Acqui-hires, or acquisition hires, are a popular trend in the tech world, by which established companies buy start-ups and smaller companies for the purposes of obtaiing their human capital, especially engineers.

Q. So this is a very big trend in the tech world right now, right?
A. Huge. “Acqui-hires” are, of course, “acquisition hires”. Startups are being bought by Google, Facebook, Linked-In not because of the company or product, but to get the people, the engineers. Of course, the obvious reason is how difficult it is to hire engineering talent. Overall unemployment may be high, but competition for engineering talent is intense; in fact about 1/4 of all job openings in the country right now are for tech positions.

Q. But why not just hire the engineers directly? Why bother buying the whole company and then just shutting down the products?
A. Several reasons:
(1) Big tech companies would prefer not to be on the bad side of venture capitalists, who someday might have something more valuable to sell them. So let the VCs save face (and recoup at least some of their investment) via an acqui-hire, rather than just hire the engineers outright.

(2) Acqui-hires allow buyers to pay incoming engineers more than existing engineers, without upsetting pay-scales. “His salary is in line with yours, but we had to also buy his equity…”

Q. OK, so is there sort of a market rate for these deals?
A. People say the metric is somewhere around $1mm per engineer in these deals, which is actually about what it was back in the 2000 bubble, when these deals sorts of deals were also hot.

Q. And are there lessons for investors here?
A. Yes! This phenom can be interesting fail-safe for angel investors, a kind of insurance policy. If you invest in a company with a strong engineering team, your chances of getting at least something back in the event it doesn’t work out — and usually, of course, startups fail– is hugely improved. A portfolio of engineering-intensive startups will, I think, do a lot better than one that’s heavy on business and marketing talent. Almost a unique “risk adjusted” approach to seed investing.