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Comment by pg | Hacker News Reader

Actually HR acquisitions vary a lot. At one extreme they're indistinguishable from failure, but not at the other.

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.

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Pedantic point: to be a success, the financial outcome from an acqui-hire probably needs to account for the financial sacrifices taken during the building of the company. You can get a much better deal from an acquirer than you would have from their HR process and still come out behind for having landed there via a startup buyout.

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.

Prior opportunity cost is a sunk cost. The "exit" needs to be evaluated based on realistic alternatives at that point (i.e. keep going or shut it down). The fact that you may have left money on the table to join a startup no-longer factors into the equation. It comes down to making the best choice given all the current alternatives, not all the possible past alternatives that could have been taken.

The question isn't, "is the acqui-hire the rational next step for the founders?" We can assume that acqui-hires virtually always are.

If sunk costs (based on missed opportunity cost) factors in, then you also need to know what future earning opportunities would be for all (or most) founders/employees had they taken a job in Big Corp vs working at the startup that was acquired. You'd at least want to be able to realistically forecast earnings over the next 10 years. If they've increased their future income by more than what they gave up, it's a net win.

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.

"Sunk costs" aren't a part of the discussion we're having.

Nobody is arguing that founders should turn down acqui-hires.

"Sunk Costs" ARE part of the discussion you're having. You're just choosing to include them when they probably shouldn't be. They aren't relevant to whether or not an aqui-hire is a success or failure, mostly because they require us to bring up a number of other factors that are nearly impossible to evaluate (we're speculating on pricing that opportunity cost, without speculating on future impact on earnings, or any factors outside $). The idea that an acqui-hire needs to recoupe everyone's potential opportunity cost to be considered successful is silly.

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.

Once again: nobody is arguing that acqui-hires are bad moves for the founders.

Once again: neither am I. You're arguing that EVERYONE's opportunity cost should be factored in. I'm saying that regardless of status (Founder, employee, etc), that opportunity cost is a sunk cost, and examining it with respect to determining if an acqui-hire was a successful event is silly. The points I've laid out (working condition preferences, problem area, and future pay) aren't taken into account by simply looking at the potential money left on the table. All of those factors apply to all employees who are acqui-hired. A much better heuristic is to look at the set of possible alternatives at the point of the potential acqui-hire, because there isn't a better heuristic.

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.

Think about a repeated game?

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).

I think any other analysis is too complex to offer any real insight. We can look at the NPV of the possible future earnings, to get a better idea. For the given opportunity cost, what's the impact on future earnings (over the next 10 years or so)? Does working at a startup that gets acqui-hired give you a potential to make earn more in the future? If so, how much more?

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.

Referring back to PG post,

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:

_____________

[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.

Another way to think of it (failure) is not in monetary compensation but rather whether the technology, or even at the very least the concepts, are utilized in the go forward scenario. So HR acquisitions where everything is shuttered may just be opportunistic hiring opportunities with nice signing bonuses. However, if the technology or applied knowledge live on then those can't be failures. If they were the logical extension of the author's current definition is that the only way a company can avoid being termed a "failure" is to go public. Any acquisition prior to that is a failure.

It'd be interesting to know how many people do startups "for the money" - 'economic goals'.

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.

The money is still a way of keeping score.

Which is a way of pretending it's not about the money.

As Mattheij pointed out, that's possible, just not very likely.

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