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I've been on the other side of two of these and the explicit alternative in each case was bankruptcy. Also asset transfers are more expensive to the acquirer be
by sulam 9y ago
I've been on the other side of two of these and the explicit alternative in each case was bankruptcy. Also asset transfers are more expensive to the acquirer because you have to explicitly delineate the assets you're buying and what you're not buying. This makes for more lawyer time and pushes the transaction costs up significantly. The real reason to do it is because the team there at the time is more valuable as a group than they would each be on the open market individually. Anyone _not_ there doesn't add that kind of value to the deal.
You may want to argue that IP is also part of these deals and past employees created part of that. This is probably true for some deals, but it has been minimally true for the deals I've seen directly. Sample size of two isn't great, but keep in mind the value of startups is largely believed to be in execution, not ideas. A startup on the verge of bankruptcy probably doesn't have immensely valuable IP because it's 1) not producing present value obviously and 2) isn't obviously worth a lot in the future, otherwise someone would be willing to give you discounted cash today for an ownership percentage of its future value (aka an investment).
- hinkley 9y agoNothing I love more than being bought and sold like cattle. Out of curiosity, how do you keep the employees from walking after an asset only transfer? The vague promise to them about future riches has already been broken. And you will up changing business practices that ruffle feathers (I'm not sure how you could avoid it. This stuff is rarely written down). Hell, you'll probably assign them to a new project anyway. So how do you keep them from leaving in droves?
- sulam 9y agoPayouts! They get some mix of salary (comparable to existing employees), stock (more generous than existing employees) and a cash payout that's fairly generous if they meet some goals laid out in advance. And you didn't ask, but if not enough of the team accepts an offer, then it evaporates.
- nissimk 9y agoIf I am to believe HBO, then sometimes those goals are drinking beers on the rooftop.
- iaw 9y agoNot quite but I know of one high level exec at a company you're familiar with that was given a year after multiple warnings. Effectively, he had no job but was still on the payroll for a year and maintained his equity. He came in and did virtually nothing for about 6 months and then stopped. It's a cushy gig but by the time you get it it's a punishment not a reward.
- Pyxl101 9y ago> Out of curiosity, how do you keep the employees from walking after an asset only transfer? Their compensation at the new company will have a vesting schedule over some period of time, similar to a stock grant.