After spending the last few months aggressively hiring AI researchers and engineers from other tech companies, Meta Platforms has put a freeze on hiring for its AI division. While a spokesperson for the company characterized the move as “basic organizational planning,” the amount Meta has spent in luring talent to its company alone calls for a need to check the budget balance.
One of those hires was a 24-year-old AI researcher who had recently started his own company. He had originally turned down Meta’s offer of $125 million over four years to stay with his start-up, but after Meta doubled the offer, he decided to leave his new venture behind. Meta isn’t the only company convincing startup founders to leave their companies, so today, let’s talk about the practice of reverse acquihires.
What is a reverse acquihire?
An acquihire is when a company purchases a small startup – often one that hasn’t yet turned a profit – primarily for the skills and expertise of the people that work there, rather than the product or service it provides. This method of hiring has been relatively common in the tech industry, especially when companies perceive specific talent to be limited. This has been especially true as companies fight to stay on top in the AI race.
A reverse acquihire is similar, but instead of purchasing the company outright, lucrative offers are made to key leadership in the company, often alongside a deal to license the product or service the company was producing. For example, last summer Amazon hired the co-founders of AI startup Adept alongside the majority of its 100-employee team and struck a deal to license its technology.
In addition to licensing technology, some tech giants have also offered to purchase a stake in the company when hiring away its leadership. One of the reverse acquihires Meta completed this summer was for Scale AI founder Alexandr Wang, who now leads the company’s AI operations. As a part of the hiring deal, Meta invested $14.3 billion into Scale AI in exchange for a 49% stake in the startup.
Why not buy the company?
Reverse acquihires can be great for the company doing the purchasing as they are often cheaper than acquiring the full company. It also allows the company to buy exactly what they are interested in. However, big tech companies choosing this hiring method may be doing so due to another benefit.
As noted by Fast Company, “the tech giants gain talent while sidestepping the need for government approval and antitrust scrutiny that would happen if they bought the company outright.” Considering that many of the major tech companies are currently dealing with antitrust cases brought by the Justice Department and the Federal Trade Commission, it’s no surprise that the companies are using alternative methods to achieve the same goal. However, that may not last long either, as some of the deals have prompted the FTC to investigate the potential impact on market competition.
Who gets left behind
While AI founders are able to negotiate hiring deals similar to NBA stars, the remaining employees at a startup are not so lucky. Employees left behind find themselves without leaders at companies that are essentially shells of their former selves. Bloomberg reported that only four people appear to still work for Adept, and it is unclear if anyone is still running the company after the new CEO left within a year of taking on the role. Similarly, Meta’s investment didn’t prevent Scale AI from laying off 14% of its workforce a month after its founder left.
Additionally, some industry professionals are concerned that the current trend of reverse acquihires could end up stifling innovation instead of creating it.
