Friday, May 20, 2011

Another Sign of Too Much Money, Chasing Too Few Ideas - Entire Companies in Silicon Valley Being Bought for the Talent of 1 Person

Quite an interesting story in the NY Times on the trend being called 'acghired'.  Whereas in the past, larger tech companies would go after the small fry to get at a technology, now they are buying an entire company simply to shut it down but get access to the talent.  And instead of cash, we see the transaction being done in stock - even with private companies.  This reminds me of the stories a decade+ ago where talent was being acquired in the tech boom with things like real estate rather than cash.  More signs of a boom bust cycle approaching back to a peak?

  • Sam Lessin sold his Web start-up to Facebook for millions last year, and Facebook promptly shut it down. All Facebook wanted was Mr. Lessin.  That is what it has come to in bubbly Silicon Valley. Companies like Facebook, Google and Zynga are so hungry for the best talent that they are buying start-ups to get their founders and engineers — and then jettisoning their products.
  • Some technology blogs call it being “acqhired.” The companies doing the buying say it is a talent acquisition, and it typically comes with a price per head.  “Engineers are worth half a million to one million,” said Vaughan Smith, Facebook’s director of corporate development, who has helped negotiate many of the 20 or so talent acquisitions made by Facebook in the last four years.
  • The money — in the form of stock — is often distributed among the start-up’s founders, employees and investors. The acquired employees also get a rich salary and often more stock options, which makes this a good time for entrepreneurial engineers.
  • But the deals may not be so good for everyone. Some Silicon Valley veterans fear that companies are overpaying for talent and that some of the acquired employees will defect as soon as they can, perhaps because they will get restless in a corporate environment.
  • The talent acquisitions are a reflection of the most competitive market for computer whiz kids in more than a decade. Big companies like Google and tiny start-ups complain that they cannot find enough good people. They are dangling new perks and incentives, from free iPads to lessons in entrepreneurship, to lure them.
  • Perhaps no one has jumped on the trend more enthusiastically than Facebook, which has bought a string of small start-ups with names like Parakey, Hot Potato, and Octazen. Almost all their products have been killed
  • But the size of some deals is raising eyebrows.   It was widely reported that FriendFeed was bought for about $47 million, or about $4 million for each employee, though some money went to its outside investors. 
  • When Facebook bought for an undisclosed sum, only Mr. Lessin, a friend of Mr. Zuckerberg’s since college, joined Facebook. He is now in charge of the user profile pages.  Facebook paid a few million dollars for, according to people briefed on the deal who would speak only on the condition of anonymity because the terms of the deal were confidential.
  • “Some per capita values seem hard to justify,” said Randy Komisar, a longtime venture investor.
  • Zynga said it bought 12 companies in the last year, and an unspecified number of those were for talent.

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