For many software developers and engineers, the dream differs from reality. The dream: graduate from college and create an innovative startup. The reality: an increasingly competitive environment, where many ideas fail to take off, leaving financial disarray and shattered confidence. Enter the phenomenon of acqui-hiring– the practice of large companies spending millions to buy startups for talent acquisition, typically engineers or developers. The startup’s products are usually dropped in the deal because the primary goal in acqui-hiring is to obtain human talent.
Facebook did it. Yahoo is looking to do it. Acqui-hiring is big business. This trend has exploded recently due to the growing need for software engineers and developers. As of Oct. 1, there were 14,616 job postings for job seekers with programming or software development skills. But many of these job-seekers want to use their skills to start their own companies. Startups are formed daily by innovative, creative people looking to merge their skills and interests.
Andrea Vaccari is one of those innovative people. He created Glancee, a mobile app designed to help people connect to other people with similar interests. Business was growing (Glancee grew from 1,000 users to 25,000 users in five months) but Vaccari had a cash flow problem – more specifically, he had no cash. He decided an acqui-hire offer from Facebook was his best option.
For Vaccari and many other startup founders, an acqui-hire is a better option than liquidating for a number of reasons:
- Employees often receive a higher salary when moving to the larger company. This is a benefit to many startup founders who have struggled financially for years to grow their companies.
- Acqui-hires promote productivity. Computer engineers are in high demand. If they are pouring all of their talents and resources into a product or idea that is not selling, their skills might be better used at a well-established company.
- Startup founders tend to be innovative and passionate. These two skills are great for larger companies where innovation can decline as the company grows.
If acqui-hires were completely positive situations for all involved, the decision would not be so agonizing for many startup founders. As Vaccari said, “you never know if it will be better to continue.” Most startup founders have poured many years of their lives into their company and made tough sacrifices to bring their ideas to fruition. Selling those ideas and dreams can cause emotional distress. It is difficult to turn down a multi-million dollar deal when your company is low on cash but sometimes, the drawbacks to an acqui-hire deal can outweigh the benefits:
- When a startup is bought out for technical skills, any employees at the startup who are not computer engineers are often left without a job. It is hard for startup founders to make a decision that leaves their co-workers, and in many cases friends, unemployed.
- Acqui-hires can discourage innovation. If only large companies controlled the world, we would be without many great ideas that single pioneers took it upon themselves to bring to the market. Apple, Facebook and Google all began as startups.
- Acqui-hires can discourage competition. Many startups have new approaches to old ideas. It benefits consumers for these companies to succeed and compete with existing companies. Acqui-hires sometimes do not give many startups an opportunity to do that.
- Founders of companies that have been bought out may feel resentful. This feeling can impact their engagement and productivity in new roles.
Do you think acqui-hiring is a good business practice?