Yahoo Has Acquired Rockmelt, Apps To Shut Down On August 31st
techcrunch.com
techcrunch.com
CrunchFund - 3 (Stamped, GoPollGo, Tumblr)
True Ventures - 3 (OnTheAir, Snip.It, Lexity)
Khosla Venture - 3 (Snip.It, Xobni, Rockmelt)
SV Angel - 3 (Snip,It, Xobni, Rockmelt)
Google Ventures - 2 (Astrid & Stamped)
Spark Capital - 2 (Tumblr & Lexity)
Jack Herrick - 2 (Qwiki & Astrid)
Greylock - 2 (Tumblr & Qwiki)
First Round Capital - 2 (Xobni & Rockmelt)
Also to note, Lexity & Jybe were founded by former Y! employees.
Edit: Also add Lexity to the list with Tumblr.
At the end of the day, some of the startups are by founders who are pretty early in their careers (e.g. Summly) and would like to have a win under their belt. Yahoo's shopping spree seems to validate a lot of successful products not just in terms of popularity but also talent and product innovation.
In addition, I could not find funding data on a few others when completing my research so not sure if self-funded or not: Alike, Loki Studios, GhostBird Software, Rondee, Ztelic
There is a strategy. What is it?
It seems clear that this is an acquisition for talent, since they're shutting the product down with less than 30 days' notice.
For <$70MM, that could be a relatively cheap acquisition of talent that has proven their ability to make things (if not necessarily proven their ability to make a product that people want to buy - which is where Yahoo's responsibility and vision come into play).
How much money Rockmelt raised says little about how good of a deal Yahoo received. The reverse may be true: Yahoo may have had to pay way more than the real value simply to ensure a return to the investors, not because it valued the company at the price paid.
Yahoo Keeps Buying Startups That Don't Make Their Own Apps http://readwrite.com/2013/07/03/yahoo-qwiki-lawsuit-chaotic-...
after all, talents can simply quit their jobs after acquiring
Yahoo is betting that it wouldn't be able to induce someone to jump ship, but once they have jumped ship, their work environment is "good enough" to keep them. Well, most of them.
It's the same reason why magazines and online services bill by subscription (it's a lot of effort to get someone to subscribe, but much easier to keep them subscribing), and why ISVs bundle a lot of crapware with major platforms (users wouldn't knowingly install their products, but if they're already installed they won't bother to remove them), and why UX designers make the default settings whatever benefits the company most (most users never change the defaults).
It takes an enormous amount of work to find that good engineer in the pool of unemployed workers. This is why big companies pay for sourcers, recruiters, referrals, interviewers, etc. In a typical company, that 1 good hire resulted from looking through hundreds of resumes that didn't cut it for one reason or another.
When a company does an acqhisition, they short circuit all that work, and get a pool of vetted, battle-hardened engineers who are known to work well together. That's worth a lot more than just the engineers' salaries, because there was a lot more than just their salary that went into convincing them to work for the startup.
If they just offered $180K, a number of the employees would turn it down, because they go to work for the intangibles like having good coworkers or working on interesting products, and the only way that Yahoo can bring them on board are to keep those intangible perks intact until they find a way to assimilate them into the mothership.
Besides, very few companies are transparent with salaries. If yours is not, that means that salary negotiation is not always fair to existing employees and they don't want you to know that. (It could also mean salary negotiation is unfair to the new hire as well.)
All of these parties come into the mix in an acquihire.
The investors have preferred shares, quite often with a liquidation preference, and they will always get something. The founders will often get something, (though in the case of liquidation preferences, it may not be very much - "consulting bonus" is not uncommon here) in an acquhire. The employees of an acquihired may or may not get totally screwed on their common shares depending on the size of the liquidation preference of the investors. They will almost always get a "retention bonus" - that may be on the order of a 50% of their salary, repayable if they don't stick around for 1-2 years.
All companies I've worked with have been pretty good about leveling salaries, and are careful to avoid a situation in which you have two groups of people doing the same job, but one group making 50% more than another. You may have isolated situations in which an employee or two is out of wack on their compensation, but companies like Yahoo! try hard to avoid having systemic disfunction in compensation. The mechanisms for getting new employees in a tight job market come in the form of hiring bonuses and/or acquihires.
Reading your comment carefully, I think you are considering the scenario of an acquhired where most of the employees acquired were founders, whereas I'm thinking of the 30-50 employee company, where only a couple of the employees were founders.
Many people in the startup world don't understand this, but the vast majority of people in the labor force are not primarily motivated by money. You need to pay them enough to feel like they're not being taken advantage of, but beyond that, they go for work environment, interesting coworkers, challenging projects, and other intangibles. To have any chance at all of hiring them, you need to provide those and not just money.
(Google understands this very well - they explicitly state with their offer that most people who work for Google do not do so for financial gain. They do it because they want to be a part of something great, and have really intelligent coworkers, and be given a flexible and creative work environment. Yahoo has a big challenge matching this, given their current lackluster stable of products, and Marissa's trying to jump-start the virtuous cycle and bring in folks that people would want to work with.)
False dichotomy if there ever was one.
That seems at odds with the fact that most of these companies products are immediately shut down when the acquisition is announced.
It's often a bait-and-switch tactic on the part of the acquirer. Once the deal is complete, the acquirer owns everything, product and all, and has no legal obligation to keep it open and active. If you wait a month or two after the deal closes to announce this, then many of the employees already have large sunk costs in the employer - they've possibly relocated, they've signed up for health insurance again, they don't want to have a tenure of 1-2 months on their resume, they've learned some of the acquirer's systems, they've made contacts in their new employer - and so you can keep them even if it's not a choice they would've made initially.
I call bs. It's honestly insulting to every Yahoo employee to hear this argument that these guys coming to yahoo via a dying start up are worth several multiples.
Your entire post doesn't even touch upon the fact that most of these companies are failed companies. They aren't exactly companies whose talent created a product that was killing it. Just as you give credit to them being a team, you should also discredit to them failing--not as criticism but to be consistent in trying to value them fairly.
There are many teams, particularly in big companies, that fail to do even that.
But, this is for departments of 6-10 people.
One reason why offering a higher salary is a non-starter, is that, in order to properly level those new employees, you end up having to pay all of your existing engineers more money as well. So, if you increase your existing engineers salary by $30K * 10,000 engineers, you just paid $300 million/year as opposed to paying a one time fee of $70mm.
If I was to guess their strategy: Sumly + Tumblr + Rockmelt looks like a new content distribution system.
Someone please explain.
But see jack-r-abbit in the other subtread, this will be done as a layoff in a soon to be dead company (which obviously won't care about its increased unemployment insurance payments) and an ... opportunity to join the other company, of course on their terms.
Key sentence fragment: "In each instance, Yahoo has locked up engineers with two- to four-year contracts...."
Unfortunately, a lot of developers going to work for a startup have a starry-eyed perspective that the 80hr week is going to pay itself back in droves and without the golden handcuffs. Then reality sets in; the seller doesn't necessarily think much about his employee's outlook -- "dude, you get to work for Yahoo!!!!"
Employees of startups need to be reminded to not take cuts, because the buyout should be gravy; it will likely never come or come with a heavy ball-n-chain.
Prediction: SV business leaders will find a way to meaningfully tie pay to performance more than they currently can, and offer the best 3-5x what the average earn.
The current system is just too roundabout.
I still wished them well though, their product was good and their customer support was great. I'm sad to see the brand go away, but I'm pleased for them that they got acquired. Hopefully they go on to do well at Yahoo!