Despite the challenges in the venture capital market, top startups are thriving while others are struggling to secure new funding. For those unable to raise funds or achieve self-sustainability, acquisition may be the best option, even if it means being acquired for a fraction of their previous valuation, as the alternative could lead to shutting down.
Although being acquired may feel disappointing for founders and senior employees who envisioned building a highly valuable company, there are benefits to such acquisitions that may not be immediately apparent.
Nivas Ravichandran, a former employee of Frilp, which was acquired by Freshworks in 2015, highlights that acquisitions can offer financial advantages, such as better pay and equity compared to lateral hires in other companies.
Acquirers often reward key team members by providing them with more senior roles and higher pay packages that exceed what they could obtain elsewhere based on their experience.
Large acquirers are primarily interested in accessing the startup’s talent pool in these transactions, commonly known as acqui-hires, and structure deals to incentivize founders and key team members to remain with the acquiring company for an extended period.
Founder and team-centric deals
Acquirers may offer higher seniority and compensation packages to key team members to reduce the need for significant cash investments and incentivize them to stay post-acquisition.
A founder who recently sold his startup to a publicly traded company shared how the acquisition included a higher stock grant for the founders rather than paying more to the startup’s investors, illustrating the effectiveness of strategic incentives in retaining key talent.
While being acquired may initially seem like a compromise, it can lead to accelerated career growth, unique opportunities, and long-term success for founders and key employees.
Acquihires, where companies gain specialized talent in one acquisition, can provide significant value to both the acquiring company and the acquired team, leading to positive outcomes for all parties involved.
In a market where acquihires are increasingly common, founders should consider the financial rewards, career growth prospects, and potential for launching new ventures in the future, making acquihires a viable and beneficial option for startups.
