It has got to be great news when Facebook, Google, or any of the other Silicon Valley giants is buying up one of the smaller companies or startups, right? What many are surprised to learn, however, is that these giants aren’t always looking to capitalize on an opportunity to control the product produced by these startups. But if they don’t want the product, what is it that these Silicon Valley giants are after?
The real end game of many startup purchases is to bring the engineering talent from that startup to the purchasing company; the so called “aqui-hire.” While it may cost millions of dollars to purchase the small startup whose product may be simply mothballed by the purchaser, the return on investment can still be astronomical. Even if Facebook gets only one high-quality engineer from each startup purchase, then it possibly sets itself up to continue on the path toward millions of dollars of reported profits each year. 
It’s simple economics and a little bit of sociology. Silicon Valley is arguably a seller’s market: there is high demand for highly-skilled engineers and there are very few of them to go around. That being the case, a well-established engineer, being courted by the wooing ways of Silicon Valley giants, can demand a pretty penny in exchange for leaving his current startup and working with the others at, say, Google(as if the free haircuts, ping pong tournaments, and snack times were not enough to convince you to head over to the Googleplex).  By purchasing a startup and thus acquiring its engineers, the giants don’t have to be on the weak side of the negotiation table. Instead, they use their money and reputation to buy the company, thereby bypassing the individual negotiations with the engineers—the real item of value.
The real genius of the acqui-hire is the feelings of success that all involved parties tend to get out of the sale and purchase of the startup. The giants get their engineer, the engineer gets to work for an exceptional company alongside other equally-talented engineers, and the CEOs get to tell all their friends at the bar that their company was bought out by Google. Everyone’s a winner!
Not everyone’s a winner, says Fred Wilson, the oft-quoted voice of the venture capital finance community. In fact, Wilson is cited in an article of The Observer saying that the CEOs of the companies that Google and Facebook-types buy for the sake of their engineers are “essentially failed entrepreneurs.“  To be sure, not everyone sees these sales as failures. Matt Langer, a former lead web engineer for a company recently purchased by Facebook in an acqui-hire, responded to Wilson’s claim: “[W]hen the single most important company on the Web considers it worth their while to acquire the product you’re building and the people you’re working alongside, the absolute last word that comes to mind is ‘failure’.”   Facebook Inc, Google:Finance, http://www.google.com/finance?q=NASDAQ:FB&fstype=ii. Jonathan Strickland, How the Googleplex Works, How Stuff Works, http://computer.howstuffworks.com/googleplex3.htm.  Leyon Neyfakh, Don’t Blow It! New York Tech’s Top Investors Have Bubble Trouble on the Brain, The New York Observer, http://observer.com/2010/11/dont-blow-it-new-york-techs-top-investors-have-bubble-trouble-on-the-brain/.  Id.
Latest posts by Matthew Bahleda (see all)
- The Acqui-Hire: Success, Failure, or Just Plain Acquisition? - October 28, 2012