In successful acquihires, the acquired teams stay together and work on a new but related project with the additional resources and weight of the big company behind them. When it works, it is much better than just putting random people together since building effective teams is hard and takes time.

Also, keep in mind that acquihires often give the majority of value to the employees in new, unvested stock options vs. cash or vested stock.

In this particular case the acquiring company's stock was publicly traded so the restricted stock was essentially a payout once the core team demonstrated they could bring their ability to deliver in house. The restricted stock 'unlocked' (which is to say it transferred over to founders) in two tranches one at 18 months and one at 36 months.

When I looked at it I felt it was a better deal than the key players would have gotten if they had approached the company individually, and the way in which the restricted stock unlocked was structured so that as long as folks stayed for a year and remained in good standing (which is to say their new management was happy with their performance) the first half of the stock was guaranteed even if they left before 18 months.

Probably more detail than was necessary but the bottom line was that the acquiring company made it worthwhile for the key employees to come over as a team (and parts of the deal were structured such that if they didn't come over as a team the deal was off).

In an acquihire situation it would be unlikely that you reached the liquidation preferences of the original investors, so common stock has no value.

First, the startup has failed to launch. Done. Poof. Risk actualized, everyone lost all of their investment, roll it up. The doctor has called them into the office and told them they have days, perhaps weeks, to live so they should wrap up their affairs. This happens because the business, as envisioned/implemented, cannot get anyone to invest further in it and it has insufficient revenue to pay the bills. The money is running out, when it hits zero they are done.

And yet the company has obligations, to debtors, to their employees, to lease holders, what have you. Creditors get antsy because they don't want to be left with nothing so you get your creditors and lawyers on the phone you make a plan to liquidate the assets. This includes office furniture, any patents you may have filed for, equipment, laptops, window coverings, and of course the team.

There isn't any equity left, debts owed are more than the value of the company, you are "upside down". That is true for any of the founders or employees. The goal here is to get out from under the creditors without landing in court being sued personally somehow.

Now, its a crappy place to be, the founders gave it their all, but it didn't work out. Now along comes BigCorp. They always have more project ideas than people, and ideally they have deep(er) pockets. They have some idea of the quality of the founders and what they tried to achieve, maybe they have employed some of them in the past. That company makes the following offer, "You get what you can for the IP, office supplies, and equipment and we will settle the rest of your debts for you (called making the creditors whole), in exchange for the following people coming to work for us as a team." Of course unlike servers you cannot just 'sell' a team to BigCorp, the team actually has to agree to go there, so BigCorp puts together a 'package' which is contingent on all (or sometimes just most) of the people they ask for coming to work for them. Your job as the founder / board member is to sell this package to the team so that BigCorp will come through on their offer to settle the debts.

Assuming you come to an agreement, the startup makes a press release "Whoo hoo! We're joining BigCorp to do excellent things!", the investor puts "Acquired by BigCorp!" next to their investment, and everyone smiles, and everyone shakes hands, and everyone knows (or should know) that they swung hard and missed. The creditors go back to do what they do, the investors go off to look at other people to fund, and the founders 'do time' at BigCorp until they can get back into the game.

So in this scenario, BigCorp isn't buying the company, they are buying the team, they are simply facilitating the liquidation of the company assets. For what ever reason they don't feel like this founder person is necessary for the deal to go through, they don't need to 'pay extra' for them with a package. All the founders "got" out of this deal, is continued employment at a large company, and a chance to play again when their lockups expire there. The guy who didn't go to BigCorp can turn around and get right back into the startup game. I know it seems like the guy left behind got screwed but in the overall scheme of things that isn't necessarily true.

Acqui-hires generally have a tension where the founders/investors want money for stock, but the acquirer doesn't really value the stock very highly. If it were up to them, they'd want to dissolve the company and hire the team with big signing bonuses and retention packages.

Practically speaking, what generally happens is that the team gets a "back-loaded" deal where they get a combination of signing bonuses, stock payout, and annual retention packages that start small but get larger every year. So if you quit in the first year, you pretty much get nothing other than a few stock dollars.

Typically an Acquihire is not much more than a way to give your investors back something so you will not give yourself a black eye in the investment community and you'll have the opportunity to raise money again in the future.

In many cases Acquihires are set up by current investors who know you're struggling and looking for a way out. As investors in you they would much rather see something like this than "we're shutting down our product and parting ways" that does no good for anyone.

So while its not always a good investment some acquihires really are, even though the CEO or CTO may leave fairly quickly from a high profile acquihire chances are some members of the team (key members) will stick around for their earn out, enjoy the froyo and build some kickass new products for the company which has given them new found stability.

From an investor perspective Acquihires are just the polite thing to do, One could call it Failing gracefully

I'm guessing that most acquihires deal have a clause preventing you from leaving the company ASAP. Or at least an incentive to make you stay with the company (shares, yearly bonus, etc.). I don't think google will buy a company XM$ and see them leave right after.

Another point is that the acquiring is not "hostile". This is a deal between the startup/team being acquired and the large company so they weighed their options and chose to accept the offer - i.e. they want to work for the big company or are interested in the project they are being offered.

There is a lot of threads here on HN describing that talent is hard to find in technology and it's understandable to acquire a team that already work well together and produced something concrete.

One last thing was a comment by pg here : http://news.ycombinator.com/item?id=4366621 saying that "The article doesn't mention one of the most important reasons companies do HR acquisitions: competition forces them to. If company A offers to acquire a startup and company B merely offers to hire the founders, all other things being equal the founders will take company A's offer."

But if the idea is actually to hire an entire proven team to work on an internal project they are interested in, that does make a lot more sense.

Sometimes a startup reach its peak and feels its the right moment to make a change. An acquihire can also lead to that.

You can search about the Sparrow acquisition (a lot has been written here about it). Another example that comes to mind for me is Google acquiring Wildfire and the team reaction when they learnt it : http://www.youtube.com/watch?v=4ARPB7b0kIg

Virtually the whole company moved over -- a handful of people didn't get offers at the new place because their jobs didn't really make sense given the focus switch. However, everyone who was offered a job save for one moved over to the new place. The first sign of bad things to come was that nobody was offered a raise or any form of signing bonus, yet we still all accepted because the team was really great and we enjoyed working together. The layer of engineering management inserted above us turned out to be incredibly horrible (the company came from a media background, not software), committing to developing software for a lot of sketchy platforms (eg. Yahoo Widgets running on Vizio TVs) but demanding full-featured rich AppleTV/GoogleTV-style apps, making content deals that didn't mesh well with technology needs, badly mismanaging the entire development process, putting people in positions based on politics and nepotism, etc. Within ~5 months virtually the entire engineering (development and IT) staff from the old company, including me, had quit.

The story may yet have a happy ending, the CEO at the acquiring company (who was almost as new as our acquisition was) has since been cleaning house and trying to solve a lot of the problems that became glaringly obvious by all of the quitting and I wish him well because the product they are trying to build is a good one and I have friends who still work at the company.

tl;dr - this "aquihire" was terrible for me, but maybe indirectly helped the acquiring company realize how terrible it was before it was too late to fix it, so... partial success?

For better or worse, company culture will have probably the largest impact on whether you enjoy your job - even more than tools/programming languages/hardware/etc.

Not all acquihires are the same, so my experience is surely different from others, but there could be a number of reasons why founders would decide to be acquihired. Job security, higher pay, you get to solve the same problem you're passionate about but on a much larger scale, you have more resources to do what you need to do, you get to build a larger team than you would have been able to previously, you get to work with some amazing people and learn from them, you get an exit under your belt which looks good if you decide to do another startup in the future.

As far as why a company would want to acquihire a team? The team dynamic is more valuable than building a team from scratch. The team has proven they can design, build, and deliver a product. I'm willing to bet that 100% of the founders that get acquihired have domain knowledge of the product they work on, and that can be valuable to a large company that is trying to build a new business unit and may not know that industry as well. Corporations need to move fast to please investors, so often times it's easier for them to acquire a team that knows an industry rather than launch a new business unit and learn as they go.

I've seen so many people on HN complain when a company gets acqihired...but I bet that the majority of you would take the same deal given the opportunity. Sure it can be seen as selfish, but sometimes you have to do what's best for yourself, your career, and your family.

That's not to say it isn't a good deal for the founders, but it's certainly not a good deal for many other people. The mindset isn't "let's create 1,000 jobs where there weren't any before," it's "let's make enough money to feel comfortable again."

That said, they can't just leave their acquirer immediately. Typically there's a time _and_ performance-based earn out applied to the terms, so they need to stay (and perform well) at the acquiring company for a set amount of time. Usually two to four years.

In straight consultant companies this happens a lot. Only way to grow is to hire more consultants, and it's easier to get more people by aquiring whole companies and lock in the consultants for a couple of years. Good deal for everybody if you don't work yourself to death before cashing out.

What I see in tech startups: Little companies acting as labs for the big companies. In big companies, it's often difficult to develop something breaking new. There is so much infrastructure, culture and history around, that it gets increasingly difficult to think outside the box and to keep up with the latest trends. This were startups step in. With the startup, they often acquire a very specialized piece of technology and know-how. Then comes step two: Looking for ways to integrate the new toys into the productline.

Face.com was an acquisition, not an acquihire (or talent acquisition).

As for retaining the acquired folks, you usually pay out their earning over 4 years rather than all at once. So if an acquired founder leaves after a year, the acquiring company keeps 3/4 of what they ought to have paid to that person.

Replace the Face example by the Sparrow example, being acqhired by Google. Acquisitions are about profits, Google's acqhiring certainly wasn't for Sparrow's profits, they bought them for both the team AND the technology they developed. They made Google's product better, and Google wanted to use both of these things to make their product even better.

Acqhires are acquisitions where the primary interest is the team, not the IP or product.

It's almost certainly a nice tax result for the acquirer, making the acquisition cheaper than hiring the individuals with large cash signing on bonuses.

Can anyone actually point to some successful acquihires?

A bit of bubbly froth?

It doesn't seem like a great deal to me either, but I suppose it's difficult to tell either way without a concrete way to measure and judge.