The marketplace for tech-savvy engineers and managers has become so competitive that companies like Yahoo! and Facebook are looking for new ways to find talent. One fresh approach they’re taking is to buy high-tech startups and absorb their talent. In May, Yahoo! tweeted about adding 22 entrepreneurs to “our growing mobile team” by buying three startups. Companies looking to make so-called “acqui-hires” in a competitive marketplace need to take steps to hold and integrate their new people, who tend to be entrepreneurs at heart, says Christine Lyon, a Morrison & Foerster partner focused on employment law. “They are often used to having a lot of autonomy, decision-making authority, and the potential of a major upside if the business succeeds,” she says. “This presents additional challenges in motivating and retaining these employees, in comparison to bringing over employees from other, more established companies.”
New arrivals may have to be offered incentives like equity grants, performance-based rewards, and bonuses for length of service in order to keep them in place and motivated. Companies should also, when possible, seek to lock up key hires with noncompete agreements that prevent them from moving to a rival company. It’s also important to integrate new people into the company’s culture, even if they want to maintain some independence. “You want to make sure these employees don’t end up isolated and that the larger organization can benefit from their skills and entrepreneurial approach,” Lyon says.
Making acqui-hires can also leave companies with unexpected challenges. Buying a startup and shutting down its offerings–especially mobile apps–requires careful planning to avoid consumer complaints and attention from regulators. “If you plan to ‘turn off’ an app, you need to be prepared to provide appropriate notices to end users, and sometimes refunds. The goal is to acquire talent, not the ire of the FTC or customers,” says Morrison & Foerster partner Tessa Schwartz.