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Ask HN: How do aquihires work?
43 points by brazzy on Aug 23, 2012 | hide | past | web | favorite | 42 comments
As I understand it, an "aquihire" is an acquisition of a startup by a large company where the acquirer is not interested in the startup's product, technology or userbase, but only in its employees, who will presumably be shifted to work on the acquirer's own projects while the startup's work is abandoned.

The impression I get from HN is that this is fairly common and explained as such employees being very valuable since they have proven the ability to create something.

But what is the advantage of a (presumably rather costly - or does it happen only to failed startups with low valuations?) acquihire over simply "poaching" those employees?

After all, the employees could leave the acquirer ASAP (especially if there is resentment over the product they had worked on being abandoned), and the founders and early employees (who have proven their ability the most) get a lot of money via their shares, which enables them to go off and do what what they've always dreamed of rather than work for $BIGCORP.

Doesn't sound like a good investment to me - so what am I missing?

Teams have value greater than the sum of their parts. It is highly unlikely that $BIGCORP would be able to poach 100% of the team, or even 100% of the key players outside of an acquisition offer, and to do so could be much more expensive.

In successful acquihires, the acquired teams stay together and work on a new but related project with the additional resources and weight of the big company behind them. When it works, it is much better than just putting random people together since building effective teams is hard and takes time.

Also, keep in mind that acquihires often give the majority of value to the employees in new, unvested stock options vs. cash or vested stock.

It's also important to point out that by "team", what's often meant is "founders". Mere employees usually have to interview for their own jobs and are often cut at the acquihire stage.

Ouch. Having been on both sides (acquihiring and been acquired) there is some truth to this, but the reality is that the acquihire shoots for the 'minimum viable team' rather than specifically just the founders. In fact the one acquihire I participated in (as hirer) one of the founders was specifically not wanted as part of the deal but a couple of the employees were.

What happens in that instance? Does that one founder just take his share of the sale and run?

Well in this particular case no. The offer structure was some cash (this all went to the investors), some restricted stock in the acquiring company for the people wanted, and regular interviews (no guarantee of a hire) with everyone else. So the founder who wasn't part of the 'deal' was offered the interview but not the restricted stock + job.

In this particular case the acquiring company's stock was publicly traded so the restricted stock was essentially a payout once the core team demonstrated they could bring their ability to deliver in house. The restricted stock 'unlocked' (which is to say it transferred over to founders) in two tranches one at 18 months and one at 36 months.

When I looked at it I felt it was a better deal than the key players would have gotten if they had approached the company individually, and the way in which the restricted stock unlocked was structured so that as long as folks stayed for a year and remained in good standing (which is to say their new management was happy with their performance) the first half of the stock was guaranteed even if they left before 18 months.

Probably more detail than was necessary but the bottom line was that the acquiring company made it worthwhile for the key employees to come over as a team (and parts of the deal were structured such that if they didn't come over as a team the deal was off).

But what did the excluded founder see?

Are you asking what was their visibility to the negotiation? That I do not know, the negotiation was undertaken by the board of the company which included the CEO but not the excluded founder. I have no idea how much of the negotiation was shared by the CEO.

I'm asking what was his compensation, if any, as part of the acquihire - what happened to his equity?

None, there is no equity.

In an acquihire situation it would be unlikely that you reached the liquidation preferences of the original investors, so common stock has no value.

Ugh. I feel sorry for the founder left out in the cold. Especially if he was actually pulling his weight and just isolated from the rest of the team due to personal or political conflicts, or if the acquirer was just being cheap and said "We're only willing to pay for n-1 of the n founders, the CEO has to pick somebody to leave behind." Even if the guy deserved to be left behind, it seems like he shouldn't walk away empty-handed when all the other founders got something.

Going to go a bit meta here, but this is useful information to know from the perspective of a potential target.

First, the startup has failed to launch. Done. Poof. Risk actualized, everyone lost all of their investment, roll it up. The doctor has called them into the office and told them they have days, perhaps weeks, to live so they should wrap up their affairs. This happens because the business, as envisioned/implemented, cannot get anyone to invest further in it and it has insufficient revenue to pay the bills. The money is running out, when it hits zero they are done.

And yet the company has obligations, to debtors, to their employees, to lease holders, what have you. Creditors get antsy because they don't want to be left with nothing so you get your creditors and lawyers on the phone you make a plan to liquidate the assets. This includes office furniture, any patents you may have filed for, equipment, laptops, window coverings, and of course the team.

There isn't any equity left, debts owed are more than the value of the company, you are "upside down". That is true for any of the founders or employees. The goal here is to get out from under the creditors without landing in court being sued personally somehow.

Now, its a crappy place to be, the founders gave it their all, but it didn't work out. Now along comes BigCorp. They always have more project ideas than people, and ideally they have deep(er) pockets. They have some idea of the quality of the founders and what they tried to achieve, maybe they have employed some of them in the past. That company makes the following offer, "You get what you can for the IP, office supplies, and equipment and we will settle the rest of your debts for you (called making the creditors whole), in exchange for the following people coming to work for us as a team." Of course unlike servers you cannot just 'sell' a team to BigCorp, the team actually has to agree to go there, so BigCorp puts together a 'package' which is contingent on all (or sometimes just most) of the people they ask for coming to work for them. Your job as the founder / board member is to sell this package to the team so that BigCorp will come through on their offer to settle the debts.

Assuming you come to an agreement, the startup makes a press release "Whoo hoo! We're joining BigCorp to do excellent things!", the investor puts "Acquired by BigCorp!" next to their investment, and everyone smiles, and everyone shakes hands, and everyone knows (or should know) that they swung hard and missed. The creditors go back to do what they do, the investors go off to look at other people to fund, and the founders 'do time' at BigCorp until they can get back into the game.

So in this scenario, BigCorp isn't buying the company, they are buying the team, they are simply facilitating the liquidation of the company assets. For what ever reason they don't feel like this founder person is necessary for the deal to go through, they don't need to 'pay extra' for them with a package. All the founders "got" out of this deal, is continued employment at a large company, and a chance to play again when their lockups expire there. The guy who didn't go to BigCorp can turn around and get right back into the startup game. I know it seems like the guy left behind got screwed but in the overall scheme of things that isn't necessarily true.

Not to stroke your ego, but this type of post belongs in a "Startups: The Business Side 101" somewhere. Excellent insight into a process that not many people see the dark side of, especially the bit about doing time at BigCorp.

But aren't the founders the least likely to be happy and productive in a bigcorp setting?

A couple million dollars can't quite buy happiness, but they can buy acquiescence quite easily.

Yes, and they leave, and their key employees may stay, and this are people who have proven to be key hires.

Poaching doesn't work when the people you're trying to hire fall out of bed and land in 10 job offers. These people aren't job hunting.

Acqui-hires generally have a tension where the founders/investors want money for stock, but the acquirer doesn't really value the stock very highly. If it were up to them, they'd want to dissolve the company and hire the team with big signing bonuses and retention packages.

Practically speaking, what generally happens is that the team gets a "back-loaded" deal where they get a combination of signing bonuses, stock payout, and annual retention packages that start small but get larger every year. So if you quit in the first year, you pretty much get nothing other than a few stock dollars.

"After all, the employees could leave the acquirer ASAP"

I'm guessing that most acquihires deal have a clause preventing you from leaving the company ASAP. Or at least an incentive to make you stay with the company (shares, yearly bonus, etc.). I don't think google will buy a company XM$ and see them leave right after.

Another point is that the acquiring is not "hostile". This is a deal between the startup/team being acquired and the large company so they weighed their options and chose to accept the offer - i.e. they want to work for the big company or are interested in the project they are being offered.

There is a lot of threads here on HN describing that talent is hard to find in technology and it's understandable to acquire a team that already work well together and produced something concrete.

One last thing was a comment by pg here : http://news.ycombinator.com/item?id=4366621 saying that "The article doesn't mention one of the most important reasons companies do HR acquisitions: competition forces them to. If company A offers to acquire a startup and company B merely offers to hire the founders, all other things being equal the founders will take company A's offer."

The acquirer could have the same contract clauses and incentives when directly poaching employees. More actually, since they don't have to give any money to VCs.

But if the idea is actually to hire an entire proven team to work on an internal project they are interested in, that does make a lot more sense.

You cannot poach an entire team, or even half a team, easily. The point of the acquihire for me is either to acquire specific members/leaders of a team (that wouldn't be interested by just being poached anyway) or an entire team/specific knowledge.

Sometimes a startup reach its peak and feels its the right moment to make a change. An acquihire can also lead to that.

You can search about the Sparrow acquisition (a lot has been written here about it). Another example that comes to mind for me is Google acquiring Wildfire and the team reaction when they learnt it : http://www.youtube.com/watch?v=4ARPB7b0kIg

Why the ShakyCam? It was so bad it made me dizzy.

Speaking from an Entrepreneurial perspective an "Acquihire" is what our investors like to call a "Soft Landing" AKA we ran out or are running out of money with little to no traction.

Typically an Acquihire is not much more than a way to give your investors back something so you will not give yourself a black eye in the investment community and you'll have the opportunity to raise money again in the future.

In many cases Acquihires are set up by current investors who know you're struggling and looking for a way out. As investors in you they would much rather see something like this than "we're shutting down our product and parting ways" that does no good for anyone.

So while its not always a good investment some acquihires really are, even though the CEO or CTO may leave fairly quickly from a high profile acquihire chances are some members of the team (key members) will stick around for their earn out, enjoy the froyo and build some kickass new products for the company which has given them new found stability.

From an investor perspective Acquihires are just the polite thing to do, One could call it Failing gracefully

I was part of a pretty non-standard "soft landing" aquihire this year. The company I was working for was out of money and couldn't find a serious outright buyer for numerous reasons, but worked out a deal with another company for that company to hire almost all of the previous company's employees and take over the building lease so we could continue working in the same building.

Virtually the whole company moved over -- a handful of people didn't get offers at the new place because their jobs didn't really make sense given the focus switch. However, everyone who was offered a job save for one moved over to the new place. The first sign of bad things to come was that nobody was offered a raise or any form of signing bonus, yet we still all accepted because the team was really great and we enjoyed working together. The layer of engineering management inserted above us turned out to be incredibly horrible (the company came from a media background, not software), committing to developing software for a lot of sketchy platforms (eg. Yahoo Widgets running on Vizio TVs) but demanding full-featured rich AppleTV/GoogleTV-style apps, making content deals that didn't mesh well with technology needs, badly mismanaging the entire development process, putting people in positions based on politics and nepotism, etc. Within ~5 months virtually the entire engineering (development and IT) staff from the old company, including me, had quit.

The story may yet have a happy ending, the CEO at the acquiring company (who was almost as new as our acquisition was) has since been cleaning house and trying to solve a lot of the problems that became glaringly obvious by all of the quitting and I wish him well because the product they are trying to build is a good one and I have friends who still work at the company.

tl;dr - this "aquihire" was terrible for me, but maybe indirectly helped the acquiring company realize how terrible it was before it was too late to fix it, so... partial success?

This seems to be a pretty common story around aqui-hires. I've heard of very few instances where two separate companies can mesh successfully after an acquisition. If nothing else, it makes me pay much closer attention to company culture with potential new employers.

For better or worse, company culture will have probably the largest impact on whether you enjoy your job - even more than tools/programming languages/hardware/etc.

I was part of an acquihire within the last year, so I'll try to explain a few things. Some of these comments are accurate but I wanted to clear things up.

Not all acquihires are the same, so my experience is surely different from others, but there could be a number of reasons why founders would decide to be acquihired. Job security, higher pay, you get to solve the same problem you're passionate about but on a much larger scale, you have more resources to do what you need to do, you get to build a larger team than you would have been able to previously, you get to work with some amazing people and learn from them, you get an exit under your belt which looks good if you decide to do another startup in the future.

As far as why a company would want to acquihire a team? The team dynamic is more valuable than building a team from scratch. The team has proven they can design, build, and deliver a product. I'm willing to bet that 100% of the founders that get acquihired have domain knowledge of the product they work on, and that can be valuable to a large company that is trying to build a new business unit and may not know that industry as well. Corporations need to move fast to please investors, so often times it's easier for them to acquire a team that knows an industry rather than launch a new business unit and learn as they go.

I've seen so many people on HN complain when a company gets acqihired...but I bet that the majority of you would take the same deal given the opportunity. Sure it can be seen as selfish, but sometimes you have to do what's best for yourself, your career, and your family.

Very interesting paper, especially the way it presents this as a phenomenon specific to Silicon Valley and shaped by social norms.

The advantage for those employees being acquired is (typically) a liquidity event for their current shares. Say Acme, Inc. buys Little Guys N Me for 10 mil....and you are an employee of Little Guys N Me to the tune of 1% (or such). Depending on wording of your shares, this could mean a quick 100k..or there could be another cliffing / vesting situation. Also there will often be golden handcuffs put on (that are nicer than coming to the company independently)...so more shares of Acme, Inc. than one would get independently.

An "acquihire" says a lot about the founders of the company being acquired. It usually means they're burnt out, or aren't convinced that what they've built is a viable company. It's a "let's cut our losses" move.

That's not to say it isn't a good deal for the founders, but it's certainly not a good deal for many other people. The mindset isn't "let's create 1,000 jobs where there weren't any before," it's "let's make enough money to feel comfortable again."

That said, they can't just leave their acquirer immediately. Typically there's a time _and_ performance-based earn out applied to the terms, so they need to stay (and perform well) at the acquiring company for a set amount of time. Usually two to four years.

Is there anything to the strategy in aquihires of terminating a competitor? If you hire employees away, the competing company might still exist. By doing an aquihire get the option to remove a competitor from the landscape as well. See: Sparrow?

In what sense is Sparrow competition? Seems more like a great add on to accelerate Google iOS client development.

I think it's because most startup founders are not very interested in getting hired. Hard to poach people who doesn't want to let down their team, and maybe the team is what you want anyway. Also easier to have a lock-in for a couple of years if it's tied to purchase of a company rather than just hiring somebody.

In straight consultant companies this happens a lot. Only way to grow is to hire more consultants, and it's easier to get more people by aquiring whole companies and lock in the consultants for a couple of years. Good deal for everybody if you don't work yourself to death before cashing out.

Why so strict with the definition of the term 'aquihire'?

What I see in tech startups: Little companies acting as labs for the big companies. In big companies, it's often difficult to develop something breaking new. There is so much infrastructure, culture and history around, that it gets increasingly difficult to think outside the box and to keep up with the latest trends. This were startups step in. With the startup, they often acquire a very specialized piece of technology and know-how. Then comes step two: Looking for ways to integrate the new toys into the productline.

The people who are being acquired are usually tied to the acquirer via 'golden handcuffs', so they can't leave. Why just not lure these employees by giving them better offers? Probably because everyone knows that the acquihires are common so it's stupid to leave the startup 'for free' instead of waiting it to be acquired, and get some cash. If the new employer will give a signing bonus big enough to each of them it won't be much cheaper than acquihire, but he will get individual guys, not some company with established leadership, structure and culture.

Acquihires doesn't have necessarily the sole purpose of hiring new employees. Take a look at Facebook buying Face.com, Face did create a technology that was interesting for Facebook, it wasn't just the employees in which Facebook had an interest on. The tech now belongs to them, and they can use it to improve their own, or even replace it. Better than that, the original Face team can now work with the Facebook's team that was working on face recognition software, cooking up new and better ways of doing that. Of course there are risks here of the teams not meshing together well, but this is all analyzed and decided upon before the acquihire.

Other than that, acquihired employees aren't necessarily interested in being hired the other way. When inside a company, you have to climb the hierarchy ladder, you won't be hired after college to just be the leader of a big team, or the CEO of the company. For the people not interested in climbing the ladder, building a startup and being acquihired is a very good way of hacking the ladder and landing right on top, or close to it. I recommend pg's essay on this ( http://www.paulgraham.com/hiring.html ) This, together with the fact you have already mentioned that these acquihired employees have proven the ability to create something, reduce the employer's risk on selecting the wrong person to do the job, making acquihiring a good investment opportunity.

This isn't accurate. An "acquihire" is, by definition, purely about the people.

Face.com was an acquisition, not an acquihire (or talent acquisition).

As for retaining the acquired folks, you usually pay out their earning over 4 years rather than all at once. So if an acquired founder leaves after a year, the acquiring company keeps 3/4 of what they ought to have paid to that person.

Disagreeing on a definition without giving better arguments than just stating I am wrong, then adding a comment on how companies retain the acqhired employees (which had already been discussed in other comments in the thread) is a very poor comment.

Replace the Face example by the Sparrow example, being acqhired by Google. Acquisitions are about profits, Google's acqhiring certainly wasn't for Sparrow's profits, they bought them for both the team AND the technology they developed. They made Google's product better, and Google wanted to use both of these things to make their product even better.

He was pretty specific about the way in which you are incorrect.

Acqhires are acquisitions where the primary interest is the team, not the IP or product.

My first reply never said it wasn't primarily about the team.

I can't speak for FB, but it is quite plausible that , for example, Face.com has no usable tech for FB, but has a bunch of people who have proven they can sling ML code and FB integration, great hires.

Judging by the results of most aquihires that I've heard about, they simply don't work.

It's almost certainly a nice tax result for the acquirer, making the acquisition cheaper than hiring the individuals with large cash signing on bonuses.

Can anyone actually point to some successful acquihires?

Honestly, I can't think of many high-profile acquisitions that were acquihires outside of possibly the gaming industry.

> so what am I missing

A bit of bubbly froth?

It doesn't seem like a great deal to me either, but I suppose it's difficult to tell either way without a concrete way to measure and judge.

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