
Acqui-hire Is Just Another Way to Spell Failure - ZeroMinx
http://www.jacquesmattheij.com/acqui-hire-is-just-another-way-to-spell-failure
======
flyosity
I think there's a spectrum of failure, and an acqui-hire is not at the lowest
end of the spectrum, not even close. Here are a few ways to fail that are
worse than an acqui-hire:

\- Your startup fails and you maxed out your credit cards trying to keep the
business/servers afloat and end up ruining your credit

\- Your startup fails and you spent all the money you borrowed from your
family/friends to start your company, never make any revenue, then ruin those
relationships when you never pay it back

\- Your startup fails and you spend a few months looking for a full-time job

Now contrast those scenarios with this acqui-hire scenario:

\- Your startup has not failed or succeeded yet (it may be on the path to
failure or success, too early to tell) and you are offered a nice salary (say
$150k) plus a one-time stock grant (say $200-500k of RSUs) or a one-time cash
bonus (say $100-200k) to work for a company you respect.

In nearly all these scenarios your startup ceases to exist, or lives on in
another form separate from how you envisioned it, but only in the acqui-hire
scenario are you quasi-successful. To me, an acqui-hire means that 1) a
company noticed your product or service, 2) saw that you were doing excellent
things with it, 3) thought that you could make an outsized contribution to
their company, 4) gave you a cherry on top of a regular employment offer.

Yes, an entrepreneur's startup dream has failed, but on an individual level
there are lots of positives.

(Note: I have not been acqui-hired but I have ran 2 startups that fizzled and
were sold at low amounts, far below what we wanted. I don't consider them
failures because, at the end, there was a monetary payment, but they were
nowhere near as successful as we wanted them to be. And I ended up getting a
real job after the exit.)

~~~
BCM43
I suppose it depends on what you want out of the startup. If you want to
change the world, an acqui-hire is a failure. If you want to make money, it
can sometimes be a success.

~~~
shawnz
> If you want to change the world, an acqui-hire is a failure.

Why? Let's assume that's Google's intention -- changing the world. If Google
spends their resources acquiring a company, regardless of whether it's for
their tech or their employees, is it not likely that they're doing it to
further such goals?

Personally, I'd surely feel better able to change the world with the resources
of a company like that at my disposal -- especially if they're receiving me
through an acqui-hire, rather than out of college by resume or similar.

~~~
dllthomas
You are assuming that all changes are equivalent.

If it is my goal to change the world in line with my vision, that is not the
same thing as changing the world to align with Google's vision, though there
may obviously be overlap.

------
pg
Actually HR acquisitions vary a lot. At one extreme they're indistinguishable
from failure, but not at the other.

They're equivalent to failure if the acquirer doesn't give the the founders
any more than they'd give equivalent people recruited through ordinary
channels. But there are some HR acquisitions where the acquirer gives them
much more. It's twisting the meaning of the word "fail" to call those
failures. The startup may not have hit the the proverbial home run (yet) but
they've done well enough to convince someone to give them a lot of money.
While founders may have other goals for their startups, that's usually the
economic goal. For some (to be honest, probably most) the economic goal is the
main one. And if you achieve your main goal, that's not failure.

~~~
tptacek
Pedantic point: to be a success, the financial outcome from an acqui-hire
probably needs to account for the financial sacrifices taken during the
building of the company. You can get a much better deal from an acquirer than
you would have from their HR process and still come out behind for having
landed there via a startup buyout.

It obviously goes without saying that that outcome needs to be shared across
the whole team, too.

Technically, wouldn't you also want the financial outcome to capture the risk
that the startup was all going to come to nothing?

Finally, most importantly, and (admittedly) orthogonally: even with acqui-
hires, what we're hearing are the "success" cases. Even those cases where the
backbiting HN threads are tearing the company down for "obvious" failures,
those are, relatively speaking, successes. We don't hear about the majority of
seed-funded startups, which don't get any offers at all.

~~~
viscanti
Prior opportunity cost is a sunk cost. The "exit" needs to be evaluated based
on realistic alternatives at that point (i.e. keep going or shut it down). The
fact that you may have left money on the table to join a startup no-longer
factors into the equation. It comes down to making the best choice given all
the current alternatives, not all the possible past alternatives that could
have been taken.

~~~
tptacek
The question isn't, "is the acqui-hire the rational next step for the
founders?" We can assume that acqui-hires virtually always are.

~~~
viscanti
If sunk costs (based on missed opportunity cost) factors in, then you also
need to know what future earning opportunities would be for all (or most)
founders/employees had they taken a job in Big Corp vs working at the startup
that was acquired. You'd at least want to be able to realistically forecast
earnings over the next 10 years. If they've increased their future income by
more than what they gave up, it's a net win.

The problem is that's impossible to accurately forecast. An additional problem
is that the basis is only financial, when (most?) startup employees aren't
there just to make the biggest possible payout. There's an increase in
responsibility and autonomy across the board in a startup. How is that valued
for each individual?

The point in saying "was the acquisition a success" can only accurately be
viewed by looking at the other alternatives at that moment. Any other analysis
is significantly flawed.

~~~
001sky
Think about a repeated game?

Also "The problem is that's impossible to accurately forecast" is true, but
somewhat trivial. The initial investment and the M&A exit valuation are are
subject to same critique, no?

Examination of the final node , while rational (is this the best out?) is not
the right framework for evaluating the _investment_. To do that, one would
think you looked at the deployment vs recovery (en toto), taking into
consideration time (&tc).

~~~
viscanti
I think any other analysis is too complex to offer any real insight. We can
look at the NPV of the possible future earnings, to get a better idea. For the
given opportunity cost, what's the impact on future earnings (over the next 10
years or so)? Does working at a startup that gets acqui-hired give you a
potential to make earn more in the future? If so, how much more?

What if you break even in the long-run, but you value autonomy over money? So
you get a couple additional years of more autonomous work in for the same
total money. That's still a win, but we lack the financial forecasting
instruments to properly value that. The same can be said for all other non-
monetary possible motivations for working at a startup.

Looking at the money you may have given up, and requiring that ALL of that be
made up in one lump sum to be a success event seems silly. It misses future
income (which is relevant and can/should also be forecasted), as well as a
number of other salient factors.

Any financial model we come up with, will still be just an opaque gage. So if
we're really just looking for a simple heuristic, looking at possible
alternatives is an ideal choice (but as heuristics go, which all evaluations
of this would be), it misses some things. I'd still argue it's the best simple
evaluation metric, and that we're not losing much by foregoing a more complex
analysis.

~~~
001sky
Referring back to PG post,

Exit A | Nil value added = Failure

Exit B | Some value added < capital invested = 'not a failure'

Then the qualification was added

Exit C | Value added > capital invested = Success (threshold case)[1].

That is just objective data/nomenclature. Ex post and not complex.[2] Not
forward looking. Not "personal".[3] Exit B is the typical case "Acqhire" or HR
acquisition [4].

You, then raised the special case[5]:

Exit B2: Value added != face value consideration [6]

and also presumably,

Exit B3: Value added > face value consideration >?< Capital Invested

>>This murky area = _PR SPIN ZONE_.

My comment on game theory was to consider threshold success as [7]:

Exit B4: Value added + Reputation impact [8]+ face value consideration >
Capital Invested.

This would mean some deals, even though they are not a financial success, if
cash consideration was the only variable, still might be a legit "win" for
everyone involved, when reputation is considered. __Note: LHS terms, when
distribution not only total amount is considered, have a feedback loop __

Edit: formatting

Notes:

_____________

[1] Ideally, includes return = opportunity cost

[2] Final node optimization, is fair question. But tconsiders that a forgone
conclusion. Note Tpacek's comment: _tptacek | link The question isn't, "is the
acqui-hire the rational next step for the founders?" We can assume that acqui-
hires virtually always are._

[3] The game theoretic optimization of the final node is messy. Don't be short
sighted. Keep in mind, playing nested sequential games.

[4] Although logically, the product could be shut down in C.

[5] This is special vs a typical exit, but obviously common to [B] type
Acquires.

[6] The "face consideration" is what goes to the equity of the startup.

[7] If you handle the exit well [3], reputation >> 0 is very possible,
assuming a recurring game, etc.

[8] For both the investors and the team.

------
buro9
This matches my view on the acqui-hire. A view that I didn't feel was
reflected elsewhere, let alone by a top HN poster. This lack of validation of
the view surprisingly mattered to me, it made me uncertain of the strength of
my own opinion.

My current position is that last year I was just shy of a 6-figure salary, but
also had a "lifestyle business" (read: number of websites) that are successful
as projects (but exist as a stable and growing business).

Late year I made the decision to quit the comfort of the salaried position, to
use the projects as the bread and butter and to build a technology based
product and company.

I've now been approached with a serious offer from a large company in my
sector, and a somewhat serious approach from a medium sized company in this
area (sports related online communities).

During discussions it's become obvious that they're willing to somewhat
inflate the offer for the community to acquire me fully too. That is they're
not interested in an offer that doesn't include me and the offer is inflated
to make that attractive.

Discussing this with non-startup friends, not one of them can fully comprehend
why I wouldn't accept a swollen bank account and an envious salary.

For me, the thing that I deeply believe is that the technology startup hasn't
even shown its' potential, and nor has it yet failed... in fact, I've barely
started.

I quickly came to the conclusion that an acqui-hire is (right now) the worst
possible thing that could happen. The end result would be the same as failure,
and were I to have failed then not taking the money would be foolish. But
right now it's so premature that I feel that to allow myself to be purchased
is tantamount to seppuku.

It's really good to see that opinion shared. Most seem to celebrate the big
earnings for founders and the cash-out for investors... but all I see is the
wasted potential.

~~~
ScottBurson
This is a great point. If you're not to the point of running out of money, and
you don't yet have substantial evidence that the niche you've targeted is
severely limited, considering an acqui-hire seems silly -- unless that was
really your goal to begin with.

This makes me wonder at what point in the life of the startup most of these
acqui-hires are occurring.

EDITED TO ADD: Further reading (e.g.:
<http://news.ycombinator.com/item?id=4425364>) suggests that indeed, the usual
point at which an acqui-hire becomes relevant is when the business is on the
verge of failure.

------
dave_sullivan
Spelling an acquihire as failure reminds me of "If you're not first, you're
last!" I don't know that it's a good way to look at things.

First, if you get out of your startup for what amounts to a signing bonus and
a job at a cool company, life could be worse. Much worse, in fact.

If you set out to change the world and didn't-- c'mon, VERY few people are
"changing the world" with a startup. The world, and your customers, will go on
if you go to work for someone else.

Building a business is not for everyone. If you realize after you've started a
business that you suck at it, there's no shame in saving face and getting out
with what you can!

But yes, it's certainly not as exciting as a lot of these companies make it
sound in their press release, and it's certainly not something anyone will
remember a few days later. It's not placing first, but it's not last either.

------
endersshadow
I'm not entirely sure this is true. Especially for service-based businesses.
If we're talking about the web/mobile app world, then sure, agreed. There's a
product or tangible service being provided that's getting shut down.

However, for service-based businesses, like architectural/engineering firms or
consultancies, there's really no other form of purchase, other than to just
funnel the profits to a different place. When you buy one of those businesses,
_you can only buy the people_ , as there is little to no IP. If the name has
enough cache, you can continue on with that name, but if it's a competitor,
you're better off just folding them into the main brand.

As an example, my dad's an engineer. He sold his fairly successful business
that he had run for 15+ years (it was a lifestyle business) because he was
just sick of the bookkeeping--all he wanted to do was be an engineer after 15+
years. So he sold, and went to work running the engineering department
specific to his practice of the place that bought him. Now, he gets a
predictable income, no bookkeeping, and more reasonable hours. I don't
consider him a failure in the least.

~~~
Retric
One of the most valuable assets of a service based company is there
reputation, Rolodex and their phone number. Someone calls a plumber to come
out and the guy at the other end says, "we changed our name to X" most people
don't hang up and they don't actually care they just don't want to look for
another plumber.

------
debacle
ChuckMcM made a post recently that was the most profound thing I've ever read
on HN. I'm going to post the link here so you can shower Internet Points on
him:

<http://news.ycombinator.com/item?id=4425364>

~~~
MengYuanLong
Really interesting read. Thank you for posting the link. I certainly would
have missed this otherwise.

------
PaulHoule
What counts as failure for an investor can be a big win for a founder.

Suppose a founder is in a dead-end job, but doing a startup for a year and a
half leads to a much better job with more pay. That's a BIG win.

------
dexen
Business owners seem to enjoy being acqui-hired -- not as much as selling
company for a couple millions, but it's still quite good nonetheless. On the
other hand, investors may get little, if any, of return on an acqui-hire. See
article in which Michael Arrington admits openly that
[http://uncrunched.com/2012/08/26/investors-dont-like-
acqui-h...](http://uncrunched.com/2012/08/26/investors-dont-like-acqui-hires/)

If an acqui-hire is failure for anybody, then it's a failure first and
foremost for the investors.

In his `About', Jacques states openly that he represents investors' point of
view:

 _> I do this [[verifying that what a company says it sells and owns is
actually true]] work for several renowned Venture Capital firms in
Europe(...)_

~~~
zafriedman
Investors shouldn't like acqui-hires unless it is an agreed upon goal in the
first place. In fact, I guess that investors wouldn't appreciate any
misunderstanding of goals on any level, and it seems to be an oft-cited reason
for entrepreneurs losing their jobs at the behest of venture capitalists. But
if I had $1 million to invest into a business, and from my experience I had a
reasonable expectation that a company I'm investing in could be acqui-hired
for $50 million, and we agreed upon that from the outset, then I could see
myself making that deal and being happy when the result came to fruition.

~~~
Retric
A lot of Acqui-hires are a choice between 98% chance of total failure vs. x%
of their initial investment back. It's not a goal it's simply a way to cut
their losses when the company is on their last legs.

~~~
tptacek
This is true, but as has been pointed out repeatedly, even if a company faces
a 98% chance of total failure, many investors would prefer they chase the 2%
chance of success rather than recovery of X% of their investments. VC
investments either win or they don't; salvage isn't interesting to them.

------
igorgue
The funny thing is that 'acquisition' is, most of the time, also a failure.
Here we get spoiled all the time with the big time acquisitions, but, in
reality, acquisitions happen more often at a lower scale, I can tell you that
because my company is getting acquired, not for a price I'd like to sell it
but just to get it out of my way to attempt other endeavors.

I know of espectacular failures that end in acquisitions, I'm talking about
companies raising tens of millions of dollars and sell for six figures.

------
praptak
_"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?

~~~
ChuckMcM
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.

------
zafriedman
One observation. I posit that in certain situations, when from the outset a
startup sets out to attract a microsegment which is the subset of an existing
market that is owned by a major competitor, and furthermore has the explicit
goal of being acquired for somewhere between $5 to $50 million by one of those
major competitors, that this is valid. Being that in select situations this is
a valid undertaking, it must follow from this that the actualization of this
explicit goal represents success, and not failure, neither on the part of the
founding team nor in terms of product development. Perhaps the dollar amount I
cited here is what the OP would consider to be a "buy-out offer [that] is
spectacular", but to the extent that it isn't, it's ostensibly wise to
consider the opposing viewpoint.

------
j_baker
This has been my experience. I think people tend to read too much into acqui-
hires. The reality is that acqui-hires seem to typically be a means of
salvaging _something_ from a failing company.

------
koenbok
Even if some people have HR acquisitions aligned with their definition of
failure, I don't really see why that's so important. Because of the stamp or
stigma they can put on someone maybe? I thought only Europe had that problem
(being from there).

Startups fail all the time. It means people are trying. That is way more
important to me.

The only thing I don't like to see is that good entrepreneurs get comfy at big
companies with mediocre output. But in my experience that doesn't happen
often.

------
davmar
ice cube said "life ain't a track meet, it's a marathon".

you take risks. you build something. you learn to build and manage a company.
you learn to raise capital. you learn to negotiate a buyout. you learn to ship
products and support customers.

for business, personal or any variety of reasons, the founders decide that
being acqui-hired is their best option, and have an entirely new set of skills
to apply to their next business iteration.

but you're labeled as "failures" by this jacques mattheij.

i don't agree with him. not at all.

teddy roosevelt said:

 _It is not the critic who counts; not the man who points out how the strong
man stumbles, or where the doer of deeds could have done them better. The
credit belongs to the man who is actually in the arena, whose face is marred
by dust and sweat and blood; who strives valiantly; who errs, who comes short
again and again, because there is no effort without error and shortcoming; but
who does actually strive to do the deeds; who knows great enthusiasms, the
great devotions; who spends himself in a worthy cause; who at the best knows
in the end the triumph of high achievement, and who at the worst, if he fails,
at least fails while daring greatly, so that his place shall never be with
those cold and timid souls who neither know victory nor defeat._

------
veritas9
Beyond the obvious rationale behind acquihires... they're good for the startup
ecosystem because the reality is that not everyone can be an Instagram.

They're usually a great deal for the founders and the company so it's win-win
situation unless of course your definition of success is a billion dollar
exit. Not to mention the learning curve and challenges that entrepreneur
experience and overcome which in my opinion is priceless.

------
tzaman
I'm not sure if it fits the story 100%, but this is exactly how I felt when
Sparrow got acquired by Google. I use Sparrow on iOS daily and I hate the fact
that there's a possibility we'll never get push notifications.

------
anovikov
That is true, but even so, acqui-hires are good for all of us, because they
make investors less cautious.

