[_greim_]

Bear with me while I ask a dumb question. Why pay $70M to acquire a startup just for their engineering and technical talent? What's the going rate for a really good engineer nowadays, $150K? Why not just offer $180K? That difference adds up to a lot less than $70M.

[nostrademons]

When you acqhire a startup, you're not just buying the engineers they hired. You're filtering out all the engineers they didn't hire.

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.

[badclient]

That's worth a lot more than just the engineers' salaries

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.

[revelation]

Devils advocate would be of course that you are buying a team that didn't execute, and paying a lot of premium on it.

[nostrademons]

I think that to get on the radar screen for acquihires, you have to have had at least some success executing, i.e. you launched a product that is usable. You may not have launched the right product, you may have failed to find a market, but it shows that you can build something and deliver it to the public.

There are many teams, particularly in big companies, that fail to do even that.

[rdouble]

Weren't there a half dozen Facebook acquihires where the company hadn't launched any product at all? A former coworker coined them "fist-bump acquisitions" because the defining characteristic was that one of the founders was always a former roommate of Zuck or other early employee.

[nostrademons]

Possibly, and if that's the case those were probably pretty stupid acquisitions for the company. (And arguably Zuck not doing his fiduciary duty.)

[darkarmani]

So why not offer $200K and require proof of currently working at X?

[nostrademons]

There are two parts to getting good employees: finding them and getting them to work for you. Many startup employees, by themselves, will not work for Yahoo for $200K/year. Many startup employees will work for Yahoo for $150K/year if all their favorite coworkers are working for Yahoo and they get to work on a product they're familiar with. The only way to bring them over is to bring them over as a block.

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.)

[badclient]

There are two parts to getting good employees: finding them and getting them to work for you. Many startup employees, by themselves, will not work for Yahoo for $200K/year. Many startup employees will work for Yahoo for $150K/year if all their favorite coworkers are working for Yahoo and they get to work on a product they're familiar with. The only way to bring them over is to bring them over as a block.

False dichotomy if there ever was one.

[stevenwei]

Many startup employees will work for Yahoo for $150K/year if all their favorite coworkers are working for Yahoo and they get to work on a product they're familiar with.

That seems at odds with the fact that most of these companies products are immediately shut down when the acquisition is announced.

[nostrademons]

Shutting down the product is often not part of the deal. Many founders will deliberately choose an acquirer that offers less money but promises to keep the product alive.

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.

[ghshephard]

It's not fair to your existing employees, so you would end up having to pay all of them more money as well. This gets very expensive very fast. Quite often cheaper just to acquihire and end up paying the engineers (Existing and new) $150K.

[nilkn]

This doesn't make any sense since the founders of the company getting acquihired stand to gain a considerable amount of money from the acquisition. They'll still end up getting paid more than existing employees. In fact, they may get a "signing bonus" which exceeds the entire lifetime earnings of the existing employees.

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.)

[ghshephard]

It's important to recognize that there are at least Five (5) parties involved in an acquihire. You have the Acquiring Company, You have the Investors in the Acquired Company, You have the Founders of the acquired Company, You have the employees of the acquired company and, you have the employees of the acquiring company.

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.

[arsenerei]

How do you pronounce acqhire? ack-HIRE?

[darkchasma]

I go with ack-Hire because Acui-hire sounds too much like they're being hired from the sea.

[arsenerei]

Thanks.

[nostrademons]

I pronounce it "Acqui-hire", and I've sometimes seen it spelled that way, but "acquihire" looks wrong to me in print.

[arsenerei]

ackqua-hire? Or a-choir-hire? I wish I were joking, but I've never seen the pronunciation printed anywhere.

[nostrademons]

"Acqui" as in "acquiesce", then "hire" in place of the "esce".

[arsenerei]

I can finally hear it, thank you!

[ghshephard]

It's actually a good question - I have a friend who is a technical recruiter, and she specializes in hiring entire departments from other companies. Her strategy is usually to offer a "leader" (quite often the manager, but sometimes the sr. technical player) who will take a role in convincing the others to come on board. Signing bonuses are usually around $200K-$500K depending on seniority, and vest (or the repayment portion disappears) after 2 years. The person responsible for convincing the others to come on board usually gets an additional $500K or so.

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.

[fotoblur]

My thoughts exactly. I'll broadcast this to Yahoo right now. Im a desirable hire in the Bay Area, who is working at a 200M+/year profitable company and on mobile. Give me a $1 million signing bonus and Ill leave my current team, and deliver those experiences and successes right onto your lap. The real issue here is this is a reward to investors for there failures. There is some other part of this story were just not privy to. It's a VC back deal. Apple only paid for Color's 20 engineers for $5M.

[nly]

because when you're on $150K, and enjoy your work, you won't jump ship to work with a dinosaur like Yahoo just for a pay rise?

[nandemo]

I must be missing something. So Joe works as an employee at Somethingly earning 150k and won't jump ship to Yahoo for a pay rise. But after Yahoo acquires Somethingly -- and likely shuts down its product -- Joe will choose to keep working at Yahoo because...? Given that Joe presumably didn't have a say in the acquisition, what are the (non-monetary) merits of post-acquisition Yahoo over pre-acquisition Yahoo?

[nostrademons]

You're missing the effect of inertia. Most people do not continuously re-evaluate whether they would choose to be working at their employer if they were unemployed and seeking a new job. Instead, they continue the current status quo until things are blatantly wrong for them, and only then start looking around. This frees up mental energy to focus on things like actually getting their job done and having a life outside of work.

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).