The acqui-hire (aka acquihire) is a relatively recent phenomena that describes when a struggling company (generally but not always an early stage startup) is acquired primarily for its talent. Instead of buying companies for their products, or even potential financial contribution, acquirers who are leading the acqui-hire movement are now purchasing teams of smart people (generally engineers) who have a history of working well together with the hope that dropping in these teams might accelerate and advance their own businesses.
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. 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. Acqui-hires are not where F.U. money gets made (translation: no unicorns here). At the end of the day, they are a much better alternative for both investors and founders who can now talk about their startup that was acquired and leave with something versus nothing.
We wanted to take a look at CB Insights data on acquihires between 2012 and 2013 to see trends in this relatively new type of exit. It is worth noting that acqui-hires are hard to isolate & identify. 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.
Here is what the available acqui-hire data says…
Acqui-hires highlight that there is demand for mobile talent
The following graph shows a breakdown of the tech acquihires since 2012 by sector. Given that the tech industry itself is highly concentrated in the internet and mobile sectors, it is no surprise that most acquihired companies are in these two sectors. Internet clearly wins, with almost 60% of all acquihired tech companies operating in the internet space. Mobile, which comes in second, makes up about 38% of all acquihires while traditional software companies make up only 4% of all acquihires. The share of mobile is significant given that mobile is still a relatively small portion of overall VC but is growing quickly (the mobile industry recently had their first $1 billion+ quarter). Acquirers are clearly interested in mobile expertise and talent.
Most acqui-hired companies raise < $5 million
Of the companies on our list that were acqui-hired between 2012 and 2013, 40% companies did not receive any disclosed funding prior to their acquisition. In these cases, the founders might have done fairly well given that there would have been no investors to satisfy first. As evident in the chart below, a majority (86%) of the companies that were acqui-hired raised less than $5M.
The following chart breaks down the companies who raised any funding by the stage of their last funding round prior to their acquisition. Consistent with the above, 80% of acquihires occur at the early stage before a company raises a Series C round. Late-stage acquihires are fairly rare.
Acqui-hires usually happen 14-15 months after the last funding round
On average, seed backed companies raise their follow-on investment round in 13 months. Looking at the time between acqui-hired companies’ last funding round and their acquisition as presented below, we see that there is a fairly even distribution of the time in months taken by different companies to get acquihired. While some companies get acquired for their talent as soon as 3 months or as late as 40+ months after their last funding round, the average time taken is 15.1 months or 1.25 years. 14 months is the median time between a company’s last funding round and its being gobbled up for talent.
The top acqui-hirers
Given the dearth of engineering talent, we see that many of the Valley’s biggest tech companies as active acqui-hirers. The top acqui-hires (in no particular order) and some of their select talent acquisitions are presented in the following table.