This article is in response to Ben Narasin (@bnarasin’s) article in TechCrunch, [‘The End Of The Aqui-Hire?’][1] Ben writes an interesting article on his frustrations of typical deal-structure in acqui-hires (read it). Ben, like many early stage investors, invests in people; great people can make bad idea work, bad people will kill an awesome idea.

Early stage investment is risky by nature and the investor is always backing the team over the idea. It’s high risk, high reward. When the business doesn’t work out, Ben says,

…the concept of that time and upgrading of talent being compensated through an acqui-hire that pays back investors and rewards the founders with new elevated roles seems like an all-around win — and it was for some time in some cases (though I don’t know a single seed investor I respect that would fund someone with that intention in mind). … but, the problem, as Ben suggests, is that more often than not the acquirer places a lot of the reward in staff retention. Ben suggests they pay the ‘minimum needed to stop the investors blocking the deal’.

Two things have struck me; the first is that if this is truly a problem it’s the fault of the investor, and two, shouldn’t we all learn something from the Bosman Ruling?

I’m both an investor and an employer. In both scenarios, nothing is more irritating than having your staff poached after you’ve effectively given them an education taking them from ‘potentially excellent’ to ‘excellent’.

As en employer, I watch my staff make costly mistakes time and time again and then slowly improve to become more rounded professionals making less mistakes and turning out better and better work. We invest in their improvement and development because we believe in them as people and believe they have the propensity to offer more and more value to the business.

As an early stage tech investor, we’re investing in great entrepreneurs and an idea. Often the idea is great and we believe that the people could be the leading lights in whatever technology or area they’re dabbling in. We invest, then those people spend months or years delving deeper and deeper into a niche of tech and at the end of the road they’re world-class experts in that market and area of tech.

In either case, someone comes to gobble those people up, through an acqui-hire or through simple head-hunting. With an acqui-hire, you get some reward for your input into the individuals. With simple head-hunting, there’s nothing.

Is this fair? Well, it depends on which way you look at it …

In the case of employment, in theory you’re only ever paying what the member of staff is worth at any one point. So yes. BUT, people like to feel like they’re ‘moving-forward’. A degree of staff churn is inevitable even if the employee likes their job and you offer a competitive package. So if humans will be human, then ‘no’, inevitably a lot of the investment you put into your staff is lost along the way.

But, as an employer, you could be the head-hunter. You could buy in senior talent that someone else has decided to train up. It’s an equal playing field, but again, this comes with inherent difficulties. Capitalism and a free market is what it is and we all enjoy the same benefits and suffer the same challenges.

In the case of acqui-hires, at least the investor is seeing something back from a failed venture. Ben has been frustrated by small slices of the acquisition pot not coming back to his investment team, but, he does also say, “pay them the minimum to keep them from blocking the deal”. The investors could block the deal and any respectable investor (and Ben is one) would block the deal if it wasn’t fair. Frankly, if the business has failed, then getting 10¢ back on the dollar isn’t a bad place to be (that said, you American investors should look at the tax incentives here in the UK on start-up investment when looking for start-ups to back; they offer a lot of protection when structured right).

**A Lesson From Football (Soccer) In the world of football, players are in contract for a set number of years. If another club wants one of your players, you negotiate a transfer fee. For the players coming through the youth academies and the youngsters brought in, the club invests time and money taking them from ‘ok’ to world class. If another team wants the finished product, they pay. Big.

The Bosman Ruling came in some years back. In the football world, clubs would always demand a transfer fee, even if the players were out of contract. This was obviously illegal and players would then let their contracts elapse and move onto new clubs demanding signing bonuses in lieu of the transfer fee that had been avoided. Clubs have had to wise up to this in their contract structure and in how they work with players.

So what can we learn?

If we know at the start that we’re, as employers or investors, going to invest heavily in making great people experts, then we need to take responsibility for the value that we want to extract from that time and effort. If we need something above and beyond the potential ‘acqui-hire’ bare minimum, or, the basics of the employee duties, then we need to structure our contracts differently in investment and employment.

In investment, this would be setting out the terms of an acqui-hire from day 1. In employment, this would be slightly more complicated; perhaps an agreement that when a member of staff wants to leave that the employer takes responsibility for finding them a new job but then also reaps the benefit of the recruitment fee. A small reward for the training and development put in, but a reward all the same.

Take Some Action…

I share Tom’s frustrations, and agree with his idea regarding the floor price of recruitment. I think that the action point lies with the investors and employers, though. Tom has raised an issue that he, I and all others in this bracket should solve ourselves.

<span style=”text-align:center>”(…this was written too quickly as I’m under pressure to plan my wedding! So excuse typos and anything non-sensical).

What Do You Think?

Written by Luke