The Challenges of Startup Funding
In a tough venture capital market, many startups are struggling to raise new funding. For those that can’t secure funding and haven’t become self-sustaining businesses, their best option may be to get acquired, even if it’s for a fraction of their previous valuation. This can be disappointing for founders and senior employees who had dreams of building a highly valuable company. Instead, their equity may no longer hold much value, and they may have to take a role at the acquiring company and commit to working there for a set period of time.
The Benefits of Acquisitions for Founders and Key Staff
However, selling under these circumstances is not always as poor an outcome as it may initially seem. Acquisitions actually present a great opportunity from a financial standpoint. When a startup is acquired, the top team members are often rewarded for their hard work with better jobs and higher pay packages than they would find elsewhere with the same experience. This allows them to make a significant jump in their careers, often starting at a higher level within the acquiring company than they would have reached through traditional means.
Additionally, since large acquirers are primarily interested in gaining access to a startup’s talent pool, they structure the deals to incentivize founders and key team members to stay on board for an extended period. This means offering higher salaries and compensation tied to extended equity vesting schedules. Acquirers are becoming increasingly clever about these deals, finding ways to give more seniority to key employees without putting as much cash into the deal.
Success Stories of Acqui-Hires
There are numerous success stories of founders and key employees who initially did not plan to stay at the acquiring company but ended up finding rewarding long-term opportunities. For example, when Frilp was acquired, the co-founders and employees initially expressed their dislike for big companies. However, many of them ended up staying for longer than five years, with some even staying for seven years. The experience of being acquired can lead to accelerated career growth and the opportunity to hold directorial positions within the acquiring company.
The Rise of Acqui-Hires in the Market
Acqui-hires are becoming increasingly common in the market, with many transactions going undisclosed. In fact, in Q2, 90% of M&A transactions were undisclosed, according to the latest PitchBook-NVCA Venture Monitor. While not all of these transactions were acqui-hires, many of them allowed companies to gain specialized talent in one swoop. This trend is extending to AI startups, as large tech companies are now hunting for pre-ChatGPT-era AI startups. Although these startups may not succeed in the long run, their machine learning and AI talent is highly valuable.
A Positive Outlook for Acqui-Hires
In this market, being acqui-hired should not be viewed negatively. Founders and key employees can still be well-rewarded financially, discover long-term career opportunities at their new employer, and even launch another startup in the future if they still have the entrepreneurial bug. Acquisitions can provide a stepping stone to greater success and opportunities for growth.