Acqui-hire Is Just Another Way to Spell Failure
jacquesmattheij.com
jacquesmattheij.com
- Your startup fails and you maxed out your credit cards trying to keep the business/servers afloat and end up ruining your credit
- Your startup fails and you spent all the money you borrowed from your family/friends to start your company, never make any revenue, then ruin those relationships when you never pay it back
- Your startup fails and you spend a few months looking for a full-time job
Now contrast those scenarios with this acqui-hire scenario:
- Your startup has not failed or succeeded yet (it may be on the path to failure or success, too early to tell) and you are offered a nice salary (say $150k) plus a one-time stock grant (say $200-500k of RSUs) or a one-time cash bonus (say $100-200k) to work for a company you respect.
In nearly all these scenarios your startup ceases to exist, or lives on in another form separate from how you envisioned it, but only in the acqui-hire scenario are you quasi-successful. To me, an acqui-hire means that 1) a company noticed your product or service, 2) saw that you were doing excellent things with it, 3) thought that you could make an outsized contribution to their company, 4) gave you a cherry on top of a regular employment offer.
Yes, an entrepreneur's startup dream has failed, but on an individual level there are lots of positives.
(Note: I have not been acqui-hired but I have ran 2 startups that fizzled and were sold at low amounts, far below what we wanted. I don't consider them failures because, at the end, there was a monetary payment, but they were nowhere near as successful as we wanted them to be. And I ended up getting a real job after the exit.)
Why? Let's assume that's Google's intention -- changing the world. If Google spends their resources acquiring a company, regardless of whether it's for their tech or their employees, is it not likely that they're doing it to further such goals?
Personally, I'd surely feel better able to change the world with the resources of a company like that at my disposal -- especially if they're receiving me through an acqui-hire, rather than out of college by resume or similar.
If it is my goal to change the world in line with my vision, that is not the same thing as changing the world to align with Google's vision, though there may obviously be overlap.
So personally, it's neither about changing the world, or about the money primarily. It's about doing what you love.
So the main question is: what is percentage of acquihires that got better deal on employment than via regular channels? Is that common?
They're equivalent to failure if the acquirer doesn't give the the founders any more than they'd give equivalent people recruited through ordinary channels. But there are some HR acquisitions where the acquirer gives them much more. It's twisting the meaning of the word "fail" to call those failures. The startup may not have hit the the proverbial home run (yet) but they've done well enough to convince someone to give them a lot of money. While founders may have other goals for their startups, that's usually the economic goal. For some (to be honest, probably most) the economic goal is the main one. And if you achieve your main goal, that's not failure.
It obviously goes without saying that that outcome needs to be shared across the whole team, too.
Technically, wouldn't you also want the financial outcome to capture the risk that the startup was all going to come to nothing?
Finally, most importantly, and (admittedly) orthogonally: even with acqui-hires, what we're hearing are the "success" cases. Even those cases where the backbiting HN threads are tearing the company down for "obvious" failures, those are, relatively speaking, successes. We don't hear about the majority of seed-funded startups, which don't get any offers at all.
The problem is that's impossible to accurately forecast. An additional problem is that the basis is only financial, when (most?) startup employees aren't there just to make the biggest possible payout. There's an increase in responsibility and autonomy across the board in a startup. How is that valued for each individual?
The point in saying "was the acquisition a success" can only accurately be viewed by looking at the other alternatives at that moment. Any other analysis is significantly flawed.
Also "The problem is that's impossible to accurately forecast" is true, but somewhat trivial. The initial investment and the M&A exit valuation are are subject to same critique, no?
Examination of the final node , while rational (is this the best out?) is not the right framework for evaluating the investment. To do that, one would think you looked at the deployment vs recovery (en toto), taking into consideration time (&tc).
What if you break even in the long-run, but you value autonomy over money? So you get a couple additional years of more autonomous work in for the same total money. That's still a win, but we lack the financial forecasting instruments to properly value that. The same can be said for all other non-monetary possible motivations for working at a startup.
Looking at the money you may have given up, and requiring that ALL of that be made up in one lump sum to be a success event seems silly. It misses future income (which is relevant and can/should also be forecasted), as well as a number of other salient factors.
Any financial model we come up with, will still be just an opaque gage. So if we're really just looking for a simple heuristic, looking at possible alternatives is an ideal choice (but as heuristics go, which all evaluations of this would be), it misses some things. I'd still argue it's the best simple evaluation metric, and that we're not losing much by foregoing a more complex analysis.
Exit A | Nil value added = Failure
Exit B | Some value added < capital invested = 'not a failure'
Then the qualification was added
Exit C | Value added > capital invested = Success (threshold case)[1].
That is just objective data/nomenclature. Ex post and not complex.[2] Not forward looking. Not "personal".[3] Exit B is the typical case "Acqhire" or HR acquisition [4].
You, then raised the special case[5]:
Exit B2: Value added != face value consideration [6]
and also presumably,
Exit B3: Value added > face value consideration >?< Capital Invested
>>This murky area = PR SPIN ZONE.
My comment on game theory was to consider threshold success as [7]:
Exit B4: Value added + Reputation impact [8]+ face value consideration > Capital Invested.
This would mean some deals, even though they are not a financial success, if cash consideration was the only variable, still might be a legit "win" for everyone involved, when reputation is considered. Note: LHS terms, when distribution not only total amount is considered, have a feedback loop
Edit: formatting
Notes:
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[1] Ideally, includes return = opportunity cost
[2] Final node optimization, is fair question. But tconsiders that a forgone conclusion. Note Tpacek's comment: tptacek | link The question isn't, "is the acqui-hire the rational next step for the founders?" We can assume that acqui-hires virtually always are.
[3] The game theoretic optimization of the final node is messy. Don't be short sighted. Keep in mind, playing nested sequential games.
[4] Although logically, the product could be shut down in C.
[5] This is special vs a typical exit, but obviously common to [B] type Acquires.
[6] The "face consideration" is what goes to the equity of the startup.
[7] If you handle the exit well [3], reputation >> 0 is very possible, assuming a recurring game, etc.
[8] For both the investors and the team.
Nobody is arguing that founders should turn down acqui-hires.
The answer to the question is "it depends", and what it really depends on is the possible alternatives at that potential acquisition point, not all possible alternatives that could have happend in the past or future. An acqui-hire is a success if it leads to the best possible outcome at that time.
But an acqui-hire could very well be a bad move for founders. If they have a better alternative on the table, the acqui-hire is a bad move. The answer is that "it depends". Simply looking at the potential money given up (by founder or all employees) doesn't capture most of what's important in determining if it's a success or failure.
I always assumed pretty much everyone did a startup because it's fun and gives you the freedom to do what you love.
There seems to be a line of thought that says "a) do a startup, b) solve the money problem, c) do what you love"... Why not just do what you love to start with? If you don't love doing a startup, don't do it. Do something else.
My current position is that last year I was just shy of a 6-figure salary, but also had a "lifestyle business" (read: number of websites) that are successful as projects (but exist as a stable and growing business).
Late year I made the decision to quit the comfort of the salaried position, to use the projects as the bread and butter and to build a technology based product and company.
I've now been approached with a serious offer from a large company in my sector, and a somewhat serious approach from a medium sized company in this area (sports related online communities).
During discussions it's become obvious that they're willing to somewhat inflate the offer for the community to acquire me fully too. That is they're not interested in an offer that doesn't include me and the offer is inflated to make that attractive.
Discussing this with non-startup friends, not one of them can fully comprehend why I wouldn't accept a swollen bank account and an envious salary.
For me, the thing that I deeply believe is that the technology startup hasn't even shown its' potential, and nor has it yet failed... in fact, I've barely started.
I quickly came to the conclusion that an acqui-hire is (right now) the worst possible thing that could happen. The end result would be the same as failure, and were I to have failed then not taking the money would be foolish. But right now it's so premature that I feel that to allow myself to be purchased is tantamount to seppuku.
It's really good to see that opinion shared. Most seem to celebrate the big earnings for founders and the cash-out for investors... but all I see is the wasted potential.
This makes me wonder at what point in the life of the startup most of these acqui-hires are occurring.
EDITED TO ADD: Further reading (e.g.: http://news.ycombinator.com/item?id=4425364) suggests that indeed, the usual point at which an acqui-hire becomes relevant is when the business is on the verge of failure.
First, if you get out of your startup for what amounts to a signing bonus and a job at a cool company, life could be worse. Much worse, in fact.
If you set out to change the world and didn't-- c'mon, VERY few people are "changing the world" with a startup. The world, and your customers, will go on if you go to work for someone else.
Building a business is not for everyone. If you realize after you've started a business that you suck at it, there's no shame in saving face and getting out with what you can!
But yes, it's certainly not as exciting as a lot of these companies make it sound in their press release, and it's certainly not something anyone will remember a few days later. It's not placing first, but it's not last either.
However, for service-based businesses, like architectural/engineering firms or consultancies, there's really no other form of purchase, other than to just funnel the profits to a different place. When you buy one of those businesses, you can only buy the people, as there is little to no IP. If the name has enough cache, you can continue on with that name, but if it's a competitor, you're better off just folding them into the main brand.
As an example, my dad's an engineer. He sold his fairly successful business that he had run for 15+ years (it was a lifestyle business) because he was just sick of the bookkeeping--all he wanted to do was be an engineer after 15+ years. So he sold, and went to work running the engineering department specific to his practice of the place that bought him. Now, he gets a predictable income, no bookkeeping, and more reasonable hours. I don't consider him a failure in the least.
Suppose a founder is in a dead-end job, but doing a startup for a year and a half leads to a much better job with more pay. That's a BIG win.
If an acqui-hire is failure for anybody, then it's a failure first and foremost for the investors.
In his `About', Jacques states openly that he represents investors' point of view:
>I do this [[verifying that what a company says it sells and owns is actually true]] work for several renowned Venture Capital firms in Europe(...)
I know of espectacular failures that end in acquisitions, I'm talking about companies raising tens of millions of dollars and sell for six figures.
This does not hold water. What's in it for the party that puts the cash on the table? Why are they paying the cash for the supposed failure?
In an acquihire situation it is common that the incentive given to the team members to come to work for BigCorp are time locked such that the team members have to put in anywhere from 2 to 4 years at BigCorp to collect that reward. Amongst people who have done this it is sometimes referred to as 'doing time' since leaving to do another startup isn't an option unless you want to get none of the incentive.
As Jacques hints at there are lots and lots of different deals, from the guy who is up to his eyeballs in credit card debt to a company that has gone through a couple of rounds of VC funding.
Non-Acquihire datapoints:
BBC NEWS | Business | News Corp in $580m internet buy
News Corporation Sells MySpace for $35 Million -
Microsoft Wraps Up $6B aQuantive Buy
Microsoft Writing Down $6.2 Billion Over AQuantive Deal
In the "Aquihire" case, the prices are just lower. This may be hiding failure of the Purchaser to lead, innovate, or hire efficiently (HR/culture failure) or to execute on a product launch (internal team failure). Sometimes, its "better" to just patch over that with a "bolt-on", and pretend to protect the career of a "B" player at BigCo. Again, in an Aquihire there is no actual business (ie, measureable profits) so the valuation is just a game of wave a finger in the air. Because of the delayed/opaque consequnces (ie, the 2-4 year period before anyone figures it out), its more subject to manipulation than any normal (ie, cash-flow positive) transaction.
So, to summarize. Not every acquihire is bad/evil. Sometimes, its a good, fair deal for all. But, by its very nature, the acquihire "process" is opaque and subject to manipulation. Furhtermore, its riddled with potential conflicts of interest. For these reasons, one must not be Naive when thinking about these matters.
Startups fail all the time. It means people are trying. That is way more important to me.
The only thing I don't like to see is that good entrepreneurs get comfy at big companies with mediocre output. But in my experience that doesn't happen often.
you take risks. you build something. you learn to build and manage a company. you learn to raise capital. you learn to negotiate a buyout. you learn to ship products and support customers.
for business, personal or any variety of reasons, the founders decide that being acqui-hired is their best option, and have an entirely new set of skills to apply to their next business iteration.
but you're labeled as "failures" by this jacques mattheij.
i don't agree with him. not at all.
teddy roosevelt said:
It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat.
They're usually a great deal for the founders and the company so it's win-win situation unless of course your definition of success is a billion dollar exit. Not to mention the learning curve and challenges that entrepreneur experience and overcome which in my opinion is priceless.