While the top-performing startups are thriving despite the challenging venture capital market, many others are facing a tough reality. If a startup can’t secure new funding and hasn’t achieved self-sufficiency, the best option may be to get acquired, even if it means selling for far less than the last valuation. Otherwise, the company risks running out of money and closing its doors.
For founders and senior employees, acquisitions can feel like a major letdown. Instead of building a billion-dollar company, they may find themselves with little to no equity value, stuck in roles at the acquiring company, and potentially tied to lengthy work commitments to receive full compensation.
However, selling under these circumstances isn’t always as bad as it seems.
While acquisitions are often seen as a “down move,” there’s a significant financial upside. Founders and key employees typically receive higher pay and better equity packages than they would as regular hires. Buyers often reward top talent for their efforts, offering better jobs and compensation than those individuals could secure on their own.
This can be especially true in large tech companies where career progression takes time. Startups often find their key engineers and executives jumping ahead by several levels after an acquisition, securing senior roles that would take years to achieve through normal career paths.
These transactions, often referred to as “acqui-hires,” focus on acquiring a startup’s team rather than its product. To keep that talent on board, acquirers offer incentives designed to ensure founders and key employees stick around post-acquisition.
Talent-Centric Acquisition Deals
In many cases, the acquiring company is less interested in the startup’s product and more focused on securing its talented team. As a result, they offer seniority and compensation packages that founders might not otherwise receive. These deals prioritize people, with acquirers structuring agreements to offer higher stock grants and better equity packages to founders, while investors may not receive a significant return.
For one founder, this approach meant a large compensation package and a senior role at a public company, despite his initial reluctance to work for a large corporation. While the slow pace of big companies was a stark contrast to his startup experience, the financial rewards and responsibilities made staying worthwhile.
Even when startup founders vow never to stay at a big company post-acquisition, the incentives often work. Over time, many discover that they enjoy the stability, career growth, and opportunities that come with larger organizations. For example, employees of one startup acquired years ago ended up staying far longer than they originally planned, despite initial hesitations about working for a company with more than 100 employees.
This pattern is common. Acquisitions often lead to accelerated career growth for founders, with directorial positions or other senior roles offered to them as part of the deal.
Unpublicized Acquisitions and the Hidden Benefits
Acquisitions where investors don’t see a significant return are often kept under wraps, but they happen regularly. According to recent data, 90% of M&A transactions in Q2 were undisclosed, with many being acqui-hires. These deals allow larger companies to quickly acquire specialized teams, especially in fields like AI and machine learning, where the demand for talent is high.
For example, one small startup specializing in data integration was acquired by a larger company not for its product but for its team’s expertise. These kinds of transactions give acquiring companies a fast track to expanding their capabilities while providing founders and employees with lucrative opportunities.
In today’s market, acqui-hires are particularly attractive for startups in emerging fields like AI. Many of these startups may struggle to compete with newer technologies, but their talent remains highly valuable. Large tech companies are eager to acquire teams with AI and machine learning expertise, even if the startup’s product has become outdated.
A Fresh Perspective on Acqui-Hires
For founders facing the prospect of being acqui-hired, it’s important to remember that it’s not necessarily a negative outcome. Founders can still be rewarded financially, while their careers might take off in new, unexpected directions within larger organizations. Additionally, after completing their commitments, many founders still have the option to return to the startup world and launch new ventures.
Acqui-hires may not be the grand exit that many founders envisioned, but they can offer valuable financial rewards and career development opportunities. For those who still have the entrepreneurial spirit, the experience and connections gained can lead to new startup ventures down the road.
In a tough market, being acqui-hired can provide founders and key employees with financial security, valuable experience, and an opportunity to continue growing their careers. While it may not be the outcome they originally hoped for, it can be a strong stepping stone to future success.
