Sam Lessin sold his Web startup to Facebook for millions last year, and Facebook promptly shut it down. All Facebook wanted was Lessin.
That is what it has come to in bubbly Silicon Valley. Companies like Facebook, Google and Zynga are so hungry for the best talent that they are buying startups to get their founders and engineers — and then jettisoning their products.
Some technology blogs call it being “acqhired.” The companies doing the buying say it is a talent acquisition, and it typically comes with a price per head.
“Engineers are worth half a million to 1 million,” said Vaughan Smith, Facebook’s director of corporate development, who has helped negotiate many of the 20 or so talent acquisitions made by Facebook in the past four years.
The money — in the form of stock — is often distributed among the startup’s founders, employees and investors. The acqhired employees also get a rich salary and often more stock options, which makes this a good time for entrepreneurial engineers.
Lessin, 27, happily traded his dream of becoming the next Internet superstar for a prominent job with Facebook.
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“The impact here is astronomical,” said Lessin, whose startup was called Drop.io. “It’s awesome.”
But the deals may not be so good for everyone. Some Silicon Valley veterans fear that companies are overpaying for talent and that some of the acquired employees will defect as soon as they can, perhaps because they will get restless in a corporate environment. And venture capitalists, who hope for windfalls that can be measured in the tens or hundreds of millions if not more, will only grudgingly settle for less.
“It is not what we are aiming for as investors,” said Dave McClure, founder of 500 Startups, a venture fund. “We are trying to build large, lasting businesses.”
Still, McClure and other investors said a talent acquisition that offers a modest payoff is better than no deal at all if a startup sputters. And while a sale for a few million will not make or break their funds, it could amount to a tidy sum for an engineer just out of college, they said.
“Who are we to tell a young entrepreneur that they can’t have their first million?” said Paul Graham, a partner at Y Combinator, a well-known incubator that has invested in hundreds of startups.
The talent acquisitions are a reflection of the most competitive market for computer whiz kids in more than a decade. Big companies like Google and tiny startups complain that they cannot find enough good people. They are dangling new perks and incentives, from free iPads to lessons in entrepreneurship, to lure them.
Perhaps no one has jumped on the trend more enthusiastically than Facebook, which has bought a string of small startups with names like Parakey, Hot Potato and Octazen. In 2009, Facebook bought FriendFeed, a service to help people track the online activities of their friends. Tech insiders thought it was trying to compete more effectively with Twitter. But Facebook was really after FriendFeed’s dozen well-regarded product managers and engineers, including two of its founders, Bret Taylor and Paul Buchheit, who had also worked at Google.
Neither the acquired nor the acquirers like to talk numbers. But the acquisitions are generally in stock, and employees typically must wait a year or more before they can sell their shares. Facebook says the deals are worth it because the company needs creative entrepreneurs who can also help keep Facebook’s startup culture alive.
©2011 The New York
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