11 ms·

Teams have value greater than the sum of their parts. It is highly unlikely that $BIGCORP would be able to poach 100% of the team, or even 100% of the key playe

by far33d 14y ago

Teams have value greater than the sum of their parts. It is highly unlikely that $BIGCORP would be able to poach 100% of the team, or even 100% of the key players outside of an acquisition offer, and to do so could be much more expensive. In successful acquihires, the acquired teams stay together and work on a new but related project with the additional resources and weight of the big company behind them. When it works, it is much better than just putting random people together since building effective teams is hard and takes time. Also, keep in mind that acquihires often give the majority of value to the employees in new, unvested stock options vs. cash or vested stock.

philwelch 14y ago
It's also important to point out that by "team", what's often meant is "founders". Mere employees usually have to interview for their own jobs and are often cut at the acquihire stage.
- ChuckMcM 14y ago
  Ouch. Having been on both sides (acquihiring and been acquired) there is some truth to this, but the reality is that the acquihire shoots for the 'minimum viable team' rather than specifically just the founders. In fact the one acquihire I participated in (as hirer) one of the founders was specifically not wanted as part of the deal but a couple of the employees were.
  - debacle 14y ago
    What happens in that instance? Does that one founder just take his share of the sale and run?
    - ChuckMcM 14y ago
      Well in this particular case no. The offer structure was some cash (this all went to the investors), some restricted stock in the acquiring company for the people wanted, and regular interviews (no guarantee of a hire) with everyone else. So the founder who wasn't part of the 'deal' was offered the interview but not the restricted stock + job. In this particular case the acquiring company's stock was publicly traded so the restricted stock was essentially a payout once the core team demonstrated they could bring their ability to deliver in house. The restricted stock 'unlocked' (which is to say it transferred over to founders) in two tranches one at 18 months and one at 36 months. When I looked at it I felt it was a better deal than the key players would have gotten if they had approached the company individually, and the way in which the restricted stock unlocked was structured so that as long as folks stayed for a year and remained in good standing (which is to say their new management was happy with their performance) the first half of the stock was guaranteed even if they left before 18 months. Probably more detail than was necessary but the bottom line was that the acquiring company made it worthwhile for the key employees to come over as a team (and parts of the deal were structured such that if they didn't come over as a team the deal was off).
      - debacle 14y ago
        But what did the excluded founder see?
        ChuckMcM 14y ago
        Are you asking what was their visibility to the negotiation? That I do not know, the negotiation was undertaken by the board of the company which included the CEO but not the excluded founder. I have no idea how much of the negotiation was shared by the CEO.
        debacle 14y ago
        I'm asking what was his compensation, if any, as part of the acquihire - what happened to his equity?
        ChuckMcM 14y ago
        None, there is no equity. In an acquihire situation it would be unlikely that you reached the liquidation preferences of the original investors, so common stock has no value.
        csense 14y ago
        Ugh. I feel sorry for the founder left out in the cold. Especially if he was actually pulling his weight and just isolated from the rest of the team due to personal or political conflicts, or if the acquirer was just being cheap and said "We're only willing to pay for n-1 of the n founders, the CEO has to pick somebody to leave behind." Even if the guy deserved to be left behind, it seems like he shouldn't walk away empty-handed when all the other founders got something.
        ChuckMcM 14y ago
        Going to go a bit meta here, but this is useful information to know from the perspective of a potential target. First, the startup has failed to launch. Done. Poof. Risk actualized, everyone lost all of their investment, roll it up. The doctor has called them into the office and told them they have days, perhaps weeks, to live so they should wrap up their affairs. This happens because the business, as envisioned/implemented, cannot get anyone to invest further in it and it has insufficient revenue to pay the bills. The money is running out, when it hits zero they are done. And yet the company has obligations, to debtors, to their employees, to lease holders, what have you. Creditors get antsy because they don't want to be left with nothing so you get your creditors and lawyers on the phone you make a plan to liquidate the assets. This includes office furniture, any patents you may have filed for, equipment, laptops, window coverings, and of course the team. There isn't any equity left, debts owed are more than the value of the company, you are "upside down". That is true for any of the founders or employees. The goal here is to get out from under the creditors without landing in court being sued personally somehow. Now, its a crappy place to be, the founders gave it their all, but it didn't work out. Now along comes BigCorp. They always have more project ideas than people, and ideally they have deep(er) pockets. They have some idea of the quality of the founders and what they tried to achieve, maybe they have employed some of them in the past. That company makes the following offer, "You get what you can for the IP, office supplies, and equipment and we will settle the rest of your debts for you (called making the creditors whole), in exchange for the following people coming to work for us as a team." Of course unlike servers you cannot just 'sell' a team to BigCorp, the team actually has to agree to go there, so BigCorp puts together a 'package' which is contingent on all (or sometimes just most) of the people they ask for coming to work for them. Your job as the founder / board member is to sell this package to the team so that BigCorp will come through on their offer to settle the debts. Assuming you come to an agreement, the startup makes a press release "Whoo hoo! We're joining BigCorp to do excellent things!", the investor puts "Acquired by BigCorp!" next to their investment, and everyone smiles, and everyone shakes hands, and everyone knows (or should know) that they swung hard and missed. The creditors go back to do what they do, the investors go off to look at other people to fund, and the founders 'do time' at BigCorp until they can get back into the game. So in this scenario, BigCorp isn't buying the company, they are buying the team, they are simply facilitating the liquidation of the company assets. For what ever reason they don't feel like this founder person is necessary for the deal to go through, they don't need to 'pay extra' for them with a package. All the founders "got" out of this deal, is continued employment at a large company, and a chance to play again when their lockups expire there. The guy who didn't go to BigCorp can turn around and get right back into the startup game. I know it seems like the guy left behind got screwed but in the overall scheme of things that isn't necessarily true.
- brazzy 14y ago
  But aren't the founders the least likely to be happy and productive in a bigcorp setting?
  - philwelch 14y ago
    A couple million dollars can't quite buy happiness, but they can buy acquiescence quite easily.
  - Evbn 14y ago
    Yes, and they leave, and their key employees may stay, and this are people who have proven to be key hires.

by far33d 14y ago

philwelch 14y ago

It's also important to point out that by "team", what's often meant is "founders". Mere employees usually have to interview for their own jobs and are often cut at the acquihire stage.

ChuckMcM 14y ago
Ouch. Having been on both sides (acquihiring and been acquired) there is some truth to this, but the reality is that the acquihire shoots for the 'minimum viable team' rather than specifically just the founders. In fact the one acquihire I participated in (as hirer) one of the founders was specifically not wanted as part of the deal but a couple of the employees were.
- debacle 14y ago
  What happens in that instance? Does that one founder just take his share of the sale and run?
  - ChuckMcM 14y ago
    Well in this particular case no. The offer structure was some cash (this all went to the investors), some restricted stock in the acquiring company for the people wanted, and regular interviews (no guarantee of a hire) with everyone else. So the founder who wasn't part of the 'deal' was offered the interview but not the restricted stock + job. In this particular case the acquiring company's stock was publicly traded so the restricted stock was essentially a payout once the core team demonstrated they could bring their ability to deliver in house. The restricted stock 'unlocked' (which is to say it transferred over to founders) in two tranches one at 18 months and one at 36 months. When I looked at it I felt it was a better deal than the key players would have gotten if they had approached the company individually, and the way in which the restricted stock unlocked was structured so that as long as folks stayed for a year and remained in good standing (which is to say their new management was happy with their performance) the first half of the stock was guaranteed even if they left before 18 months. Probably more detail than was necessary but the bottom line was that the acquiring company made it worthwhile for the key employees to come over as a team (and parts of the deal were structured such that if they didn't come over as a team the deal was off).
    - debacle 14y ago
      But what did the excluded founder see?
      - ChuckMcM 14y ago
        Are you asking what was their visibility to the negotiation? That I do not know, the negotiation was undertaken by the board of the company which included the CEO but not the excluded founder. I have no idea how much of the negotiation was shared by the CEO.
        debacle 14y ago
        I'm asking what was his compensation, if any, as part of the acquihire - what happened to his equity?
        ChuckMcM 14y ago
        None, there is no equity. In an acquihire situation it would be unlikely that you reached the liquidation preferences of the original investors, so common stock has no value.
        csense 14y ago
        Ugh. I feel sorry for the founder left out in the cold. Especially if he was actually pulling his weight and just isolated from the rest of the team due to personal or political conflicts, or if the acquirer was just being cheap and said "We're only willing to pay for n-1 of the n founders, the CEO has to pick somebody to leave behind." Even if the guy deserved to be left behind, it seems like he shouldn't walk away empty-handed when all the other founders got something.
        ChuckMcM 14y ago
        Going to go a bit meta here, but this is useful information to know from the perspective of a potential target. First, the startup has failed to launch. Done. Poof. Risk actualized, everyone lost all of their investment, roll it up. The doctor has called them into the office and told them they have days, perhaps weeks, to live so they should wrap up their affairs. This happens because the business, as envisioned/implemented, cannot get anyone to invest further in it and it has insufficient revenue to pay the bills. The money is running out, when it hits zero they are done. And yet the company has obligations, to debtors, to their employees, to lease holders, what have you. Creditors get antsy because they don't want to be left with nothing so you get your creditors and lawyers on the phone you make a plan to liquidate the assets. This includes office furniture, any patents you may have filed for, equipment, laptops, window coverings, and of course the team. There isn't any equity left, debts owed are more than the value of the company, you are "upside down". That is true for any of the founders or employees. The goal here is to get out from under the creditors without landing in court being sued personally somehow. Now, its a crappy place to be, the founders gave it their all, but it didn't work out. Now along comes BigCorp. They always have more project ideas than people, and ideally they have deep(er) pockets. They have some idea of the quality of the founders and what they tried to achieve, maybe they have employed some of them in the past. That company makes the following offer, "You get what you can for the IP, office supplies, and equipment and we will settle the rest of your debts for you (called making the creditors whole), in exchange for the following people coming to work for us as a team." Of course unlike servers you cannot just 'sell' a team to BigCorp, the team actually has to agree to go there, so BigCorp puts together a 'package' which is contingent on all (or sometimes just most) of the people they ask for coming to work for them. Your job as the founder / board member is to sell this package to the team so that BigCorp will come through on their offer to settle the debts. Assuming you come to an agreement, the startup makes a press release "Whoo hoo! We're joining BigCorp to do excellent things!", the investor puts "Acquired by BigCorp!" next to their investment, and everyone smiles, and everyone shakes hands, and everyone knows (or should know) that they swung hard and missed. The creditors go back to do what they do, the investors go off to look at other people to fund, and the founders 'do time' at BigCorp until they can get back into the game. So in this scenario, BigCorp isn't buying the company, they are buying the team, they are simply facilitating the liquidation of the company assets. For what ever reason they don't feel like this founder person is necessary for the deal to go through, they don't need to 'pay extra' for them with a package. All the founders "got" out of this deal, is continued employment at a large company, and a chance to play again when their lockups expire there. The guy who didn't go to BigCorp can turn around and get right back into the startup game. I know it seems like the guy left behind got screwed but in the overall scheme of things that isn't necessarily true.
brazzy 14y ago
But aren't the founders the least likely to be happy and productive in a bigcorp setting?
- philwelch 14y ago
  A couple million dollars can't quite buy happiness, but they can buy acquiescence quite easily.
- Evbn 14y ago
  Yes, and they leave, and their key employees may stay, and this are people who have proven to be key hires.