Convertible Notes and Startup Funding
February 12, 2025
In the previous article, we have already discussed what salary caps are and what are the objectives behind implementing them. We also know that there are a couple of different types of salary caps. We also know that the salary cap system is followed in almost every major league across the world. The English Premier […]
In the previous article, we learned about what dollar-cost averaging is. We also learned about some of the benefits that this strategy has to offer. Many successful retail investors have hailed this strategy to be the most important factor that has contributed to their success. However, that does not mean that the dollar cost averaging […]
Some of the well-paid engineers in companies like Amazon pay about 45% of their income in taxes. They do so every year, and it seems unfair to them why the company that employs them gets away with paying about 1% taxes. Warren Buffet once famously remarked that he pays a smaller tax rate as compared […]
We are now aware of how to use the basic single stage models for both free cash flow to the firm (FCFF) and free cash flow to equity (FCFE). It is now time to look into more advanced models which involve two or more stages for which cash flows will be predicted. Now, we need […]
The study of financial management is imperative for anyone trying to make a career in the industry. However, traditional financial management helps to make short-term decisions. For example, the main purpose of financial management is to guide corporations about making three decisions viz. the investment decision, the financing decision as well as the dividend decision. […]
Acqui-hire is a different type of acquisition strategy which has come into existence with the emergence of technology-based start-ups. For many start-up companies, employees are now their biggest assets. Hence, it should not be surprising that other companies may want to acquire this employee base to meet their own business needs.
Hence, if a tech start-up company is facing cash flow issues, it can leverage its human resources to strike an acquisition deal. Such deals are unique in the sense that the acquiring company is not interested in the assets of the firm. Instead, they are more interested in the human capital that the firm has to offer. The acquiring firm is using acquisition as a way to hire a fully functional team. Hence, the term acqui-hire is used to describe this phenomenon.
As mentioned above, acqui-hire is when a company acquires another company with the sole intention of gaining access to their human capital and talent profile. Tech employees tend to be versatile. The same team can be used to solve different types of business challenges. Hence, if one start-up company is failing because of cash flow issues, other start-ups see value in acquiring the human capital of the firm. For the owner of the failing start-up, this represents an opportunity to generate some cash -flow and minimize the losses.
The acquiring company can merge the acqui-hired employees with their existing team or they can let them continue as a separate team. In many cases, the acquiring company will also take over the existing office premises of the selling company as part of the acqui-hire deal. In such cases, this acquired office is considered to be a satellite office of the main company.
The acquiring company sees value in using the acqui-hire model since instead of hiring several different employees one by one, the company can hire all of them in one shot. This leads to reduced hiring expenses and also these employees already have experience of working together as a team. Many large companies such as Dropbox, Twitter, and Hubspot have integrated the acqui-hire model into their overall human resource strategy.
In most cases, acqui-hires work like a normal recruitment process. This means that the entire staff of the company being acquired is considered to be a potential candidate for the acquiring company.
Each and every employee including the founders may have to go through an interview. This interview will be a normal process wherein the human resource professionals of the company will validate each and every employee of the company being acquired.
There is a possibility that each candidate can either be selected or rejected. However, rejection has a negative impact on the overall process. With every rejection, the chance of a successful acqui-hire reduces considerably. This is because of the fact that the acquiring company is interested in acquiring the team as a whole.
Once, the acqui-hire interview process is complete, the acquiring company decides the rate that they will be paying for this acquisition. It is common for the rates to be decided on a per head basis.
It is common for silicon valley companies to pay around $1 million per employee in case of an acqui-hire. Most of this money goes to the employee itself. However, the founder is entitled to receive a percentage of the proceeds. Employees who did not get selected also receive some amount of money if the acqui-hire goes through. However, the money received is much less as compared to the employees who have got selected.
The acqui-hire model has significant benefits for both sides. Some of these benefits have been listed below:
The acqui-hire model is a great strategy that works wonders for some businesses. However, this strategy can have a negative impact as well. Some of the common issues have been listed below:
The bottom line is that an acqui-hire is a relatively new business strategy that can be used effectively in order to help the founder save some money by selling a failing company.
Your email address will not be published. Required fields are marked *