By Neha Bhargava and Vishwanath Venugopalan
This paper explores the phenomenon of “acqui-hires”, defined as acquisitions of early-stage startups made purely to acquire talent. Acqui-hires are prevalent among Northern California’s high-technology companies, who use these to fill gaps in their strategic roadmaps. Taking the perspective of an acquirer, we examine the different ways acquirers approach acquir-hires relative to conventional acquisitions. We define how acqui-hired transactions and targest stand out from their conventional counterparts, namely shorter lifespans, less funding from institutional investors and concentrated in certain market focuses. Although acqui-hires are distinct from conventional acquisitions, they can be scorned on the linear Acqui-hire Score Scale, which is based on the eventual fate of the target company’s main product. We found that 83% of companies making an acqui-hire stop operating the target’s product whereas 50% sell it off. Acqui-hires are a true hybrid between conventional acquisitions and conventional hiring. While acquisition integration is usually ineffective, acqui-hires ease this challenge by creating new organizational structures that integrate the target company while enabling it to function as a startup. We propose five essential prerequisites for acqui-hires in an industry: ease of independent work; high value attached to specialized, non-commodity capabilities; specificity of attributing success and failure; flexible hiring culture; and low externalities.