Facebook’s acqui-hires–$24m on four companies in H1 2012

By August 1, 2012Exits, Facebook

In its quarterly filing yesterday Facebook disclosed that it spent $24m on ‘talent focused acquisitions’ in the first half of 2012. Techcrunch has done some digging and identified the companies as Tagtile, Glancee, Lightbox and Karma.

This raised two interesting questions for me.

Firstly – can investors make a decent return on businesses that are acquired for their talent?

The indications from this limited data sample are ‘probably not’. Lightbox and Karma had raised money $5.7m between them, making the aggregate exit value of these acqui-hires 4.2x, which tells us that if the investors on average had a 24% stake they would have broken even on these deals. This analysis assumes there was no participating liquidation preference and lumps together companies that have raised money with those that haven’t, but I think it is fair to guess that in aggregate the investors in these companies didn’t get what they set out for. The founders might well have done OK though – there is space in these figures for them to pocket a life changing amount of money and they might have landed a dream job at Facebook with significant upside down the line.

Another way of looking at this data from an investment perspective is to say the average acqui-hire valuation was $6m, which implies that for an investor to make 10x they would need to have invested at $600k post money.

Whichever way you look at it the conclusion is the same – acqui-hire is not a great exit strategy for investors.

Secondly – what sort of companies is Facebook interested in acquiring?

  • Three of the four are mobile companies (which rises to five of the six acquisitions Facebook made in total in H1 2012 if you include the bigger deals Instagram and Face.com)
  • Three of the four were in San Francisco, with one (Lightbox) based here in London (Instagram was also San Francisco, Face.com was Tel Aviv)
  • Data from LinkedIn suggests all four companies had 3-5 employees

The takeaways – Facebook is focused on mobile, and companies like to acquire close to home (nothing new there).

Finally – a brief profile of each of the acqui-hires:

  • Tagtile – a hardware based service which helps local businesses run loyalty programmes
  • Glancee – an app for iPhone, Android, and Facebook that makes it fun and safe to discover people nearby who share friends and interests with you
  • Lightbox – an Android app which syncs the photos on your phone with your social networks and provides cloud hosting of your photos
  • Karma – a social, mobile gifting service
  • http://insomanic.me.uk/ AndyY

    Useful and interesting to note the numbers, but I’m not sure it’s useful to focus on the fact that acqui-hires are not likely good exit for investors. 

    We need to celebrate the acqui-hire as the risk-mitigating “soft landing” for entrepreneurs in the case that things don’t grow as planned – as you say, it’s likely they were a good result for the teams, particularly assuming that they wouldn’t have been likely to go for the acqui-hire if the company was on a particularly successful trajectory.

    I’d be campaigning for more acqui-hires here in europe, helping the overall ecosystem develop by encouraging entrepreneurs to take bigger risks and allowing them to come back stronger when things don’t work out.

    While the investors looking for 10x on these – relatively small – investments are likely see less difference between the acqui-hire money-back return scenario compared to writing the investment off completely, more liquidity in the market at all levels is surely a good thing for us all in the end.

  • Cedric

    if you want to acquire the people vs techno/clients
    etc it makes even more sense to acquire close to the headquarters

  • http://www.theequitykicker.com brisbourne

    Hi Andy – more acqui-hires would be good for the two reasons you describe, and I guess also as a soft landing for investors. I was interested to run the maths and see whether they could make sense for small scale investors (angels) as well.

  • http://www.theequitykicker.com brisbourne

    I don’t think Tagtile raised any money, but you are right, the aggregation does leave open the possibility that any one of these companies did fine for its investors. Probably not that likely though.

  • http://en-gb.facebook.com/people/Dan-Lester/534210316 Dan Lester

    Nic, do you have any thoughts on why investors might approve these acquisitions, other than Andy’s suggestion (that the investors simply judge the future as not quite bright enough)?

  • http://www.theequitykicker.com brisbourne

    If a founder really wants to sell then investors will most likely fall in line, particularly at the early stage, but it is more likely that the founders and investors together felt the upside wasn’t enough to hold on for.