen your position for the next iteration. The alternative is to risk burning yourself to the ground and wind up with nothing left for the next go.
> On the surface it seems like you (plural) weren't all that committed to the business after all.
I've seen a number of acquihires from close range and been through one myself. It's an incredibly bittersweet experience. It's a stressful life event, that is usually at the end of a stressful period of lackluster customer or investor response, and after an intense period (read: years) of pouring your soul into a business. At various points throughout the process, four out of the five of us had severe stress-induced illnesses.
When the deal closed, we celebrated. We were more relieved than we were excited. Note that lawyers suck most of the fun out of this celebration by stretching the victory out over several weeks.
> you need to look at it from the point of view of the other stakeholders, not from the point of view of those who benefitted from it
When we announced the shutdown our product, the overwhelming number of responses we got from users were disappointed, but congratulatory. Watching the social media and blogger buzz was thrilling. However, we got our fair share of angry folks, including a number who wanted to make their hatred for us and our new corporate overlords as public as within their power. We tried to do the best we could by all of our users: super polished data export feature, split-second response times on email tech support, phone calls to coach people through the alternatives for their use cases, and ultimately sent them some free stuff from the acquiring company. We deeply cared about the other stakeholders who didn't benefit. Bittersweet doesn't even begin to cover it.
Fast forward 30 and 60 days to the final data purges and other legal bookkeeping. Some corporate lawyer sends you a cold email asking you to stick another stake in the corpse of your baby. Then the next afternoon, you spot somebody else categorically bashing talent acquisitions because they lack an understanding of what it's really like.
You made some claims about it being bad for everyone. The goal of my post was to point out that it's a far more complex and nuanced issue than you'd ever understand if you've never been through one, or at least watched one from the next pod of desks over in a coworker space.
I have no clue but I'm quite interested to learn. How much do they spend?
It's been said that engineers are worth up to $1M in talent acquisitions [1]. We talked to lots of folks while negotiating our deal and that number matches what we learned for the total cost of the acquisition, including retention packages (about 3 years) and the cash portion of the deal.
For the same of argument, let's describe a large and expensive talent acquisition, as a sort of "worse case" for the acquiring company. I'll use roundish numbers to make the math easy: Let's say a $2M raise on a $8M valuation, for a $10M post money valuation in a company that had 10 engineers at the time of acquisition.
Usually, in talent acquisitions, the investors barely break even, but occasionally, they get 2X. So again for our example company, let's say that the acquirer pays $4M cash up front and $16M over 3 years for the 10 employees. That's $2M per engineer! Waaay off the charts. If you assume an even distribution (never the case; the founders and key people get a bigger slice), then that's an average of $533k/year per person.
If the average senior engineer's salary is $150k/yr, then then acquired employees need to be 3.6X more productive than a same-sized team of typical senior engineer to justify the costs of the acquisition. Note that this entirely ignores recruiting: Finding 10 senior engineers is fucking hard. Even if it was dirt cheap (it's not), it costs a lot of time and it's a gamble on creating a team of 10 people who truly gel. If you've ever worked at a big company, you know that there are always teams that outperform others by factors of INFINITY (ie. some teams are incapable of shipping), never mind beating the average by 3.6X.
Again, this is a pretty bad deal for the acquirer. The overwhelming majority of talent acquisitions are muchmuch* smaller. In those smaller deals, the economics make even more sense for the buyer.
I realize that my math is fuzzy here. However, you gotta believe that the people running fortune 500 companies have done the math in far greater detail and decided that it's economical. It would be a worthwhile project for someone to create a more thorough analysis with what-if variables.
[1] http://www.quora.com/Startup-Acquisitions/Does-Facebook-have...
In an talent acquisition structured as an asset deal, the acquirer doesn't actually purchase the company's stock. Instead, the buyer gives the seller money for the purchase of the company's IP and other assets and the seller then lays off it's staff with a somewhat informal agreement that all of the employees will sign negotiated employment contracts with acquirer. The result is that the percentage ownership doesn't come into play directly for the employees.
Generally, the acquiring company has an interest in optimizing their position for the repeated game (ie. they don't want to piss off investors, so they keep getting deals like this). The minimal required to avoid pissing off the investors is to give them their money back, although smart entrepreneurs will push to get return for their investors (often at the founders' expense) to strengthen their own position if they ever plan to raise money for a future venture.
Now, since an asset deal isn't actually purchasing stock, they aren't really establishing a value for the company. There's this indirect valuation, which is somewhat advertised as the "total deal size". So when you hear about a X million dollar talent acquisition, you're often hearing about the total amount of money that the acquirer expects to pay to all parties over the vesting period.
First: who says that your start-up team consists of 10 senior (as in, actually experienced) engineers? Who says they actually work well together? Basically, who has determined that the acquihire is a smarter recruiting method than poaching a team off a BigCo somewhere or just hiring a bunch of friends out of university?
I don't even know why we're talking about teams that can't ship; don't they just get hired and then fired again for a much lower cost than $533k/man-year? Even if we have to pay double the nominal salary for an employee's "total cost of employment" each year, Team Suck will simply never match the costs of acquihiring Team Wannabe the Very Best Like No-One Ever Was.
It seems to me like acquihiring involves a huge financial premium paid solely for the "surety" of hiring an "established" and "successful" team. Basically, it looks like some companies are paying big, big door prizes just for having lived the Start-Up Experience, well beyond what they pay for even more experienced employees.
Just another form of business-school capitalist arrogance, I'd call it: the belief that the closer someone has been to business administration, the more they're worth as an employee (even if they were only an employee at "their" previous "company").
I was with you until you decided that, in response to people trivializing your work and your contributions, you turn around and trivialize the work and contributions of an entire profession.
On the plus side, I do think it takes a lot of time, energy, and luck to put together a highly functioning team and that has value -- maybe that's being overvalued too though...
That implies a correlation between what you're working on, and whether you'll get acquihired. From what I've seen, the aquihiring companies will offer on anyone who can get to 'hello world' of startups.
> the trend to acqui-hires is particularly insidious for investors
Obviously, if you already have investors and you take the acquihire, there should be a long conversation w/ the investors first. At this point in the company, the acquihire is a signal that the startup won't work, or new investors won't join.
Also, "I need my investors to make 2-3x" is a perfectly valid negotiation strategy. For angels, that's a decent return. (Of course, matters are different for VC). But the bar for taking an acquihire after a series A is much much higher.
"Institutional" investors on the boards of unproven companies want those companies to take risks. Everybody's a risk taker in the first 6-9 months, when the runway seems 3 startups long. Nobody is taking those early offers. But later on, the acqui-hire market might make it easy for operators to subtly stop thinking so much about the risks investors want them to take, and more on optimizing their outcome over the next 4-6 months.
The flywheel gains more steam, the more acqui-hires there
are. [...] it sends the message to investors that there’s
no risk in backing them. It doesn’t matter that investors
rarely make anything from these deals, because frequently
they don’t lose anything either, or they lose very little.
Acquihires are also not the worst thing ever from an employer perspective. Big companies can easily spend $10M on failed initiatives that go nowhere. It's much easier to buy a startup that proves it can execute.
> "Allowing entrepreneurs — and their investors — to save face by saying they were “acquired” instead of failing is nice, but it’s a bit like the pre-schools where everyone wins a trophy for showing up."
The notion that acquihires are failures is purely a moral one - last I checked pre-school trophies aren't worth several houses. I am fairly certain that acquihires who just took home $1-2M in comp will survive your browbeating about not swinging for the fences.
> "Not enough people moving to the Valley or coming out of school want to work at companies other people are starting, because it’s so easy to start their own."
No, no it isn't. We are now at the point where SF/SV companies are offering $100K to fresh undergrads. For all that the industry has done to lower the barrier to entry for entrepreneurship, it is anything but trivial. A fresh grad shouldering a moderately scary debt load is not going to trivially choose to found a startup over taking a highly-paid position and paring down the debt.
How easy does the author think it is to live in SF/SV, work on a startup full-time, fresh out of college, loan payments due, with no income stream? Does she think everyone's a trust fund baby that can afford the $2K SF apartment and just spend all day drinking Blue Bottle while twirling their startup ideas in their heads, right out of school?
The acquiring company shows power by claiming they acquired a startup while the other can claim they built a startup that got acquired.
There are members of our industry who do generate that kind of enormous value to their employers - I've met some of them - and they are all being paid in that ball park already (i.e., $300K+).
Is there any real reason to believe that you should be paid as much as bankers and lawyers besides some thinly veiled form of contempt we tend to have for those jobs?
It demonstrates that it's not unreasonable to pay that amount of money to a single individual.
I agree that there's no talent shortage. Companies willing to pay $300k+ are having no trouble hiring people who can generate that kind of value. Companies that aren't willing to pay that much are, unsurprisingly, hiring less valuable employees.
How are these attorneys charging? Hourly, even $1000/hour would be $2-3million per year billing full time. Are there other sorts of things that are getting charged for (at a profit) beyond time?
Contingency or percentage of settlements probably represent a larger portion of attorneys who are bringing in 'millions' for an employer.
Remember, an employee is focused on how much value/revenue they generate for the company when negotiating salary, which is similar to but not the same as whether the company is profitable at that productivity level. After all, given enough management overhead, operating expenses, and capital debts, any revenue level can be unprofitable!