I'd like to know why you think this isn't close to reality. There are tons of startups out there with no path to independent viability. Why wouldn't potential acquirers simply wait until the founders run out of what little money they have on hand then snap it up for a pittance? Or simply hire the developer?
If someone can get something to market in three months the first try, it's going to be much quicker on the second try, especially if they don't have to deal with all that "other" stuff (marketing, business dev, launch plans etc).
These are what outsiders know: a) Facebook and many acquirers looked at the company and passed b) Company ran out of money c) Facebook hired the developer, who also posts in the blog that his idea would work far better as part of Facebook or Twitter. I am not asserting that (a) and (c) are directly connected. It is perfectly possible that the people who looked at the acquisitions aren't the same ones who made the hire and the two sets of people may not even have talked to each other.
However the one thing no one outside Facebook can really know is why they passed on the acquisition. My reasonable guess is that they figured it would be cheaper to hire (some, not necessarily the same) developers and do it themselves. Are you asserting that it is outside the realm of possibility for them to have thought that way? Or that future acquirers, facing similar choices, would not calculate that it would be cheaper to hire developers after they run out of money?
"However the one thing no one outside Facebook can really know is why they passed on the acquisition."
I know exactly why they passed on the acquisition, and it was not because they thought it would be cheaper to hire someone.
It's strange to watch you keep insisting on this. You said something mistaken when there was no evidence, and now that evidence has emerged contradicting you, instead of changing your theory, you fight to find a way to make the facts conform to it. It's like watching a creationist respond to geology.
I will accept that Facebook did not think this way (ie. it is cheaper to hire developer than acquire). But to be fair to me, until this parent comment, nowhere had you actually mentioned that you knew exactly why Facebook passed on the acquisition. Until you mentioned that fact, it was reasonable to assume that one party in a negotiation does not know all the motivations of the other party.
Having said that I would still let my thesis stand while withdrawing the Tipjoy incident as any kind of evidence of that thesis: given the proliferation of start-ups and the buyer's market, it is reasonable for acquirers to think that way.
If Facebook thought there was value, then $5mm for the company + founders, particularly in a stock deal, wouldn't have caused Facebook to make a decision not to buy.
The reality is that Facebook has a fairly large engineering contingent, and that writing a tipping application for the Facebook platform, will likely be a "from scratch" exercise - so there is little value in the codebase IP from TipJoy.
The actual architecture/algorithms associated with a tipping application are probably not so complex as to make Facebook believe they needed to purchase a company to get that knowledge. TipJoy has no patents that I could find on online tipping. And, Facebook wants to leverage its own social network - TipJoy just never really established enough momentum to develop their network and traffic volume to the point at which other organizations saw value that they wanted to acquire.
But, with all that said - it's true that _one_ of the reasons why Companies will purchase other companies is to acquire their engineering staff in one fell swoop. In the case of TipJoy, their small size worked against them. There wasn't much of an engineering staff to be acquired.
At the end of the day, this story probably repeats itself more often than you would imagine - as PG implied when he noted there are other YC alumni working at FaceBook - the only reason we're noticing it right now is that TipJoy is relatively high profile, and it became public knowledge that at least one of the founders is now working there soon after the startup shut down.
Thanks. That clears it up for me a bit. If in a hypothetical case there had been three developers, and a company hired all three of them without buying the company, things would have looked suspicious to more than a few people. With one person, it's easier to argue that it just made sense, given a particular scenario.
This, along with the fact that many startups have more to offer than just founder experience, also makes me think that this is unlikely to start a trend of hiring without acquiring.
If the grandparent poster is correct, it's quite possible that YC's model has serious flaws. Considering these implications, wouldn't a reasoned counterargument be more appropriate than snark?
Yes, but that comment doesn't explain why the deals fell through. However, you did mention something about this later, in the comment at http://news.ycombinator.com/item?id=780273.
