Entrepreneur

A nice alternative to death: A look at the typical acqui-hire

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The acqui-hire is now a key weapon in the competitive battleground for tech talent.

CB Insights came out with a report today titled “The Rise of the Acqui-hire: Breaking down talent acquisitions,” and it found that these startups have typically raised less than $5 million and last raised a funding round about 15 months before acquisition.

Facebook, Twitter, and Yahoo are the most active acqui-hirers.

“For startups that are not successful, or not successful enough, and who may be hitting the Series A Crunch, the acqui-hire offers a nice alternative to death – a soft landing if you prefer,” the report said. “It lets the company’s investors, if they have any, recoup some or all of their money and might give founders/the team a bit of money, a job and options/bonuses in the presumably more valuable acquirer.”

An acqui-hire is when a larger, [presumably] thriving company scoops up a younger, [presumably] struggling company. The acquirer is generally not interested in the startup’s product — it wants a team of engineers with a history of working together.

Forty percent of companies in the study did not disclose any funding prior to acquisition. Twenty-one percent raised less than $1 million, and 25 percent raised between $1 million and $5 million. Eighty percent of acqui-hires occur before a startup raises its third round of funding.

When CB Insights looked into the alleged “Series A crunch” in 2012, it found that the average seed-funded startup needs 13 months to raise a follow-on round. That acqui-hires generally raised funding about 15 months before acquisition is therefore significant, because it is right around the time a startup may be coming to terms with the fact that it can’t raise more money and is running out of any funds it had.

The startup gets a more graceful exit than a failure, and the acquiring company overcomes the “dearth” of engineers.

Competition for workers — specifically developers — is fierce. Sometimes it is easier to shell out the cash for a fledging startup, rather than spend time and resources wooing developers.

CB Insights found that this is particularly true for mobile. Mobile is one of the hottest and fastest growing areas of tech right now, and mobile developers are in high demand. Mobile makes up 38 percent of all acqui-hires.

The research firm collected what data it could on acqui-hires between 2012 and 2013 to identify patterns and trends. This is not an easy task, as acquisitions are often not labeled as such.

“It is worth noting that acqui-hires are hard to isolate and identify,” the report said. “Some are obvious as the acquirer states it, but many acqui-hires inevitably get dressed up as acquisitions in an attempt to put lipstick on a pig.”


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