Buying Teams

Intellectual property rights play an underappreciated role in acquihires. An acquihire is a novel Silicon Valley transaction in which a large technology firm acquires a start-up, discards the start-up's assets, and retains only the team of engineers responsible for developing the start-up's technology. Existing literature explains this transaction structure as the result primarily of cooperative norms in Silicon Valley. Here, I report the results of a preliminary investigation using a novel dataset of acquihires completed during the years 2011 and 2012. The investigation shows that, contrary to the pattern for all of the start-up's other assets, existing and future patent rights typically follow the engineers to the buyer. Patents can facilitate the organization of team production by, among other things, increasing the costs to team members of leaving the team. The pattern described here thus suggests that team production considerations, and their interaction with intellectual property rights, are a partial driver pushing Silicon Valley buyers to pursue acquihires