Founder's Guide

Why My Acqui-hire Failed (And What You Can Learn)

Share this article!
TwitterLinkedInFacebookPocketBufferEmail

My advice for getting acqui-hired: don’t. But if you are going to get acqui-hired, learn from my mistakes.

While there are many benefits to launching a startup, I’ve come to believe the biggest one is learning. A few years ago, I started a company with a few friends that ultimately produced 3 distinct products that each achieved impressive traction.

Between the three products, we had millions of users in a very short period of time. It attracted attention, and fast.

We had an acqui-hire lined up and ready to go, from one of the biggest social media companies in the universe… until it fell through. 

I made some mistakes, and also learned how big companies actually treat startups. My hope in sharing my story is that other entrepreneurs can learn from my experience — both in terms of potential acqui-hires, and beyond.

Almost Acqui-hired

Justin Kan and I had gone to college together, and in late 2014, he wanted to do a project alongside his YC partnership. We started The Beat Drop, Inc, which went through multiple product iterations:

  • The Artists Union was a data and fan-engagement tool for electronic artists that grew to 3.5M users and 80k DJs.
  • Whale was a video question-and-answer site.
  • Polly was a social polling app on Snapchat that grew to 50M unique users.

After Polly went viral, we were a small team of 4 people with a proven track record of ideating and shipping products to achieve a certain level of growth and traction. We had built 3 products that each received millions of users, so we started to field inbound interest — and actively pursue — an acqui-hire.

We talked to two of the bigger social media platforms, and talks with one got right to the finish line.

Biggest Takeaway: Don’t Aim to be Acqui-hired

The acqui-hire market has changed significantly in recent years.

Three or four years ago, you could expect to receive a large premium for your team and a payout for your investors.

Now, however, acqui-hires are more often used by companies in need of a soft landing.

For us, we had proven an ability to cultivate an audience but we always struggled with the retention piece. We cracked a product, but if you don’t have retention you don’t have a product.

But we did have a team with a proven ability to work well together and ship multiple products that got traction. That’s something a lot of companies can’t say.

My feeling: getting acqui-hired is not a badge of honor.

It’s something that happens opportunistically if the situation is right. If I were a first time entrepreneur, I wouldn’t even set an acqui-hire as a goal.

That said, it’s still a decently common exit, and my experience was very educational, so I’ve jotted down key tips that I wish I’d known before going through the process.

What went wrong

Like anything, a number of factors in and out of my control led to the acqui-hire offer falling through.

We did get a term sheet I was very happy with, which isn’t easy.

Looking back, here are a summary of mistakes I made:

  • Started at the wrong time (December, when everyone was skiing down a mountain)
  • Dealt with someone who was too junior to push it through
  • Did not set concrete deadlines that we stuck to
  • Didn’t manage team expectations well

I elaborate on all of those, along with some advice on what I would have done differently.

How the Acqui-hire Process Works (and what you can learn from me)

There’s no official “acqui-hire process,” but in talking to other entrepreneurs, I found the steps to be roughly similar across companies.

1. Start at the right time

This simple factor can help or hinder you before anything really picks up.

We started our acqui-hire process at the end of the year — late December — which proved to be a big mistake.

Getting acqui-hired is a sales process, so you need to keep your leads warm, which is tough when they go on vacation. Then, when they come back, they’re slammed with work, so your process and deadline are likely to slip.

Someone at a major public social media company in San Francisco completely ignored me, after conveying significant interest — before a vacation in December. After the vacation? Crickets.

My takeaway: momentum is everything, and you need to gather it at the right time.

2. Cast a wide net

We treated the acqui-hire process as a funnel, so I’d recommend starting the process at as many companies as possible, just like fundraising.

That process typically involves being introduced to corporate development (corp dev) who will shop you around internally and put you in touch with the relevant teams. Then, like any sales funnel, you’ll whittle down your targets as you talk more seriously to a few companies.

So how do you even find opportunities?

If you’re lucky, you’ll get organic inbound interest. We asked our investors to reach out to their networks, and many were helpful.

3. Connect with a sponsor, and make sure they are senior enough

Ideally, you connect with a sponsor first, who then connects you to corp dev. With their endorsement, the corp dev conversations carry a lot more weight.

For us, it was flipped — we talked to corp dev first, and that was part of the problem. We were at the mercy of whoever corp dev connected us to, instead of having a strong advocate to begin with.

In a case like ours, you just have to hope the connection is senior enough. Could be a VP, director, or PM.

If I were advising an entrepreneur, I’d suggest you get a sponsor who’s as senior as possible.

The CEO is the best option, but CEOs are busy. The title or level will depend on the company — maybe CTO, SVP, VP. The important part is making sure the person has the power to make a business case to acqui-hire you.

We learned mid-way through the process that one of the partners we spent a lot of effort trying to close was too junior to champion us with the relevant folks at that company. That was a lot of time and effort completely wasted.

On the other side, the term sheet we ultimately received came from a company whose CEO I had known previously, which definitely helped because we had already established a trusting relationship.

4. Prepare for your conversation with corp dev

Before getting on the phone with corp dev, I found it especially helpful to field advice from people who had gone through the process. Acqui-hires have a specific language and, like with any sales or negotiation, you don’t want to get caught off-guard by the terminology.

Take, for instance, “premium”.

I had to talk to my friends to understand what companies really meant by “premium”. I learned that it actually means, “does a company value your team or your assets?” And, are they willing to pay top dollar for it?

Once I started talking to multiple companies, I realized that corp dev at most companies has pretty consistent questions. I’d recommend going into the first call prepared to hype up your company and get the potential acquirer excited about what you’re doing.

You also want to have a transparent conversation about what you’re looking for, so you don’t waste anyone’s time.

Be prepared to discuss:

  • Your team’s bios, especially for the founders
  • Your valuation
  • How much you’ve raised
  • Runway
  • Why you’re going through this process now

I’d also be sure to include your own priorities, such as:

  • Your deadline
  • What you’re looking for
  • Any specific stipulations you have

You can save a lot of time by being especially clear about what you want and where you’re flexible during the first conversation. For example, you might:

  • Merely want job offers for the team
  • Want a premium above market value
  • Be looking to return investor capital

In each of these cases, learning early on whether or not the company is a good fit can save you a lot of energy later, so it helps to get this base level of communication out of the way at the beginning.

5. Set a deadline and push towards it

Open conversations are deadly.

If I were to go through the process again, I would timebox it. The first time I talk to a company, I’d be sure to communicate a clear understanding of that timeline and get them to commit to our process.

Momentum is important when it comes to closing a deal, and it’s especially important for acqui-hires because the hirers are typically larger companies that can easily get distracted and bog down your process.

6. Get a first term sheet (even if it’s not a term sheet you like)

The initial goal of shopping yourself around should be that first term sheet.

A first term sheet creates a sense of urgency, just like fundraising, where you need your first check because investors are constantly asking “who else is in?”

A term sheet gets other potential acqui-hirers rolling, and that time pressure is instrumental for closing a deal.

7. Negotiate the term sheet

In a term sheet, everything is negotiable (but some things are more negotiable than others).

When negotiating, which is typically done with corp dev, some elements have a lot of wiggle-room. During our process, I found that the most negotiable parts of the offer are:

  • Prices
  • Premiums
  • Triggers
  • Milestones
  • Payouts for the team and investors

Milestones are an especially important element that’s often overlooked.

If you’re joining the company, they’re expecting you to take over or build a product, and milestone-based compensation can be especially helpful for aligning incentives. During our negotiations, I found that those milestones and corresponding payouts are a particularly flexible element.

8. Get organized before due diligence

Due diligence is an intense dive, where the acqui-hirer checks on core elements of your company, including your:

  • Financials
  • Bills
  • References
  • Outstanding lawsuits

I would recommend getting those elements in order before starting the process. You’ll have enough on your plate that you won’t want to spend energy scrambling to find them.

You also need to be prepared for them to vet you and your team, which will likely mean technical interviews for your engineers.

9. Finalize the terms and sign the sheet

If the company is still interested after interviews and reviewing all of the due diligence documentation, and you sign the term sheet, congrats — you’ve been acqui-hired!

This is obviously the step that I got to but didn’t push over the finish line.

How to get through the process with your team

Knowing the high level process is one thing. I underestimated the sheer amount of effort it would take, and the toll it would have on my team. This is arguably the most important takeaway of my experience.

Communicate clear expectations with your co-founders

If I could go back, I would make sure both myself and my co-founders understood earlier what to expect out of a deal.

This was my first time going through a potential acqui-hire, and our expectations weren’t accurately calibrated, especially since acqui-hires are glorified in the Valley.

Most of the time, the outcome is simply “a job” with a slight premium over what teammates would get if they were to interview into the company.

Be prepared for the stress on your team

The acqui-hire process can be intensive, but you can’t have everything in the company grind to a halt. Your team needs to keep building and shipping.

Realistically, this distraction will most likely break the company. Know that you are going to have a tough time getting back to actually building stuff after you go through the rigors of due diligence.

After finding a strong fit at 3 places, our whole team interviewed extensively, full-on. It was a lot of interviews, a lot of effort, and a lot of emotions for our team. Justin TV went through a similar acqui-hire process with Google, where Google interviewed all their engineers and then said “Guess what? We don’t want to pull the trigger.”

That’s why you want to verify if the company is serious in the first place. A lot of the time, they’re just sniffing around trying to find out about your team and technology.

Unlike my experience, make sure your contacts are serious and have the power to pull the trigger, as that’s preferable to putting the team through the wringer at multiple companies.

Be transparent but only bring in the team when necessary

If I were to go through the process again, I would push the ball as far as possible with just the CEO or founding team.

If you have interest from five companies, and you put your team through five rounds of interviews . . . that’s a lot of interviews! It also comes with justifiably mounting expectations from everyone involved, and the more moving parts, the more there is to manage.

That’s stressful for your team, and another added point of stress for the founder.

It’s a rollercoaster ride of emotions — I recommend communicating with your team only when things are closer and they need to be looped in.

This is not to say that you shouldn’t be transparent; it’s for the benefit of your team. You’re giving them uncertainty for something that’s out of there hands.

Try to avoid the interview process altogether (if you can)

I know of some companies that were able to skip the interview process altogether while going through the acqui-hire due diligence. Unfortunately for us, that wasn’t the case.

If you have a very reputable team and/or an insanely strong product, you might be able to get away without an interview. These are outliers, but it’s still worth noting since it’s so preferable.

It’s simply something else that may be negotiable, so you should consider it if you can.

Get advice from other entrepreneurs

Trying to get acqui-hired is an emotional process, so the CEO needs support, too. Some people have the impression that you just need to make a few calls and the process gets done.

While that may happen sometimes (though I doubt it), it certainly wasn’t our experience. Ours was more of a rollercoaster ride of emotions, so I appreciated the support I got from advisors and friends.

And now that I’ve been through it myself, I get to play the reverse role.

Learn from my mistakes, do the process correctly . . . and consider whether an acqui-hire is even worth your time in the first place.

Share this article!
TwitterLinkedInFacebookPocketBufferEmail
mm

Ranidu Lankage is a platinum-selling Sri Lankan Pop artist, and DJ signed to Sony. He attended Yale University and co-founded his previous startup (The Artist Union/Whale/Polly) with Justin Kan, co-founder of Twitch. Ranidu is a Y Combinator-backed entrepreneur and raised funding from SV Angel, Greylock, Initialized Capital, DCM, Trinity Ventures, 500 Startups, Kevin Durant and Serena Williams (among others).

Published In

Founder's Guide

The most important topics for startup leaders — by founders, for founders.

Browse all 17 Articles

Up Next