Rather than attempting to poach young tech talent away from startup companies, the big players in the tech sphere are increasingly turning to a form of acquisition known as “acqui-hiring,” the New York Times reported earlier this month.
In acqui-hiring, a larger company acquires a smaller company while hiring the key personnel that attracted attention to the start-up in the first place. For example, Yahoo bought Summly, a mobile news reader app with a five-person staff and no revenue for $30 million. Apple purchased WiFiSLAM, a company that focuses indoor Wi-Fi and has just a few employees for $20 million.
You may wonder why these tech giants are purchasing the smaller startups outright instead of just hiring the founders or engineers themselves. This is especially perplexing when the buyers shut down the original product and have the new hires begin working on new projects. What’s more, non-compete arrangements are difficult to enforce in California, so there should be no problem poaching top-notch talent instead of buying their entire company just to gain access to their expertise and ideas.
A few factors explain the acqui-hiring phenomenon. Talented engineers will not want to appear that they are being disloyal to the startup, let alone to the angel investors that helped them get started in the first place. Accepting a buyout lets the engineers continue to work on their innovative ideas while allowing the founders, investors and employees to reap large rewards.
There are also some tax advantages when a tech giant resorts to acqui-hiring. If a young tech company founder accepts a signing bonus to work for a bigger firm, he has to pay more taxes than if he sold his start-up for the same amount as the bonus.
Increases in acqui-hiring serve to indicate just how competitive the tech hiring market is for promising young talent. Larger tech companies are increasingly willing to buy other companies just to acquire the human capital.
Small and medium-sized business won’t have the resources to acqui-hire though. This means that in order to compete for talent with larger players such as Facebook, Google and Yahoo, smaller tech firms need to utilize other innovative and efficient methods to discover and acquire the best talent out there.
For example, companies need to leverage all aspects of social media in their job recruitment process—by relying not just on LinkedIn and Facebook, but also Twitter, YouTube and blogs to spread the word. Smaller companies also need to pay attention to “simple” details like how long it takes to fill out an online application for employment. If it takes 60 minutes to fill out the application rather than a more reasonable five minutes, for example, promising tech talent will likely go elsewhere to seek work. Essentially they need their hiring process to be smooth, efficient and inviting.
As more large companies turn to acqui-hiring to expand the products and services they offer, small and medium-sized businesses will need to step up their recruiting games if they want to remain competitive in the technology sphere.
