2012 is for buying startups

by Dylan on April 21, 2012

Hong Quan is the founder of Quantum Startups in San Francisco and an advisor to 500Startups. He’s the first recruiter I’ve ever met who I didn’t want to murder and who actually understands startups (he routinely answers 2am emails). He originally wrote the following post in February and I still thinks it resonates:

I’m calling it. And I hope I’m dead wrong. But this year is going to be filled with mergers and acquisitions in the startup ecosystem.

Early to medium stage startups at various inflection points of financing (post-Seed, pre-A, pre-B, on bridge, etc.) are going to be acquired by larger public (Google, LinkedIn, Zynga), soon to be public (Facebook) or extremely well-funded later-stage startups (B, C, D rounds). These transactions happen as a natural part of business but this year will see an increase of M&A activity around startups.

Why? Because people.

My job is to find people, specifically Engineers, Developers, Designers and Product folks of the highest caliber. They’re usually working at startups. Their own startups. And those folks all want to hire people too! That’s just not sustainable.

The big companies can’t hire. Google isn’t the dream employer it was 10 years ago. Even Facebook is going to lose it’s luster, especially when potential hires are given RSUs and stock grants instead of options. Going to work at a huge campus in East Menlo Park isn’t cool, even if the street name has been changed to Hacker Way. It’s the old Sun Microsystems building, my wife worked there for years. Look at what happened to them.

Even medium companies like Twitter and media darlings like Square can’t find enough people to do everything they need to do. And small startups are all fighting like mad over the handful of talented people who haven’t started their own companies yet (damn you side projects!).

The Series-A crunch is real. Some startups will drag it out and some will die in obscurity. But the most talented teams will get bought. Their services and apps will be shut down. Investors get a small exit, and the buyer gets a talented team that will hopefully stay (golden handcuffs sold separately).

That’s the only way these companies can keep growing. Once your recruiting is done by HR, you’re dead. You don’t bring in new blood and fresh thinking, you only hire more of the same. And then it’s up to Corporate Development and his little brother Biz Dev to get interesting people in the building. Sure it costs more, but it’s worth it. Gotta keep that “startup spirit” and entrepreneurial culture alive right?

I heard about the sale of TeachStreet this morning. I don’t know Dave, but have met him a few times. He’s very well-known and well-liked in the Seattle startup scene for good reason. It was a great moment for the press and for his investors, and Dave was buying everyone beer at Hops & Chops. But I would buy *him* a beer if I was there. I know how tough it is to call it quits, and selling isn’t always a joyous occasion.

Sure beats dying though.

Cheers,

Hong

p.s. “Acqui-hire” is not a word. Please stop it.

p.p.s. Using the term “talent acquisition” for recruiting is pretentious. Please stop it.

You should follow Hong on Twitter and read his blog. If he’s got time, you should also speak to him about hiring.

  • http://www.facebook.com/francescosullo Francesco Sullo

    Great post.

  • cmac2020

    Coruscating post and some well thoughout forecasting.

  • http://twitter.com/RobertReiz Robert Reiz

    I heard the same from a B. Developer @ Facebook London. I agree. 

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