The scenario is known. We are facing a growing and exponential demand from the labour market for professionals in the areas of engineering, software programmers and information technology. The increase in computational capacity and innovative business models makes reality more and more virtual and the need for qualified and computerised labour ever greater.
On the other hand, working for a large company is less and less in the plans of software engineers and technology professionals. The autonomy that entrepreneurship provides is very attractive and, when added to the possibility of multiplying the initial investment in creating a startup, makes the solo flight an increasingly chosen option.
It is worth mentioning that technology is a great ally, bringing with it considerable reductions in structural budgets to set up the business itself, especially for technology-based startups, allowing entrepreneurs with know-how to position themselves competitively in the market. With this, the demand, which was already high, tends to increase and the scenario of shortage of professionals, evasion and competitiveness is notorious.
The panorama induces the emergence of an interesting phenomenon in Silicon Valley called Acqui-Hiring, a neologism created to define the acquisition, by large companies, of early-stage startups with the intention of obtaining for themselves talents contained in the scope of startups that seek to scale their businesses in the market (“hiring”).
Leading companies in the technology market, such as Google, Facebook and the Brazilian company Nubank, have been carrying out acqui-hiring operations in order to meet the intense and growing demand for professionals linked to the technology area, especially software engineers who already have projects and operations underway, with a high capacity to add value by having actively participated in the design, development and finishing of cutting-edge technological products.
The scenario is known. We are facing a growing and exponential demand from the labour market for professionals in the areas of engineering, software programmers and information technology. The increase in computational capacity and innovative business models makes reality more and more virtual and the need for qualified and computerised labour ever greater.
On the other hand, working for a large company is less and less in the plans of software engineers and technology professionals. The autonomy that entrepreneurship provides is very attractive and, when added to the possibility of multiplying the initial investment in creating a startup, makes the solo flight an increasingly chosen option.
It is worth mentioning that technology is a great ally, bringing with it considerable reductions in structural budgets to set up the business itself, especially for technology-based startups, allowing entrepreneurs with know-how to position themselves competitively in the market. With this, the demand, which was already high, tends to increase and the scenario of shortage of professionals, evasion and competitiveness is notorious.
The panorama induces the emergence of an interesting phenomenon in Silicon Valley called Acqui-Hiring, a neologism created to define the acquisition, by large companies, of early-stage startups with the intention of obtaining for themselves talents contained in the scope of startups that seek to scale their businesses in the market (“hiring”).
Despite being transactions widely reported in the media, drawing the attention of investors and entrepreneurs, it is a theme little addressed in academic terms[1]. As it is recent and hybrid, it has little literature capable of offering theoretical background, pacified legal precedents and unified doctrine. Thus, the theoretical gap and intellectual negligence on the subject persist, gaining importance the analysis of factual situations for a wide range of areas.
In any case, it is a strategic recruitment movement with a high success rate which, in a dynamic and volatile market, enables the retention of talents, the development of new technologies and the survival of many companies (and the end of others). But is it really worthwhile for companies to start an M&A process to hire professionals?
The fact is that the Acqui-Hiring operation is necessarily imbued with a series of duties and responsibilities that must be observed, usually the same ones linked to customary corporate transactions. The duty of care in relation to shareholders and stakeholders, and those responsible for the operation must act in an informed and honest manner, balancing the balance of interests.
There is also the duty of loyalty, which establishes the directors’ duty to guide their actions based on the best interests of all parties involved. We can also mention fiscal and contractual responsibilities of all those involved. It is clear, therefore, that the decision to go ahead with an acqui-hiring transaction goes through many phases of assessment, with the consequent weighing of the pros and cons involved in proceeding with the operation.
The community of early adopters[2], for example, views the growth of this phenomenon of acqui-hiring with a bad eye, as it indicates the ease with which technology-based companies can be discontinued, affecting the perenniality of the use of services and products over time.
Furthermore, the scenario is uncertain when analysing the possibility of employee continuity in the acquiring company[3]. This is because there is no kind of legal protection that ensures their permanence, presenting turnover rates significantly higher than workers .
However, more and more companies are opting for the said procedure instead of going for the standard employee hiring. There are three main factors that drive the strategic approach of an acqui-hiring operation: to encompass top professionals to elaborate a corporate strategy around the main product; to drive innovation with the objective of bringing in new employees to develop a new product and to bring in new talent to improve the offer of an existing product.[4]
The possibility of incorporating, in a single large transaction, a complete team of professionals, with the same method and way of working, is quite attractive. In this way, the acqui-hiring operation allows the purchaser to acquire new skills quickly and organically, facilitating the reconfiguration of the professionals to the new work environment. Innovation is outsourced, mixing the structure of a large company with the dynamism and good ideas of a start-up.
From a legal point of view, there are many challenges, but the intellectual property issue is the one that draws most attention in an acqui-hiring operation. If we take as a reference a typical due diligence procedure, we will have, initially, the requirements of the investor-buyer based on a rigid mapping of the know-how of the company to be acquired. The absence of a minimum governance in intellectual property, as in the example of the absence of copyright assignments of programmers that worked in the startup or that still work as collaborators, the possibility of a sudden brain drain or a low number of deposits in that area, will represent an acqui-hiring operation of high risk or, at best, of low valuation. In these conditions, therefore, the typical profile of early-stage startups, detached from minimally structured organizational processes, without a concern for mapping intellectual property and concentrating know-how in their power of control, will constitute a harmful triple in their pretensions to be acquired or to merge with other companies with abundant resources for disbursements of high sums.
As the co-founder of Facebook – a company enthusiastic about the tool of hiring through acquisition – said, “We buy companies to get great people.” . Acqui-hiring operations go far beyond the disbursement of significant sums.
[1] BHARGAVA, Neha; VENUGOPALAN, Vishwanath. Acqui-Hires: Revolutioninzing Strategy & Transforming Organizational Structures. MBA Research Fellowship at the Wharton Mack Center for Technological Innovation, 2013.
[2] Early users of new products, services and technologies, sometimes even before they are launched to the general public. Enthusiasts of new technologies who are willing to experiment, becoming the first customers of early-stage startups.
[3] KIM, J. Daniel. Startup Acquisitions as a Hiring Strategy: Worker Choice and Turnover. Wharton School, University of Pennsylvania, 2020
[4] MORALES, Omar. Factors that lead to retention of acquired engineers at Microsoft in Silicon Valley, 2017. Theses and Dissertations. 851. https://digitalcommons.pepperdine.edu/etd/851
