

The End Of The Acqui-Hire? - amitkumar01
http://techcrunch.com/2014/05/17/the-end-of-the-acqui-hire/

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tytso
Seems like sour grapes to me. If the startup is only worth pennies on the
dollar, why should the investors get more than fair market value? This seems
an awful like new city bankers who are all in favor of unrestrained free
market capitalism, until their ox gets gored, at which point they are first in
line for a government handout.

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abat
tl;dr Acqui-hires are are turning into just hires. Companies just want the
talent from failed start ups. The acquirer lowballs cost of buying out equity
and but keeps high retention comp to employees. In short term this is good for
start up employees, but writer argues this will hurt seed ecosystem because
investors don't like being burned.

~~~
001sky
And to follow on, what was a specifically interesting:

Reports that the premium was less that 1/3 salary per FTE being offered by the
"Acquirer".

That is, these so-called "M&A deals" were valued at <less than> a mass-head-
hunting contract.

(That being said, the submitted article reads more like an OP-ED than a more
mainstream piece of journalism.)

~~~
unreal37
It's techcrunch, not journalism.

~~~
001sky
Author is not a TC staff-writer / employee

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kimcheeme
The startup idea failed and the founders do not have another idea / the seed
investors do not want to give the founders any more money than what's already
invested. So then you should let the markets decide what the price of the
assets are. The assets of the idea and the assets of human capital.

1) The investor can still say that they had an acquisition exit and make their
portfolio seem better than it is.

2) If you don't have strong enough connections where the strategic players
will throw you a bone for a long-lasting relationship with your fund then you
don't deserve the bone.

3) Investors gave founders education but the founders also gave investors
education that they can leverage lessons in future investments.

4) Investors frequently say that they're investing in people but at the end of
the day, they investing in people to execute the good idea and they would not
hesitate to replace another set of people to execute that good idea... so in
essence, they're investing in a good idea. What kind of investing are you
doing when you invested in a bad idea and expect to get paid PAR for making
the wrong call. A zero downside early stage investing but 1000x upside seems
like a fantasy market that, even if it lasted for a year or two, would have
never worked out in the long-run.

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aba_sababa
It's pretty low to disguise "more money for investors" as a half-assed
argument for better employee outcomes.

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cloudwalking
I agree with the author, but I feel they should not be in this position to
begin with.

VCs can ensure their money back using paperwork. 500 Startups' seed
specifically says they can block any acquisition that lowballs 500. This is
reasonable because they take the risk.

I was hoping for an interesting article about acqui-hire trends and
predictions, but instead I got a complaint about VCs not getting paid back. A
reasonable perspective, but not particularly insightful.

~~~
ghshephard
Except, in the case of an acquihire, there is no "acquisition", per se. If 500
startups were to block such a deal, then the founders/employees could simply
fold up shop and go to work for the new company.

What the investor is failing to recognize, is that in the case of an acqui-
hire, the company has failed - it has zero value, and needs to be shut down
gracefully. A good acqui-hire ensure that customers and vendors are paid up to
date, and the employees are given a new place to work.

This VC is confused as to the nature of an acquihire, and, furthermore, seems
to be ignoring the fact that 99% of the return on their investments come from
the two or three companies out of 100 that are very successful. The other 98
to 97 are just a cost of doing business, and worrying about getting back their
"investment" on a company that has gone under is just a distraction from the
real business of making sure that the two-three companies are very successful.

~~~
fragsworth
> worrying about getting back their "investment" on a company that has gone
> under is just a distraction from the real business of making sure that the
> two-three companies are very successful.

That, and why are they hoping to extract value from the learning experience of
the founders to begin with? People working _at many different companies_
usually learn lots of things and can increase their value just as much as any
startup founders.

As an investor, can't you just ignore any hopes that you'll extract any value
from an "acqui-hire" when you negotiate the valuation of the company?

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malvosenior
tl;dr Z grade "seed investor" doesn't have the network to make acqui-hires
happen. Top tier investors have no such problem.

~~~
hkmurakami
After reading this comment, I misremembered the VC fund's name as "third tier
capital" and had to go back to the article to recall the actual name :p

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withdavidli
These statements need a whole lot more clarification

->"The amount they were willing to pay beyond salaries and stock to those hired? About 10 cents on the dollar invested."

->" we’d receive less than a recruiting service that merely introduced the same level people in exchange for 30 percent of their first-year salary."

Funding a company's success is very different that just presenting candidates.
With so many startups receiving large valuations and focus being on user
acquisition, the return on on acquihire is probably going to be lower than
expected.

If the startup were burning through their investment / bleeding money through
losses why would a company think they need to recoup those losses for an
investor?

Then there's the 30% fee calculation. This sounds like the author was simply
comparing 10% for the aquihire vs. 30% agency fee. What should be compared is
the % of total cash comp the team would receive as the fee. This goes back to
the difference of funding a company vs. just presenting candidates.

Given the info of seven engineers:

\- if each engineer is paid out 150k (fairly high end of market cash rate, not
including stocks).

\- then a 30% fee would be based on $1,050,000.

\- in this scenario, any investor putting in more than $1,050,000 would
receive less than the 30% agency fee. Given how much money can be poured into
startups it's easy to see investors hitting the $3 million mark and only
receive 10% on this deal.

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Codhisattva
This is the most honest statement I've read about the founder myth yet.

Dear engineer, you are the product.

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pixelcort
If investors want a cut from these people being hired, they should make that
part of the terms of the investments.

For example, "we get X% of the company for $Y, and if the founders get hired,
Z% of their compensation for N years."

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bjelkeman-again
That is a contract I would never sign.

