
Some Investors May Request Protection From Aqui-Hires - aaronbrethorst
http://uncrunched.com/2012/04/24/some-investors-may-request-protection-from-aqui-hires/
======
jcampbell1
Why does Google/Facebook pay the investor anything at all? If they have no
interest in the assets, then they also have the option of just sending over a
big envelope of job offers to the founders and having the founders distribute
it to the team. The investor's position is pretty weak. Everyone knows it, and
the Google's and Facebook's are just reminding the founders what is true.

~~~
cluda01
Probably because it's cheaper than defending yourself against a never ending
stream of lawsuits (baseless or not) that would inevitably arise from founders
and teams all leaving to one company en masse.

~~~
mjwalshe
Dont think a suit to stop people "playing their trade" is going to work esp
with the current "No Poach" lawsuit going around.

Sounds like the VC's are finding that laissez faire industrial relations a
bitch when in some rare ocasions it favours the employee :-)

------
fiatmoney
I'm wondering why the founders and any other employees can't just be hired
away from "their" startup, with a large signing bonus, and no change to the
equity structure of their prior company (but, effectively no employees)? Non-
competes might prevent this, but I was under the impression that they're not
terribly enforceable in California.

Any lawyers out there to clarify?

~~~
joyce
Not giving legal advice but here are my two-cents: 1) Possible tax savings:
Signing bonuses are taxed as income. If you held your stock long enough, you
may qualify for long-term capital gains tax treatment. 2) Silicon Valley is a
repeat player business. You don't want to screw over your investors if you
want to raise more funds or do anything else here where folks might ask around
about you. 3) Non-competes are generally unenforceable in CA except in certain
situations, including the acquisition of a company.

------
fpp
Guess this very much depends on which position the financial investors have
put the (technical) founders into.

If they have taken a huge part of the equity for themselves and left the
founders with far less than 50% such behavior might become understandable
(many founders then might feel that it's not their company anymore).

But if the founders still hold around 60% after financing rounds of
>$50million and then leave a large part of their investors "standing in the
rain" i.e. they just get parts of their money back this becomes dubious.
Nevertheless such cases are very rare and most of the time some investors will
still complain even if they are making a very serious profit but less they
have been dreaming of.

Best seen recently with Instagram when one early investor was labeled as not
very clever even though they were making a few hundred time their investment
(a few 10'000 pct profit).

Generally if investors are unhappy, that those who have generated such massive
profits for them benefit as well after they themselves have already been
rewarded, something else is substantially wrong.

~~~
Lockyy
If you're talking about the investor I think you are, remember that he came
out and said how he thought everyone saying he wasn't clever was ridiculous
because he made a lot of profit and his decisions at the time were the right
decisions for the time.

------
nerdo
> I’ve been fascinated with acqui-hires for years now. The first one in recent
> history I know about was Parakey, acquired by Google in 2007

I thought Facebook?

~~~
garindra
Yes, it was Facebook.

------
amorphid
What are the ethics around Facebook walking in the front door of your company
saying "anyone who drops what they're doing to come work for us can have this
big fat check!"?

~~~
aq11
They effectively do this all the time; by head-hunting individual and small
groups of developers from smaller startups, especially ones where not everyone
are A-players. It just is rarely reported on. Twitter and Square have been
getting in on this lately too.

------
malandrew
The best definition of a startup I've heard is "a temporary organization
working together in search of a business model"

With that in mind, investors are investing in a temporary organization in
search of a business model. Late state investors may invest after that
temporary organization either has a business model or is about to establish
one and really early investors may put there money in before any business
model has been discovered. Whatever the case may be, it's an exploratory
effort that investors are part of.

If the entrepreneurs are fully capable of building a sustainable business, but
never discovered a sustainable business model, then the investors, as agents
that both advise and help with issues like recruiting talent, are as culpable
for any failure to achieve that goal. Founders are putting in their time at
below market rates (an opportunity cost whereby they aren't participating in
other potentially lucrative ventures) and investors are putting in their money
(an opportunity cost where the money invested can't be applied to other
lucrative ventures.

Both have a claim to the business model generated. Entrepreneurs pay for their
claim with time. Investors do it with the money that enable the entrepreneur
to put in that time.

Now, IMHO, where acquit-hires come into play and how they can be split up
fairly is to divvy up the grants and benefits by who brought who into the
organization.

If investors put dumb money into the organization to find a business model
that was never found, they have very little they can claim. If however, you
have smart investors with solid connections that contributed highly to the
creation of the organization established, they could make a case that they
contributed significantly in the value being purchased by the acquirer.

The fair thing to do would be to ascribe a significant portion of the bonuses
and grants according to the golden handcuffs applied and to divvy up the rest
of the pot among those people most responsible for creating the organization.

If I was responsible for 90% of the recruiting in my organization, I don't
think it's fair for any investor to think they have some claim to that value
that was largely generated via networking extra-temporary organization. If,
however, one or more of my investors contributed a large portion of their
social capital to bring talent to my business, they've invested a non-tangible
in the business that they deserve to be compensated for.

Money is invested in a business model. If the business model succeeds, you
deserve a part of that.

Social capital is invested to build an organization of talent. If you, whether
entrepreneur or investor, contributed social capital to the business to
attract that talent, you deserve a part of that. The only exception that is
just that I can see would be where the startup paid well over the market rate
to attract the talent. In this case the recruiting incentive used to grow the
company was not the people, opportunity and problem being solved but simply
cash exchanged for a mercenary activity. In this case money, and not social
capital, contributed to the growth of a valuable organization, and investors
could make claim to the returns.

My question is the following: Of all the acqui-hires we've seen in the past
few years, how common is it for those teams to stay together as a smaller
organization within the larger acquiring organization.

If teams generally don't stay together 6 months to a year after an acqui-hire,
then the value created it not in the professional relationships (edges) of the
acquired organization, but in the people (nodes). If the value is in the
nodes, all the value belongs to the individual employees and not to the
organization.

