Jacques Mattheij

technology, coding and business

Acqui-hire Is Just Another Way to Spell Failure

Being acquired is one if the positive outcomes of starting a company, it means that some other - presumably larger - company agrees with the vision and the product created by the smaller entity and has decided to express this agreement with an offer that was substantial enough that the owners of the smaller company thought that it was good enough. It turned their risky venture into a much less risky one and gave them compensation for the risks taken into a account weighed against the possible future payouts multiplied by the risk of continuing to run the business.

So far so good.

A variation on this theme is called the ‘team acquisition’, otherwise known as the acqui-hire. It’s a play on words, where acquisition of the tech and the hiring of the team are shown to be the reason behind the deal. This is a bit like previously owned cars instead of second hand cars and calling store theft inventory leakage. The tech press if full of these stories, there isn’t a week that goes by without small company ‘x’ announcing to their great excitement that they have been acquired by company ‘y’ for an undisclosed sum and that they will be shutting down their activities in the next two weeks. The team expresses ‘excitement’ at being allowed to do great deeds for ‘y’ and never mind the users of the services of ‘x’.

In plenty of these cases - if not all of them - that’s not the whole story. Unless the buy-out offer is spectacular, the company acquiring is a direct competitor and the product is allowed to continue to exist post the acqui-hire either stand alone or integrated in the parent companies’ offering (especially when the acquired company is shut down) the most likely behind the scenes view is simply one of failure.

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. Yes, it is better for everybody involved, and there is absolutely nothing wrong with that. But in spite of the amount of lipstick applied the pig is still clearly visible to everybody that knows how these things play out.

So, acqui-hire is just another way to spell failure. You can pretty it up any way you want but that’s just the way it is.

Another way of looking at this is that the people that ran the start-up would like you to believe that the offer from the company that acquired the team is of such a magnitude that their loyalty to the users and their own vision of where they wanted to take their company is insignificant in comparison. No serious start-up co-founder would ever take an exit like that as long as they believed their company had a fighting chance at being successful.

When contemplating an acqui-hire be extra careful. Your negotiation position is already weak, you are probably operating under extreme pressure in terms of time and funds. But you should do your best to get the maximum out of the deal. Not all wreckage is worthless and sometimes the value of the wreckage exceeds any debts you’ve got and you should definitely try to realize that value somehow.

If your options are to be acquired or to shut down, by all means, choose the acquisition route. But realize that not everybody will be fooled into thinking it was a success. Unless you end up with a substantial chunk of cashor valuable stock in your pocket it is simply a salvaging operation, a way to make the best out of a failed trial. Better than going bust, but definitely not a success.

I’m getting some conflicting feedback on this post, so here is an edit to (hopefully) make it 100% clear: If the project you worked on as a company gets killed and does not live on in any way and if you ‘the team’ are required to be part of the acquisition then it is most likely failure, unless the amounts are extraordinary different from what you could expect through a normal hiring process.