Acquihire: When companies have more money than brains

Feb. 13, 2013
When companies have more money than brains

Life can be good for engineers, especially those whiz kids involved in Internet/social media start-ups. What prompts this observation is the fact that some large, well-funded firms like Facebook and Google are in desperate need of high-quality, high-tech engineers. These companies are unwilling to rely solely on the traditional routes used to round up technical talent. They don’t want to waste time or money on headhunters, recruiting from colleges, or growing their own talent. So they go the “acquihire” route.

This tactic calls for the company in need of brainpower to reach into its deep pockets and buy an entire company just to get its engineering employees, usually just a handful. The start-up’s intellectual property is shelved and the products it was working on are mothballed.

It’s a win/win situation all around, almost.

The newly hired engineers get a significant amount of cash, often as signing bonuses, and possibly higher salaries. They must also get quite an ego boost — it must be satisfying to have a major company buy your employer just to get your services. The purchasing company can then explain to engineers already working for it that the new hires are making the same salary, they just had to be compensated for the equity in the firm they were in. Engineers or staffers not hired by the new owner, however, might be a bit miffed.

The start-up owners get to make a profit out of the deal, sometimes enough to finance a permanent retirement. At the least, they will be able to say their brainchild was snapped up by some savvy, successful company.

Investors backing the start-up get some money back, and maybe even some profit. This must be especially sweet if they know the start-up would have needed another round of major financing before even a glimmer of profits appeared on the horizon.

And, of course, the big company can put is newly acquired high-tech Top Guns to work in a hurry. In some instances, the larger company also manages to eliminate a potential competitor.

But there are people who aren’t too happy about such deals.

In some instances, the start-up already has a product in the marketplace, usually an app. Its customers have grown to depend on and even love it. These people are not too happy when the killer app they cherish suddenly disappears from the market never to return. This happened when Thinkfuse was “acquihired” by, which then quickly shutdown Thinkfuse’s product, some online software that let people share progress reports. They told customers to use another piece of similar software, Mailchimp.

Even the former owners can end up second-guessing their business decision. But they can always start another new company somewhere down the road, and a six or seven-figure payout makes for a mighty soft pillow to cry on.

© 2013 Penton Media, Inc.

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