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Talent

The Challenge of Retaining Startup Talent After an Acquisition

February 13, 2024

Talent

The Challenge of Retaining Startup Talent After an Acquisition

February 13, 2024

Photo by Gabrielle Henderson on Unsplash

In the last two decades, the startup world has witnessed a steady climb in acquisitions. These acquisitions have emerged as the primary channel through which ventures successfully exit. It’s no surprise, given that acquisitions offer acquiring companies access to a new source of technological innovation, fresh talent, and increased market power. Among the most prized assets of many startup companies is their human capital, often serving as the driving force behind their innovation and success.

Yet, post-acquisition, a burning question lingers: What happens to these acquired employees? They are under no obligation to stay; they possess the freedom to embark on new journeys, explore diverse career paths, or even launch their own ventures. What if these acquisitions, in an ironic twist, serve as the catalyst for employees to leave and set out on their own entrepreneurial ventures, possibly even emerging as future competitors?

Take the inception of the San Diego biotech cluster as an example, which can trace its roots back to the acquisition of the region’s pioneer biotech startup. In 1986, pharmaceutical giant Lilly acquired Hybritech, intending to enter the diagnostics testing market with this new technology and talent. However, the majority of Hybritech’s senior managers departed soon after the acquisition due to the culture clash, thwarting Lilly’s aspiration. Leveraging their in-depth knowledge of Hybritech’s diagnostic technology, many of these former employees didn’t merely leave; they embarked on new entrepreneurial journeys, launching their own startups within the region. Names like Amylin, IDEC, and Nanogen may sound familiar; once part of Hybritech, they evolved into direct competitors to Lilly, contributing to the rise of the San Diego biotech cluster.

The Hybritech saga underscores a crucial lesson: While startup acquisitions intend to harness innovation, talent, and market influence, they can unintentionally spur employee departures and fuel a competitive landscape. Importantly, Hybritech’s story is just one instance in a broader trend. With this intriguing backdrop, I set out to address a fundamental question: How do startup acquisitions impact employee careers?

In my recent research, I analyzed U.S. Census Bureau data from 1990 to 2011, encompassing 1.6 million regular hires, 230,000 acquired workers, and 3,700 instances of startup acquisitions. I discovered significantly higher turnover rates among acquired workers compared to regular hires.

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Read full article here

When employees leave after an acquisition, it can be a substantial loss for the acquiring company.
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