What Acquihire Really Means
I hope you had a nice 4th of July yesterday. Amy and I hid out all day in Longmont, playing with the dogs, napping, and reading. As a result yesterday was a three book day.
One of them was Semi-Organic Growth: Tactics and Strategies Behind Google’s Success by George T. Geis. If you are a Google watcher, aspire to have you company acquired by Google some day, or just want to understand Google’s approach to acquisitions (which Geis calls “semi-organic growth”) this is a must read book that is well worth the money.
Geis covers a detailed history of Google’s acquisitions along with a framework for how to think about them. It’s comprehensive and well done. We were investors in several of the companies mentioned and Geis gets the details, and the general context, correct. While I knew most of the history from just paying attention over the years, I learned a few things.
There was one construct that bothered me – Geis’ use of the phrase “acqui-hire” and his effort to categorize acquisitions as acquihires, ACQUI-hires, acqui-HIRES, and ACQUI-HIRES. His goal was to use “acquihire” as a substitute for acquisition, while emphasizing the relative importance of the product/technology or people in decision to make an acquisition.
I don’t like the use of the dash in the phrase, so I stubbornly don’t use it, just like I don’t like the dash in the word startup. I also don’t really like the word, as it has morphed to mean too many different things. I regularly hear people talk about any type of acquisition as an acquihire, rendering the nuance of the word meaningless.
While I appreciate Geis trying to use it as a framework for categorizing each acquisition, I wish he’d just come up with something simpler, like a set of things Google was searching for when they made an acquisition. The four that are most relevant in my mind are product, technology, customers, and people.
Acquihire only really refers to one of these things, which is people. The earliest use of the phrase I could find was in 2005 in Rex Hammock’s post Google acquires(?) Dodgeball.com.
Google acquires(?) Dodgeball.com: But really…When a public company with a market cap of $64.1 billion “acquires” a two-person company, isn’t that more like a “hire” with a signing bonus?
Hammock called it an “Acq-hire” and defined it as:
Acqhire – When a large company “purchases” a small company with no employees other than its founders, typically to obtain some special talent or a cool concept. (See, also: NFL first round draft signing bonus; book publishing “advance” after publisher bidding-war.)
Acquihires quickly expanded to cover deals that were more than just the founders, but clearly only talent acquisitions. In acquihires, the products were quickly abandoned as the team that was acquired went to work on the acquirers products. Often this was built on top of the concept that the acquiree brought to the table, but the core product was rarely used.
We went through a phase where acquihires were positive ways for large companies to pick up talented teams to work on a specific thing that was important to the acquirer. Then we went through a phase where acquihire often referred to the acquisition of a failing startup, just as a way to give the team a soft landing. Then acquires started using the concept of acquihire to try to shift consideration away from the cap table and instead increase the amount of “retention consideration” going to the remaining employees, independent of the capitalization of the company. If you take it to its logical conclusion, acquihire starts to be a substitute for acquisition.
I’m not a fan of this as I think it’s confusing. I like Hammond’s definition with the extension that it can include more than just the founders. But it’s clearly an acquisition of the people, not of the product, technology, and customers of the company being acquired.
I pains me as an investor when entrepreneurs talk about their goal of being acquihired by a large company. I think your goal should be to build something a lot more important and valuable than simply the team being acquired.