Acquiring for talent

A trend pioneered by Facebook in India in 2014 has gathered considerable momentum. Start-ups-turned-unicorns and giants are gunning behind newbie ventures that score high on technology with the key intention of lapping up their talented resources. Talent-led acquisitions or acqui-hirings is creating ripples in the start-up ecosystem here. Recently, cab aggregator Ola acqui-hired a Bangalore-based artificial intelligence start-up called Pikup.ai. This follows acqui-hires by Zomato, Swiggy and Reliance-owned Haptik. Zomato acqui-hired drone start-up TechEagle Innovations a while ago. Swiggy acqui-hired Kint-io, an artificial intelligence (AI) start-up with a founding team that has expertise in machine learning (ML) and data sciences earlier in the year. AI-based conversational platform Haptik, in which Reliance Jio acquired an 87% stake for Rs 700 crore, acqui-hired Los Angeles-based AI start-up Convrg, which build chatbots.

Experts point out that acqui-hirings have been a key strategy for global giants for a while now. Facebook, Apple, Google, and Walmart Labs have all been at the forefront of acqui-hirings in India, having acqui-hired niche ventures such as Little Eye Labs, Tuplejump, Halli Labs and FloCare respectively for their talent. "But what is striking is the surge in home-grown Indian ventures going in for acqui-hires, as against pure-play acquisitions," say experts.

As opposed to acquisitions, acqui-hirings are primarily done when the buyer values the talent and innovative technology more than the market presence, growth and expansion of the start-up. "Thus acqui-hirings are almost always done by established ventures who buy out upcoming or budding startups with niche specialisation at a minuscule valuation when compared to something like the $16 billion buyout of Flipkart by Walmart," say experts.

EYEING FOR EXPERTISE

During an acqui-hire, the buyer buys the thought that the start-up team can in future come out with best-selling products, courtesy their domain expertise   Acqui-hirings are primarily done when the buyer values the talent and innovative technology more than the market presence, growth and expansion of the start-up

Rabindra Shrestha, managing partner, Prestellar Ventures, says big firms may acqui-hire young technology start-ups that are often bootstrapped and at seed-funded stages, as "such start-ups are in a sweet spot and are mature enough to prove that they can build capabilities, yet young enough with their obligations to keep the deal financially palatable to investors."

During an acqui-hire, the buyer buys the thought that the start-up team can in the future come out with best-selling products, courtesy their domain expertise.

According to Pankaj Karna, managing director, Maple Capital Advisors, acqui-hiring takes places where promising start-ups are unable to induct suitable growth capital. "Now the number of start-ups unable to get capital is significant and acqui-hiring is a possibility for such start-ups whose strengths, when combined with a larger platform can create good incremental value and help them be a part of a strong growth story,'' says Karna.

For the buyer, its the inherent talent in the budding start-up that's the key attraction.

According to Siddhartha Gupta, CEO of Mercer|Mettl, there seems to be an unmet expectations gap between organisational on-job skills and competencies demand and what the market offers. "In the face of the lack of ready talent availability that can be involved in the work strategy from day one, companies see a golden opportunity in acquiring a start-up for their talent."

According to Karna, start-ups strong in niche technologies like the internet of things (IoT), blockchain technology, 3D printing, predictive analysis, augmented reality (AR), artificial intelligence (AI), virtual reality (VR) and machine learning (ML) are likely to see the acqui-hire traction.

Adds Shrestha, "People with relevant skills and cleanly laid out roles provide for a fully functional team. Such teams require less training and would be fit with technical capabilities. These teams, when integrated into the new parent, can hit the ground running for expansion and offer value for saving of time and effort."

According to Saurya Prakash Sinha, CEO and co-founder of fintech start-up Recko, acqui-hiring will get popular as we move forward. "There are tons of small start-ups that work on adjacent functions and are of interest to large companies. Instead of building it inside, which delays the go-to-market, it makes more sense to acqui-hire a team which specialises and comes with prior context. Acqui-hire is also a safe landing group to get the financials correct before starting up again."

But what is the need to acqui-hire a start-up, when a firm can purely hire relevant talent from the market? "This is because building capabilities organically in the new-age and ultra-modern technologies by hiring talent directly from the market becomes tedious and is high on investments," says Gupta.

Experts say the acqui-hired start-ups benefit tremendously. Gupta feels the acqui-hiring model as an exit-strategy is a win-win situation for the startup as well as its employees, as being hired by a renowned company testifies the founders' business story and growth vision. ''Additionally, it also benefits start-ups unable to raise funds or not being able to be on their growth path. Organisations are increasingly looking at making investment adjustments to offer new employee engagement experiences like ESOPs, retention strategies, overseas relocation, and succession planning models that are designed around the needs of new employees,'' adds Gupta.

"The employees in the acqui-hired start-up get the benefit of using their full potential for a larger company and get rewarded through say stock options and compensation," says Bala Parthasarathy, CEO and co-founder, MoneyTap.

Sinha believes that post an acqui-hire, the newbie venture gets a chance to solve the problem for a larger audience with lesser constraints on capital and established distribution.