21–26 of 26 posts
VCs can ensure their money back using paperwork. 500 Startups' seed specifically says they can block any acquisition that lowballs 500. This is reasonable because they take the risk.
I was hoping for an interesting article about acqui-hire trends and predictions, but instead I got a complaint about VCs not getting paid back. A reasonable perspective, but not particularly insightful.
I agree with the author, but I feel they should not be in this position to begin with. VCs can ensure their money back using paperwork. 500 Startups' seed specifically says they can block any acquisition that lowballs 500. This is reasonable because they take the risk. I was hoping for an interesting article about acqui-hire trends and predictions, but instead I got a complaint about VCs not getting paid back. A reas…
What the investor is failing to recognize, is that in the case of an acqui-hire, the company has failed - it has zero value, and needs to be shut down gracefully. A good acqui-hire ensure that customers and vendors are paid up to date, and the employees are given a new place to work.
This VC is confused as to the nature of an acquihire, and, furthermore, seems to be ignoring the fact that 99% of the return on their investments come from the two or three companies out of 100 that are very successful. The other 98 to 97 are just a cost of doing business, and worrying about getting back their "investment" on a company that has gone under is just a distraction from the real business of making sure that the two-three companies are very successful.
I agree with the author, but I feel they should not be in this position to begin with. VCs can ensure their money back using paperwork. 500 Startups' seed specifically says they can block any acquisition that lowballs 500. This is reasonable because they take the risk. I was hoping for an interesting article about acqui-hire trends and predictions, but instead I got a complaint about VCs not getting paid back. A reas…
Except, in the case of an acquihire, there is no "acquisition", per se. If 500 startups were to block such a deal, then the founders/employees could simply fold up shop and go to work for the new company. What the investor is failing to recognize, is that in the case of an acqui-hire, the company has failed - it has zero value, and needs to be shut down gracefully. A good acqui-hire ensure that customers and vendors…
I agree with the author, but I feel they should not be in this position to begin with. VCs can ensure their money back using paperwork. 500 Startups' seed specifically says they can block any acquisition that lowballs 500. This is reasonable because they take the risk. I was hoping for an interesting article about acqui-hire trends and predictions, but instead I got a complaint about VCs not getting paid back. A reas…
Except, in the case of an acquihire, there is no "acquisition", per se. If 500 startups were to block such a deal, then the founders/employees could simply fold up shop and go to work for the new company. What the investor is failing to recognize, is that in the case of an acqui-hire, the company has failed - it has zero value, and needs to be shut down gracefully. A good acqui-hire ensure that customers and vendors…
That, and why are they hoping to extract value from the learning experience of the founders to begin with? People working at many different companies usually learn lots of things and can increase their value just as much as any startup founders.
As an investor, can't you just ignore any hopes that you'll extract any value from an "acqui-hire" when you negotiate the valuation of the company?
->"The amount they were willing to pay beyond salaries and stock to those hired? About 10 cents on the dollar invested."
->" we’d receive less than a recruiting service that merely introduced the same level people in exchange for 30 percent of their first-year salary."
Funding a company's success is very different that just presenting candidates. With so many startups receiving large valuations and focus being on user acquisition, the return on on acquihire is probably going to be lower than expected.
If the startup were burning through their investment / bleeding money through losses why would a company think they need to recoup those losses for an investor?
Then there's the 30% fee calculation. This sounds like the author was simply comparing 10% for the aquihire vs. 30% agency fee. What should be compared is the % of total cash comp the team would receive as the fee. This goes back to the difference of funding a company vs. just presenting candidates.
Given the info of seven engineers:
- if each engineer is paid out 150k (fairly high end of market cash rate, not including stocks).
- then a 30% fee would be based on $1,050,000.
- in this scenario, any investor putting in more than $1,050,000 would receive less than the 30% agency fee. Given how much money can be poured into startups it's easy to see investors hitting the $3 million mark and only receive 10% on this deal.
If investors want a cut from these people being hired, they should make that part of the terms of the investments. For example, "we get X% of the company for $Y, and if the founders get hired, Z% of their compensation for N years."