Acquisition in Reverse: One Company Buys Another for Talent Instead of Product
In the rapidly evolving world of technology, Meta Platforms, the parent company of Facebook, Instagram, and WhatsApp, has been making significant moves to bolster its AI capabilities. However, these moves have sparked conversations about the balance of budgets and the potential impact on market competition.
One such strategy Meta has been employing is reverse acquihires. Similar to an acquihire, where a company purchases a small startup primarily for the skills and expertise of its employees, a reverse acquihire involves lucrative offers being made to key leadership, and a deal is struck to license the product or service the company was producing.
Recently, Meta invested $14.3 billion into Scale AI in exchange for a 49% stake in the startup, marking one of their reverse acquihires this summer. Notably, this deal included the acquisition of Scale AI's founder, Alexandr Wang.
However, the trend of reverse acquihires has raised concerns among some industry professionals. The fear is that these practices could potentially stifle innovation instead of fostering it. This is due to the loss of leadership and talent at the original startups, leaving them essentially as shells of their former selves.
Moreover, the FTC has taken notice of these deals, investigating their potential impact on market competition. This scrutiny is not exclusive to Meta Platforms, as many major tech companies are currently dealing with antitrust cases brought by the Justice Department and the Federal Trade Commission.
The freeze on hiring at Meta Platforms' AI division, characterised as "basic organisational planning," may suggest a shift in the company's strategy. However, there are no publicly available details about any recent reverse-acquihire conducted by Meta Platforms or its effects on the company.
Meta Platforms is not alone in this trend. Amazon, for instance, hired the co-founders of AI startup Adept alongside the majority of its 100-employee team and struck a deal to license its technology last summer. The aftermath of this move has left Adept with only four employees, and it is unclear if anyone is still running the company after the new CEO left within a year of taking on the role.
Interestingly, AI founders are finding themselves in a position akin to NBA stars, able to negotiate hiring deals to their advantage. A 24-year-old AI researcher was even hired by Meta Platforms after turning down an initial offer of $125 million over four years.
As the tech industry continues to evolve, the use of reverse acquihires by giants like Meta Platforms and Amazon raises questions about the balance between corporate growth and the nurturing of innovation. The answers to these questions will undoubtedly shape the future of the industry.
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