Acqui-Hire – Unique talent acquisition programme
Introduction
The Government of India in the recent past has introduced multiple schemes to encourage entrepreneurship to drive sustainable economic growth and generate large scale employment opportunities. One such scheme is to encourage entrepreneurship is start-up program.
Startups typically begin by a founder or co-founders who have a way to solve a problem. The founder(s) of a startup will begin market validation by problem interview, solution interview, and then building a viable product, i.e. a prototype, to develop and validate the business models. The startup process can take a long period of time, by one estimate, three years or longer, and hence for sustaining in the highly competitive market, commendable efforts are required. However, sustaining effort over the long term is especially challenging because of the high failure rates and uncertain outcomes. The large companies have leveraged on the situation and devised a programme for talent acquisition – acqui-hire also known as acq-hire.
First usage of the term “acqui-hire” was by Rex Hammock. He described Google’s acquisition as a two-person hiring with a signing bonus. He spelled it acq-hire and defined it as a large company buying a small company whose only employees are founders.
In most acqui-hire the large companies are interested in recruiting its employees, without necessarily showing an interest in its current products and services or their continued operation. Google, Facebook, Twitter, Cisco are a few companies who have used this mode of talent acquisition in the past.
Soft landing – acqui hire
Reasons for adopting acqui-hire as a mode of talent acquisition
- Acqui-hiring is not done for regular run of the mill talent, but for entrepreneurial teams that have demonstrated breakthrough innovation capabilities of the highest order.
- Founders of small companies are generally people who think of out of box ideas and have leadership capabilities. Hiring such founders gives large companies an edge of both – Technically well-versed prospect along with leadership qualities.
- Good talent is becoming an increasingly rare and precious commodity in the fast-growing Indian tech eco-system. In the process of acqui-hire, Companies not only hire the founders but also their teams.
- The team gets an opportunity to work at a company they admire, in addition to possible future earn-outs. For the acquirer, it gives quick access to a pool of talented & entrepreneurial people who already get along and can work together.
Structuring of the acqui-hire
Acqui-hire are often structured with cash or stock delivered to the target’s founders and investors. In addition, some cash or stock also goes into a compensation pool offered to the engineering team hired by the acquirer. Hence there are two pools of consideration in acqui-hire. One pool of consideration is paid to acquire the start-up and the other pool is for compensating the founders, employees for their future services.
Consideration paid to acquire the start-ups consists of buyers stocks and cash. Consideration paid to employees consists of options, restricted stock, or restricted-stock units in the buyer that vest over specified periods of employment. Occasionally the consideration may be performance vested, meaning that it vests upon the attainment of identified benchmarks.
Conclusion
Given the growth of start-ups, acqui-hire is the most attractive and lucrative acquisition models and is here to stay. In India, it has become a trend to acqui-hire.
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