Originally posted January 2014
In 2012 and 2013, “acqui-hire” became one of the buzziest buzz words in the tech lexicon (“texicon”? No? Fine.), somewhere in between “meme” and “growth hacker”. And for good reason. While Silicon Valley giants like Facebook, Twitter, Google and have been using acqui-hires (the acquisition of a company with the sole intent of acquiring the employees) to secure top talent for years, the term was cast into the limelight in 2013 in part due to Marisa Meyer’s declaration of using an acqui-hire strategy to turn around Yahoo!. Meyer’s public strategy was followed by a litany of articles blaming acqui-hires as both bad for tech and bad for innovation (Mark Suster’s article describes this POV well). Regardless of how the acqui-hire argument shakes out, the use of the acqui-hire to value talent is a massive innovation that has fundamentally changed forever the way we look at teams and talent.
Prior to the acqui-hire, acquisition targets were valued primarily for the quality of their output and the potential for the product when incorporated into the acquirer.
The acqui-hire has added a new dimension to acquisitions, which is the appreciation that high-functioning teams may be the biggest driver of innovation, rather than the acquired product itself.
As emerging tech giants like Facebook and Twitter try to solve the quandary of how to monetize billions of users in a way that does not detract from the core experience (cough, cough, Facebook video ads), the first step has been to hire the best team possible. Rather than simply seeking the smartest individuals, they are looking for the smartest teams with a proven track record of working together. While not all acqui-hires come from proven winners (if they were winners, the product would be part of the acquisition), all acqui-hires are experienced teams. The benefit of an acqui-hire is that you can use the terms of the acquisition (the earnout) to increase the likelihood of retaining employees and keeping teams together longer through financial incentives. If you ask any VC what they look for in an investment, a talented and experienced leadership team would be at the top of every list.
To give a feel for how active leading tech companies have been in utilizing acqui-hires to on-board talented teams, PrivCo reported that in the five quarters between Q1 2012 and Q1 2013, Facebook led all companies with 12 acqui-hires, followed by Twitter with eight, Yahoo! with six , and Google with five. The typical cost per acqui-hire has a wide range, but the general rule of thumb has been about $1M per engineer. That $1M number is the source of a ton of controversy and speculation, with many arguing that $1M is a ridiculous overpay for individuals.
I look at acqui-hires differently. A few years from now, we may all agree that $1M per engineer is 10x too high or 10x too low, but thanks to the acqui-hire there will be little doubt about the necessity of securing high-functioning teams to drive innovation. As a result, high-value teams and employees will enjoy unprecedented benefits as companies find new ways (beyond free lunches and corporate shuttle buses) to attract and retain talent. Assuming I can find my way on one of those teams, I look forward to finally implementing my lifelong dream of officially sanctioned nap time.
Gary Coover is a tech and startup business model junkie who honed his snark through years of strategy/BD work, co-founding a startup, and a few years in Korea and the Bay Area working for Samsung. Gary currently runs Global Operations for the Samsung Accelerator, helping architect, launch and scale the Accelerator and its startups in New York, San Francisco and Tel Aviv. His opinions are his own, as are his tweets, which are occasionally above average.
Additional Content from this author:
- What Entrepreneurs Can Learn from Olympic Silver Medalists — The Importance of Market to Your Startup
- Let’s Stop Throwing Out the On-Demand Baby with the On-Demand Bathwater — Four tips for validating strong on-demand business models
- State of the Bot — where are we now and where are we heading?
- Design as a Differentiator is Dead — Long Live the Business Model!!!
- Finding the Right Incubator “Unfair Advantage” — In the end, the unfair advantage is the key differentiator for both start-ups and incubators
- The Startup Revenue Model Smell Test — Why Path may be in trouble
- Frame Your Next Project for Success: a 6 Question Cheat Sheet — A former consultant talks about something other than hotel points and frequent flier miles