Ben Metcalfe

From the notebook: musings about so-called ‘acqhire’ talent acquisitions


So-called “acq-hires” (when a company will buy a startup solely/mostly for the talent rather than the product itself) recently came up in a discussion amongst friends and industry peers.

In my consultancy practice I tend to work with larger corporate/enterprise technology clients who want me to help inject a bit of ‘startup mentality’ into their innovation and engineering processes. Having the right execution team is often crucial to anything I do so getting like-minded employees on board is often one of the challenges to be faced as part of a project.

And so here’s the bottom line: talent acquisition deals almost always baffle me as it seems like the same amount of money could be used to just pull and retain A1 talent from your (more sexy?) rivals instead. Take the following scenarios for example:

Scenario 1
BigCo buys BombedStartup for $4m as an acqhire deal. The two founders probably get

Compare with

Scenario 2
BigCo wants to hire 4 key, strategic engineering hires from RivalCo. They would normally be paying folks like them $150-$200k anyway, so they take the $4m they would normally have spent on the ‘acqhire’ and offer each of them $1m cash over 4 years plus their base salary (ie $450k/y cash salary, guaranteed for 4 years, perhaps with the non-base as a performance/vested structure). This is in addition to any stock grants.

In scenario 2, with that kind of comp on offer you could probably treat Google’s engineering roster like a menu at a restaurant and just pull who you want out. Ditto for later stage Facebook employees who don’t have quite as nice an equity comp. I’ll assume BigCo has something going for it, in terms of being a relatively attractive place to work even if it isn’t Google or Facebook.

There are all sorts of additional upsides with scenario 2 too.

Firstly, you’re going to get precisely who you strategically need (data scientists, virtualization gurus, mobile developer rock stars, etc). In scenario 1, perhaps one of the founders was working with big data, but he may not be ‘guru’ status. Scenario 2 lets you pick who you want.

And because none of your budget has gone to investors (who to you, add nothing to the equation) you’ve got all this extra capital to retain the talent over a longer period of time. Halo effect also means that once these strategic hires are in place you’re also going to be able to attract more talent because of who is already on your bench.

Finally, as a final win, you’re going to cause your rival a world of pain because they lost the key talent. (Machiavelli dotBen strikes again)

In both instances BigCo spent the same amount of money, but to me the second option looks way more attractive, useful and sustainable in terms of getting talent to stick around.

In reply to a draft of this post, Dave McClure points out this is also about obtaining teams that have a proven record of executing together. I totally agree, but there is no reason why you couldn’t try to pull all 4 strategic hires out of the same team at the same company.

What do you think?