The Halo Effect

But interesting to point out a trend that was maybe unnoticed.

One of the reason for an acquihire or something like that might also be because of other costly factors that is not taken into account: non competition agreement preventing you to poach employees/leaders from existing company to work on the same topics, cost to poach individual employees one by one, with individual negotiations, welcome bonus, the risk that some key asset refuse, ... With the acquihire, you have a whole team, used to work together, ready to work for you as they were before on day 1. And get the brand and possible IP in bonus.

These HALO type acquisitions are awful for the tech industry and this trend is deeply concerning to me.

1. The author fails to consider the impact of this kind of acquihire on the company’s customers. We’ve already seen Scale AI have a dramatic change in customer behavior post hire. Windsurf was a real company with real revenue. How many of those customers want to use a product with a much less predictable future now? Where the team was basically disembowled?

2. The creation of a “class hierarchy” both within and between companies has a dis-spiriting king-maker vibe. 1/5 of the company ascends to heaven through this process and the other 4/5 is left to manage a shell corp? How is that supposed to feel?

3. The concept of windsurf rebuilding their product in google land is laughable. What product will they build but the same thing they already built? And windsurf is nowhere near the velocity of Cursor, so theyve burned months of time doing this and they’ll burn months more adapting to the new environment. How does this square with the thesis of google wanting their talent? Lets be real about the reason google bought windsurf — they got a discount from the $3B OpenAI acquisition and most of all — they wanted to fuck OpenAI. At this point, I would guess that these companies would do whatever they can to harm OpenAI, given the sheer velocity of their product and how terrified everyone is of them discovering something very soon.

4. I haven’t seen any example of a successful post-acquisition company operation. Inflection? Covariant? Character? What’s happened to these companies post change? Are all employees on strict NDAs? Why has nobody written about what it was like?

5. The conclusion I see here is straightforward — in a post AI economy, very very few people are “important” to these companies. The top 10 largest corporations in the world will basically be competing over a pool of ~5k individuals and everyone else is irrelevant.

If there’s anything that makes me wish we were living in Lina Khan’s world it’s this.

> Unfortunately, regulators didn’t listen. The effort to indiscriminately throw sand in the gears of the Silicon Valley machine — which, it should be noted, started under the first Trump administration, but was dramatically accelerated under the Biden administration — is undoubtedly the biggest driver of these stinky deals. Big Tech, starting with Microsoft, realized that the easiest way to avoid regulatory annoyance around acquihires was to separate the acquisition from the hiring; what has happened as these deals have evolved is that tech companies increasingly realize that if they are simply hiring and not acquiring then they don’t have to hire everyone. That, however, breaks the implicit social contract that made startup employment significantly less risky for rank-and-file employees.

> What is frustrating about this development is that there is a good chance we will never go back. The fact of the matter is that picking-and-choosing who to hire from a failed startup is great for Big Tech: they get the IP they want and the employees that matter, and get to jettison everyone else without having to do a future layoff. That they never thought to do so previously was, in retrospect, downstream of “the way things are done”, not some sort of legal requirement; once the law, in the form of over-eager regulators who didn’t understand what they were regulating, gave them no choice, it’s not at all clear why they would go back to the old model.

> This, in the long run, is very bad for startups. The incentives for founding a company do still remain; the founders of all four of the companies in the stinky list are doing very well for themselves. The people who are getting screwed, however, are the folks who were never necessarily going to get rich — that’s reserved for founders, and appropriately so — but who could justify rolling the dice on a positive outcome as long as they had downside protection in the form of guaranteed employment with a Big Tech company if things didn’t work out. Now, however, the best route for any non-founder is simply to pursue employment with a Big Tech company directly; the alternative, if the downside is unemployment or a contract with a hollowed-out doomed company, isn’t worth the risk (which, ultimately, again favors Big Tech, as it lowers competition for rank-and-file employees).

> It is, in the end, one of the clearest examples of a Chesterton Fence you can come up with: regulators didn’t understand the role that seamless small acquisitions played in making Silicon Valley work, so they made them undesirable and untenable; the end result is a diminished ecosystem that further entrenches the biggest players, reduces long-term innovation and risk-taking, and destroys individual employees’ opportunity and bargaining power with big companies and their chances of earning a nice payday if things worked out.