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"What happens is that instead of going bust on a failed idea all parties agree that it is better to put a positive spin on things so they present this fantastic

by praptak 14y ago

"What happens is that instead of going bust on a failed idea all parties agree that it is better to put a positive spin on things so they present this fantastic acquisition story instead of folding the company and going bust." This does not hold water. What's in it for the party that puts the cash on the table? Why are they paying the cash for the supposed failure?

001sky 14y ago
Fair question. If you are an engineer or a startup person, its possible that you don't have insight into the dynamics of corporate BigCos. There is a lot of potential for under-the-radar turf wars. This creates potential conflicts of interest (http://en.wikipedia.org/wiki/Principal%E2%80%93agent_problem http://en.wikipedia.org/wiki/Principal%E2%80%93agent_problem). This is not every case, but this is a real problem. This leads to the ultimate circle-jerk scenario. "What's in it for the party that puts the cash on the table?" The answer is often the same - hiding failure. Where the agents collude to enrich themselves at the expense of their professional/fiduciary duties. Of course, "in reality" there is enough plausible deniability to let things run their course. There's no real business, so no one will know they overpaid (for 2-4years) The M&A bankers earn their fees, The M&A exec at Big-Co gets his promotion, etc. No harm no-foul, its "on the house". Heck, the VC and the CEO get to put "Exit" on their resume. But yeah. Not really. Non-Acquihire datapoints: BBC NEWS | Business | News Corp in $580m internet buy News Corporation Sells MySpace for $35 Million - Microsoft Wraps Up $6B aQuantive Buy Microsoft Writing Down $6.2 Billion Over AQuantive Deal In the "Aquihire" case, the prices are just lower. This may be hiding failure of the Purchaser to lead, innovate, or hire efficiently (HR/culture failure) or to execute on a product launch (internal team failure). Sometimes, its "better" to just patch over that with a "bolt-on", and pretend to protect the career of a "B" player at BigCo. Again, in an Aquihire there is no actual business (ie, measureable profits) so the valuation is just a game of wave a finger in the air. Because of the delayed/opaque consequnces (ie, the 2-4 year period before anyone figures it out), its more subject to manipulation than any normal (ie, cash-flow positive) transaction. So, to summarize. Not every acquihire is bad/evil. Sometimes, its a good, fair deal for all. But, by its very nature, the acquihire "process" is opaque and subject to manipulation. Furhtermore, its riddled with potential conflicts of interest. For these reasons, one must not be Naive when thinking about these matters.
ChuckMcM 14y ago
The acquiring company is paying for the team. In the Bay Area at least its really hard to get those 10x employees that Paul talks about to voluntarily come to work for BigCorp sometimes. In an acquihire situation it is common that the incentive given to the team members to come to work for BigCorp are time locked such that the team members have to put in anywhere from 2 to 4 years at BigCorp to collect that reward. Amongst people who have done this it is sometimes referred to as 'doing time' since leaving to do another startup isn't an option unless you want to get none of the incentive. As Jacques hints at there are lots and lots of different deals, from the guy who is up to his eyeballs in credit card debt to a company that has gone through a couple of rounds of VC funding.

by praptak 14y ago

001sky 14y ago

Fair question. If you are an engineer or a startup person, its possible that you don't have insight into the dynamics of corporate BigCos. There is a lot of potential for under-the-radar turf wars. This creates potential conflicts of interest (http://en.wikipedia.org/wiki/Principal%E2%80%93agent_problem http://en.wikipedia.org/wiki/Principal%E2%80%93agent_problem). This is not every case, but this is a real problem. This leads to the ultimate circle-jerk scenario. "What's in it for the party that puts the cash on the table?" The answer is often the same - hiding failure. Where the agents collude to enrich themselves at the expense of their professional/fiduciary duties. Of course, "in reality" there is enough plausible deniability to let things run their course. There's no real business, so no one will know they overpaid (for 2-4years) The M&A bankers earn their fees, The M&A exec at Big-Co gets his promotion, etc. No harm no-foul, its "on the house". Heck, the VC and the CEO get to put "Exit" on their resume. But yeah. Not really. Non-Acquihire datapoints: BBC NEWS | Business | News Corp in $580m internet buy News Corporation Sells MySpace for $35 Million - Microsoft Wraps Up $6B aQuantive Buy Microsoft Writing Down $6.2 Billion Over AQuantive Deal In the "Aquihire" case, the prices are just lower. This may be hiding failure of the Purchaser to lead, innovate, or hire efficiently (HR/culture failure) or to execute on a product launch (internal team failure). Sometimes, its "better" to just patch over that with a "bolt-on", and pretend to protect the career of a "B" player at BigCo. Again, in an Aquihire there is no actual business (ie, measureable profits) so the valuation is just a game of wave a finger in the air. Because of the delayed/opaque consequnces (ie, the 2-4 year period before anyone figures it out), its more subject to manipulation than any normal (ie, cash-flow positive) transaction. So, to summarize. Not every acquihire is bad/evil. Sometimes, its a good, fair deal for all. But, by its very nature, the acquihire "process" is opaque and subject to manipulation. Furhtermore, its riddled with potential conflicts of interest. For these reasons, one must not be Naive when thinking about these matters.

ChuckMcM 14y ago

The acquiring company is paying for the team. In the Bay Area at least its really hard to get those 10x employees that Paul talks about to voluntarily come to work for BigCorp sometimes. In an acquihire situation it is common that the incentive given to the team members to come to work for BigCorp are time locked such that the team members have to put in anywhere from 2 to 4 years at BigCorp to collect that reward. Amongst people who have done this it is sometimes referred to as 'doing time' since leaving to do another startup isn't an option unless you want to get none of the incentive. As Jacques hints at there are lots and lots of different deals, from the guy who is up to his eyeballs in credit card debt to a company that has gone through a couple of rounds of VC funding.