WHENEVER I READ THAT COMPANIES ACQUIRE STARTUPS PRIMARILY FOR “TALENT” – I THINK TO MYSELF WOULDN’T IT BE CHEAPER TO SIMPLY HIRE AWAY THA…
Answer by Nat Burgess:
In theory it is cheaper to hire people individually. In practice, when the job market gets competitive as the economy improves (2000, 2007, 2013), large companies with specialized needs have no choice but to acquire teams through acquisitions. This is because a) being late to market is fatal in fast growth markets. It takes time to recruit a team one member at a time. A well-led team that has already been established to solve your problem is an instant offense. b) Senior talent is increasingly tied up in startups. We have gone through enough cycles now that senior, sophisticated players know that they will ultimately make more money and be in a better position if they go with a good startup rather than a “quarry job” at a big company. And, the cost of admission for startups has gone way down with advent of AWS, cloud, offshoring, etc. Not to mention the resources many of these players have already banked through prior ventures. I have acted as advisor on a half dozen acqui-hire transactions, including deals with Google, Microsoft, Linkedin and others. In summary:
> When a startup is in trouble and really needs an exit, Acquihire generally isn’t an option. I get a lot of these calls, and my advice is to pivot, try again, build a better position in a more promising market. Ironically it is usually the funded, successful startup that gets approached.
>Not all acqui-hires are created equal. If the deal is opportunistic and tactical, the valuation may actually be based on a “hire vs buy” analysis. If the deal is truly strategic, then the seller will have more leverage. Buyers are reluctant to ascribe too much value to team members, because doing so creates a bad precedent that de-leverages the in future negotiations – so often the value of the IP becomes the center of the negotiation, even though the buyer really wants the team.