
What Everyone Should Know About How Talent is Bought and Sold - ca98am79
http://firstround.com/article/What-Everyone-Should-Know-About-How-Talent-is-Bought-and-Sold
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justin66
Lest any youngsters take seriously the value of shares a startup is offering
you, take a look at how seriously the author takes it:

> With retention structures and contracts, a buyer can make sure the money
> goes where they want it to go — to a promising junior engineer they want to
> keep on, for example, instead of the office manager who technically owned
> 20% of the company’s equity.

"Technically owned." Yeah. Think about that.

It's adorable that the author has that money going to a junior engineer rather
than management in his example. Don't be sucked in.

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walshemj
Yes explain to me this concept of "technical" ownership which you dont
actually own something.

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Retric
You own shares but the total number of shares is not fixed.

Say you own 20,000 shares out of 100,000 shares and you own 20% of the
company, they issue another 9,900,000 shares 10 min befores selling the
company and you now own 0.2%.

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pedalpete
There are dilution clauses in contracts that cover these things, but yes, you
should be aware how your ownership stake is handled.

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netcan
How many employees understand the dilution clauses for their share/options.

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dasil003
Not many, but much less relevant than the following two questions: how many
dilution clauses allow something like this to happen, and how quickly would an
employee find out once it did?

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ghc
I've been a part of one of these suddent acqui-hires. It's not terribly fun if
you're the guy building the critical software, not knowing if you'll have to
kill your whole year's work the next day so you can switch from your comfy,
cramped space to some cube-farm.

And the lawyers...the whole process took two months, but it probably took 2
years off my life. And I didn't even get that much out of it besides a stable
corporate salary.

Would not recommend. If you're going to go corporate, go in facing foward,
with eyes wide open. Don't back into it for what is essentially a hiring bonus
and a bribe to throw away much of the work you spent the past x-months caring
deeply about.

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gohrt
If you are going to work in the software industry, you are best suited if you
get comfortable early with the idea of throwing away 6 months of work at a
moments' notice.

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officialjunk
yep. sigh...

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slyall
Question for the Valley types:

If I'm Facebook and I want to hire a talented team at a smaller company why
would I go though the whole procedure of an acqui-hire?

If I just want the 10 programmers why don't I offer them each a $500k signup
bonus ( total $5m ) rather than pay $20m to some VCs and investors for a
company and product I'm going to throw away?

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JonFish85
My guess (and it's just that: a guess) is that it has something to do with a
non-compete clause with their current employer. If these programmers are
working on a substantially similar product to one at your Facebook example
company, there might be a lot of legal reasons not to leave the smaller
company to go work at FB.

~~~
walshemj
Which is not enforceable for grunt engineers in virtually all cases.

And if in the rare case it is enforceable (normally for very senior C level
roles) you have to be paid for it!

Hint Marissa didn't have any problem walking from Google to yahoo did she

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gohrt
Non-competes are unenforcable.

NDAs and theft-of-trade-secrets are enforceable.

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walshemj
Courts in CA tend to side with the employee though.

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tom_b
Are acqui-hire employees particularly rewarded in these situations?

If you are identified as a critical or especially-sought-after employee at a
company in this situation, what types of retention structures and contracts
actually wind up happening? Just curious.

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yannk
"And it’s not all about the money. “I worked on one acquisition where we had
to fight over a startup bringing its pool table with them,” Brown recounts.
“It was a big piece of their culture — all of their engineers would talk
through their toughest problems over pool, apparently.” The corporate
development team balked, and it ended up threatening the deal."

corporate development can be tight ass sometimes. Can someone chime in on
which acquisition this was?

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the_watcher
I thought this was really interesting. I haven't ever seen an examination of
the acquihire that is this detailed. Most pieces deal with starting a company
or path to IPO, or focus on the largest acquisitions out there.

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walshemj
Surprised that hold back is legal person A loses $ because B decides he wants
to leave - this isn't Quatar you cant confiscate their pasports.

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larrys
It makes sense. You want to make sure that the person A has a vested interest
in making sure that people will stick around. Certainly not to encourage them
to leave (or assist them or make it easy for them to leave after getting the
money).

As a contract term it's legal just like if you are selling a ski resort you
could say "if it doesn't snow 30 inches next season then we want ..."

Making something a term doesn't imply that you have control over the even
directly necessarily.

For example let's hypothetically say that PG decides to sell HN. The terms
might be that at least 70% of the top people who comment stick around for at
least 6 months. So if PG had knowledge that those top people who comment would
leave if he sold then he would have to factor that into the price he is being
offered. And if he ran into them at a party he wouldn't be egging them on "oh
now that I'm not affiliated I don't really care what you do".

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walshemj
First HN commentators are not employees or workers in the legal sense.

But the employee now works for the acquiring company B how is it legal that
the stake holders in company A can be penalized after the fact for the
acquired employee deciding that he doesn't like the new employer.

And I thought TUPE was strange in the EU

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ZoF
To be frank, I'm surprised that you find it surprising. Employees are assets.

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walshemj
Oh I know that trust me I do but we dont in normal legal system punish people
for the actions of others (not with standing conspiracy which is bloody hard
to prove)

This system lends it's self to blackmail "hey ex boss give me 50% of that hold
back money you got from the acquisition or I will leave and f&*k you over".

ps Yes I am aware of the "joint enterprise" issue in UK employment law where
you can legally fire all of a group of employees if you can prove that one of
them did something realy naughty.

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larrys
Ok so stated a different way as follows.

"I will pay you $1,000,000 for your restaurant. If the chef in the kitchen is
still working for me after 1 year I will pay you an additional $50,000."

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walshemj
I would say that thats the chefs 50,000 :-) pay the retention bonus to the
ones you want to keep not the previous employer.

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edraferi
It doesn't preclude a similar retention bonus for the chef. The point is, the
leadership of the selling firm has some influence over whether their employees
stay or go. The buying firm sets up a financial incentive to encourage the
selling leadership to use that influence.

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justzisguyuknow
God I hate that friggin popup asking me to subscribe!

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ivv
Is there an opportunity for a business that builds and cultivates small and
focused product teams optimized specifically for acqui-hires by large
companies hungry for talent? The product would really be the team itself and
the front-facing stuff would be largely irrelevant?

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fleitz
Yes, if you can put together effective teams and pitch them to companies then
you have a nice consulting/recruiting biz.

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michaelochurch
"Talent" acquisition is a misconception. I find the term insulting, given that
(in bubble times like this) people a lot less talented (and skilled, etc.)
than me regularly get acqui-hired at $10+ million per head. Call it an HR
acquisition. Calling it a _talent_ acquisition is, in many of these cases, an
insult to people who have the talent.

Just why _do_ these companies buy "talent" at a panic price? I have some
theories that are partial explanations, but mostly it's tax. Also, it ends up
in a different place on the balance sheet than a typical HR expenditure. It
has little to do with the people being bought, and it offers a gigantic
arbitrage for investors with the connections to make these deals happen.

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eru
Those people might be less skilled than you in, say, programming. That doesn't
mean they are less skilled at making money.

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michaelochurch
When you're born with the kind of connections that they (the founders, at
least) have, making money is the default, not an artifact of skill.

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icecreampain
Just a heads up: was reading the article when all of a sudden some trojan took
over the whole site. The background faded to black and something requesting
information from me popped up.

I closed the tab and put "firstround.com" on the company blacklist.

