Hot Seat

Chapter 42. There Are Three Exits—Remember, the Nearest Exit May Be Behind You

Startup acquisitions happen along a continuum that looks something like this:

Team Acquisitions

At the leftmost side of the range, you have the acquisition that’s all about the people: the team acquisition. In a team acquisition (or, colloquially, “acqui-hire”), the acquirer believes that the company’s greatest value is in its people.

The most common situation for team acquisitions is when a company has not yet found product/market fit.¹ They may have a great product, but discover that the market isn’t as big as they thought. Or more commonly, they’ve found an amazing market, but the market hasn’t yet found them very interesting. In either case, it’s usually a startup that’s hit a wall (or at least a speed bump) and either is considering a pivot or is running out of cash.

As you might imagine given the likely circumstances, team acquisitions are the least lucrative sort. While some may fetch a high price (particularly for teams with one-of-a-kind star power), it’s more common for investors to break even, plus or minus, and the employees get compensated in a way that’s better than a job offer—but not by too much.

Facebook is well known for team acquisitions. In 2010, they picked up a social sharing service called Hot Potato that let people check in, share, and chat about events for an estimated $10M. ...