[jsnell]

Individual cases might be largely benign, and definitely are to people who would otherwise just have lost their jobs. The criticism is for the trend, and what it implies.

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.

[snprbob86]

> 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.

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

[jsnell]

Yes, I can make a pretty educated guess about what a company like Google spends on recruiting. But that recruiting machine is capable of finding and hiring 5k top quality engineers in a year. It's not reasonable to compare the cost of a single 20 person acquihire to that.

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.

[snprbob86]

> 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.

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.

[eli_gottlieb]

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 have no clue but I'm quite interested to learn. How much do they spend?

[snprbob86]

I don't have hard numbers, so let's do some math on talent acquisitions.

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...

[jyu]

So typically do the investors take all the cash upfront, and then whatever stock/cash over time is given to founders and employees?

[snprbob86]

There are two primarily legal structures for an acquisition. The first is a stock purchase, where the negotiated terms of the various classes of stock all apply. The second, is an asset purchase, sometimes called an intellectual property purchase.

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.

[eli_gottlieb]

Ok, now here's where I take the math apart, starting by attacking every intangible I can find.

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").

[eli_gottlieb]

Of course it's bad for "building real businesses". However, for those starting and running companies that get acquihired, it's the rational decision: our current technology, software and tech labor markets dramatically undervalue both R&D spending and work done for hire in general. The acquihire has become, for the seller, one of the few ways of capturing the full value of their labors, and for the seller, a replacement for internal research and development.