For many tech entrepreneurs, a startup leads to one of three destinations: acquisition, IPO, or failure. Historically, the risks have been big, but the rewards have been even bigger.
From Google to Facebook, few industries have created vast amounts of wealth faster than the internet, but for many entrepreneurs today, swinging for the fences isn’t a must.
Increasingly, big companies (like Google) and high-flying upstarts (like Facebook) are targeting young startups for acquisition. Not for assets or IP, but for their people.
‘Acquihires‘ as they’re called have become increasingly common in the past several years, and as Bryce Roberts, a partner at O’Reilly AlphaTech Ventures, details, smaller VC-backed startups are getting into the act.
He explains why:
The good news is that as the costs for starting a company have dropped and access to seed capital has increased the risk profile for starting a web based company has changed dramatically.
This has created an unprecedented amount of startup activity over the last few years. The challenge for BigCos and growing startups is that many of the most talented potential hires are becoming founders instead of employees.
For entrepreneurs, the potential advantages of an acquihire are clear: you get an exit, early. Yes, the amount you’ll come home with may not exceed an investment banker’s annual bonus, but given the high failure rate for startups, walking away with a six or possibly even seven figure amount is certainly not the worst thing in the world either.
But for both entrepreneurs and the companies acquihiring them, there are plenty of disadvantages. For companies, it’s worth considering that many entrepreneurs aren’t going to be happy as ‘employees’.
It’s simply not in their DNA, as they value the creative control and ownership that comes with entrepreneurship above just about everything else.
For obvious reasons, integrating someone who was previously a co-founder or early employee into a larger company can be difficult, and for entrepreneurs, being a smaller fish in a bigger pond may impede one’s ability to develop leadership and business skills, especially when your product becomes a ‘feature‘ of your new employer’s product.
Put simply, retaining an acquihire long enough to make the investment pay off can be challenging for companies, and finding personal fulfillment can be difficult for entrepreneurs who ‘sell out‘ early.
This doesn’t mean that the acquihire trend won’t continue so long as irrational exuberance 2.0 is with us, but as a commenter on Roberts’ post noted, Steve Jobs once insightfully stated:
The problem with the Internet startup craze isn’t that too many people are starting companies; it’s that too many people aren’t sticking with it.