The Acqui-hire Scourge

http://pandodaily.com/2012/08/25/the-acqui-hire-scourge-whatever-happened-to-failure-in-silicon-valley/

by ahmadss • 14 years ago

38 41 14 years ago

ojbyrne• 14 years ago

I can't really get past characterizing pandodaily (and Sarah Lacey especially) as a thinly disguised mouthpiece for the Venture Capital industry. In this case, then, this can be summarized as "engineers are making too much money and have gotten too comfortable. And it's cutting into the (too much money, too comfortable) lifestyle that we, venture capitalists, enjoy.

tptacek2• 14 years ago

That makes sense especially because the trend to acqui-hires is particularly insidious for investors, who essentially have to chalk those all up as failures (for many funds, simply breaking even on an investment can be, pro forma, a failure). The prospect of an acqui-hire obviously motivates entrepreneurs to tack towards offerings that will elicit acqui-hire interest. If you're an investor, you'd rather your portfolio companies swing for the fences and miss, rather than bunt.

arohner4• 14 years ago

> you'd rather your portfolio companies swing for the fences and miss, rather than bunt.

That implies a correlation between what you're working on, and whether you'll get acquihired. From what I've seen, the aquihiring companies will offer on anyone who can get to 'hello world' of startups.

> the trend to acqui-hires is particularly insidious for investors

Obviously, if you already have investors and you take the acquihire, there should be a long conversation w/ the investors first. At this point in the company, the acquihire is a signal that the startup won't work, or new investors won't join.

Also, "I need my investors to make 2-3x" is a perfectly valid negotiation strategy. For angels, that's a decent return. (Of course, matters are different for VC). But the bar for taking an acquihire after a series A is much much higher.

diego• 14 years ago

That's the reason I flagged this post. This is not hacker news or even journalism. It's just lobbying for an industry.

michaelt• 14 years ago

I did not get that impression. The article said said:

  The flywheel gains more steam, the more acqui-hires there 
  are. [...] it sends the message to investors that there’s 
  no risk in backing them. It doesn’t matter that investors 
  rarely make anything from these deals, because frequently 
  they don’t lose anything either, or they lose very little.

Wouldn't a mouthpiece of the VC industry think it was good, not bad, that investors got their money back even after making bad investments?

aeurielesn• 14 years ago

I just want to say that I hate this acqui-hire term and the recent adoption I have seen of it.

arohner4• 14 years ago

The talent market is going to stay frothy until engineer salaries adjust up to stable equilibrium. The market is doing the rational thing, when Acquihires are worth $1M/engineer with a 3-4 year lock-in, while 'normal' salary offers are $150k. If you're talented enough to make a startup that can get acquihired, you absolutely should do it. Best case is you build a profitable company, worst case is you get acquired.

Acquihires are also not the worst thing ever from an employer perspective. Big companies can easily spend $10M on failed initiatives that go nowhere. It's much easier to buy a startup that proves it can execute.

thesausageking• 14 years ago

There is plenty of talent out there; companies just aren't willing to pay for it. When it's normal for developers to make $300k+ as bankers, hedge fund managers, and corporate attorneys do, then there's a talent shortage.

potatolicious3• 14 years ago

Hedge fund managers routinely generate 8-figures in profits per year for their employers. Likewise, high-power attorneys can bill literally millions per year for their employers.

There are members of our industry who do generate that kind of enormous value to their employers - I've met some of them - and they are all being paid in that ball park already (i.e., $300K+).

Is there any real reason to believe that you should be paid as much as bankers and lawyers besides some thinly veiled form of contempt we tend to have for those jobs?

mgkimsal2• 14 years ago

"Likewise, high-power attorneys can bill literally millions per year for their employers."

How are these attorneys charging? Hourly, even $1000/hour would be $2-3million per year billing full time. Are there other sorts of things that are getting charged for (at a profit) beyond time?

lmm• 14 years ago

>Is there any real reason to believe that you should be paid as much as bankers and lawyers besides some thinly veiled form of contempt we tend to have for those jobs?

It demonstrates that it's not unreasonable to pay that amount of money to a single individual.

I agree that there's no talent shortage. Companies willing to pay $300k+ are having no trouble hiring people who can generate that kind of value. Companies that aren't willing to pay that much are, unsurprisingly, hiring less valuable employees.

eli_gottlieb5• 14 years ago

I once read on this very website that start-ups aren't really "fully baked" until they're bringing in at least $200,000 revenue per employee per year. With those kinds of productivity levels for generic start-up quality (ie: good, but not too good) software engineers, I'd say salaries could stand to rise some more.

dglassan2• 14 years ago

What is with all this hate for acqui-hires lately? I was part of an acqui-hire, I've seen it from the other side. I worked my ass off with my fellow employees at a startup here in the valley. We never achieved the scale we needed to be successful in our industry, but we were acquired by the major player in that space.

It's been an incredible journey and all of us have grown our skills and are moving our careers forward working with the new company. It's been the best thing that could have happened to my career and all I hear on HN, and now in the media, is people bitching and moaning that these people shouldn't be acqui-hired and that all these acquisitions are bogus? Give me a break. It's business. That's all it is. This is capitalism working. Companies investing in human talent hoping to produce long term revenue and results. We built something together at our startup. It didn't work out but our new company liked what we built enough to bring us in and solve the same problem with more resources.

Downvote me, but I'm sick of hearing all this complaining about acquihires. Especially from journalists who's only job is to tell people their opinion...real tough work.

potatolicious3• 14 years ago

> "Especially from journalists who's only job is to tell people their opinion...real tough work."

I was with you until you decided that, in response to people trivializing your work and your contributions, you turn around and trivialize the work and contributions of an entire profession.

dglassan2• 14 years ago

You make a fair point. I guess I'm just a little bitter after reading that article. Over the years I've noticed that a lot of articles being written are just plain assumptions and opinions of the journalist, and not always accurate of what's going on from the inside. But that's just my experience reading articles written about the companies I work for.

ghshephard• 14 years ago

Interesting insight - but I'm not sure why you had to finish it by trivializing journalists - particularly Sarah Lacy, who's probably one of the hardest working journalists in the valley and has deeper insight into how the startup ecosystem works than 99.9% of the journalists out there.

rhizome• 14 years ago

It sounds like you're more talking about a straight acquisition.

chimi3• 14 years ago

There is a perception that acquihires are pushed through with pulled favors from venture capitalists looking to get out easy, rather than successful exits earned in the traditional manner. I, myself, wonder if these types of exits are possible for bootstrapped startups like they are for VC funded companies. It'd be neat to see a list of both.

On the plus side, I do think it takes a lot of time, energy, and luck to put together a highly functioning team and that has value -- maybe that's being overvalued too though...

arohner4• 14 years ago

I can tell you from experience, I've turned down several acquihires in the last few months from giant companies, with no VC raised. It can happen if you're bootstrapped.

joshu• 14 years ago

Acquihires tend to be poor returns for the investors in my experience. The VC interaction is mostly just hoping for a soft landing for the team rather than an actively pursued goal.

jsnell2• 14 years ago

Individual cases might be largely benign, and definitely are to people who would otherwise just have lost their jobs. The criticism is for the trend, and what it implies.

It's bad for users/customers, who frequently lose access to products they had been using as they get shut down or EOL'd as part of the acquihire.

It's bad for entrepreneurs trying to build a real business since customers will have no reason to believe that this particular company isn't just being built to flip.

It's bad for the world since it means that talented people have an incentive to build a showcase rather than something truly useful.

I strongly believe that most acquihires are a bad deal for the buyer. Or at least to the shareholders, though maybe maximizing shareholder value isn't the main reason these deals get made. Even "proper" acquisitions are horrible deals most of the time, and there the buyer is actually getting something tangible rather than an ephemeral team. I do find it almost impossible to believe that this is actually a cost-effective recruiting method. I'm sure there are exceptions, however.

And while it's not possible to categorically say this is bad, I personally find the inequality that results from acquihires a bit distasteful. Two people can do the same work at the same company as well at grossly different compensation levels due to one getting hired there, while the other got a retention bonus as part of the acquihire. A justified reward for the extra risk of joining a startup? Maybe, but it just doesn't feel like that to me.

eli_gottlieb5• 14 years ago

Of course it's bad for "building real businesses". However, for those starting and running companies that get acquihired, it's the rational decision: our current technology, software and tech labor markets dramatically undervalue both R&D spending and work done for hire in general. The acquihire has become, for the seller, one of the few ways of capturing the full value of their labors, and for the seller, a replacement for internal research and development.

snprbob864• 14 years ago

> It's bad for users/customers, who frequently lose access to products they had been using as they get shut down or EOL'd as part of the acquihire.

Who can say how many of those products would have been shut down or EOL'd as part of a bankruptcy?

> It's bad for entrepreneurs trying to build a real business

As someone who recently sold his company in an acquihire, I resent your suggestion that I wasn't trying to build a real business.

> I strongly believe that most acquihires are a bad deal for the buyer.

My new boss & team seem to be ecstatic with the deal so far... maybe we're an outliner?

> I do find it almost impossible to believe that this is actually a cost-effective recruiting method.

Do you have any clue how much money the likes of the big tech companies spend on recruiting? I get the sense that you have no clue. Most acquihires are peanuts, compared to the aggregate cost of assembling a high caliber team by other means.

I won't comment on the particulars of our deal, suffice to say that our company's numbers were traveling "up and to the right" and that we had investor interest. We drank a lot of beer and lost a lot of sleep, but ultimately decided that the acquihire was the right move for everyone involved.

Never forget, startups are a Repeated Game: http://en.wikipedia.org/wiki/Repeated_game

potatolicious3• 14 years ago

I really can't get behind the premise of the article, there are too many parts that simply do not connect.

> "Allowing entrepreneurs — and their investors — to save face by saying they were “acquired” instead of failing is nice, but it’s a bit like the pre-schools where everyone wins a trophy for showing up."

The notion that acquihires are failures is purely a moral one - last I checked pre-school trophies aren't worth several houses. I am fairly certain that acquihires who just took home $1-2M in comp will survive your browbeating about not swinging for the fences.

> "Not enough people moving to the Valley or coming out of school want to work at companies other people are starting, because it’s so easy to start their own."

No, no it isn't. We are now at the point where SF/SV companies are offering $100K to fresh undergrads. For all that the industry has done to lower the barrier to entry for entrepreneurship, it is anything but trivial. A fresh grad shouldering a moderately scary debt load is not going to trivially choose to found a startup over taking a highly-paid position and paring down the debt.

How easy does the author think it is to live in SF/SV, work on a startup full-time, fresh out of college, loan payments due, with no income stream? Does she think everyone's a trust fund baby that can afford the $2K SF apartment and just spend all day drinking Blue Bottle while twirling their startup ideas in their heads, right out of school?

chimi3• 14 years ago

To be fair, starting a company in your parents basement, relying on free food and expenses is a lot cheaper than moving to the valley, so don't neglect that path. A lot of startups look just like that.

dannyr• 14 years ago

Since the past year, I have heard of several "acquihires" that didn't involve money at all.

The acquiring company shows power by claiming they acquired a startup while the other can claim they built a startup that got acquired.

The Acqui-hire Scourge

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