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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 i

by jsnell 14y ago

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.

eli_gottlieb 14y ago
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.
snprbob86 14y ago
> 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 http://en.wikipedia.org/wiki/Repeated_game
- eli_gottlieb 14y ago
  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 14y ago
    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-a-calculated-cost-per-engineer-when-it-acquires-for-talent http://www.quora.com/Startup-Acquisitions/Does-Facebook-have...

by jsnell 14y ago

eli_gottlieb 14y ago

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.

snprbob86 14y ago

> 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 http://en.wikipedia.org/wiki/Repeated_game

eli_gottlieb 14y ago
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 14y ago
  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-a-calculated-cost-per-engineer-when-it-acquires-for-talent http://www.quora.com/Startup-Acquisitions/Does-Facebook-have...