When you can’t acquire, Ac-Hire?

It’s common practice for a large company to identify a smaller company that they would like to own, and say, “Hey, I would like to pay you millions (billions?) of dollars for technology.”

To which the smaller company might reply, “Cool, we’ll take the millions (billions?) of dollars.”

However, the current regulatory environment has made that process a bit trickier for the largest of companies and especially in the tech sector. Led by FTC Chair Lina Khan, antitrust regulators in the US and Europe have been cracking down on big tech acquisitions (See: DoJ sues Visa, FTC sues Meta, FTC sues Amazon, FTC sues Microsoft, FTC sues Nvidia), creating expensive, drawn out legal battles that could culminate with a failed merger and a billion-dollar breakup fee (See: Adobe & Figma).

Furthermore, the FTC recently launched an inquiry into generative AI investments and partnerships between Microsoft and OpenAI, Amazon and Anthropic, and Google and Anthropic.

So what do you do, if you are, say, Microsoft, and you want to acquire an AI startup — such as Inflection — without regulators thinking that you are acquiring an AI startup? Perhaps you could just hire all of that startups’ employees?

From Satya Nadella (emphasis ours):

I’m very excited to announce that Mustafa Suleyman and Karén Simonyan are joining Microsoft to form a new organization called Microsoft AI, focused on advancing Copilot and our other consumer AI products and research.

Mustafa will be EVP and CEO, Microsoft AI, and joins the senior leadership team (SLT), reporting to me. Karén is joining this group as Chief Scientist, reporting to Mustafa.

Several members of the Inflection team have chosen to join Mustafa and Karén at Microsoft. They include some of the most accomplished AI engineers, researchers, and builders in the world. They have designed, led, launched, and co-authored many of the most important contributions in advancing AI over the last five years.

Is this legal? I guess? For context, last fall, Microsoft attempted a similar move by briefly hiring Sam Altman after his 72 hour firing-rehiring at OpenAI.

But what if you had invested, like, $225 million in one of Inflection’s funding rounds, just to watch half of their employees get poached by Nadella a year later? You have to be thinking “lawsuit,” right? Unless Microsoft paid you $337.5 million for your troubles.

From The Information (emphasis ours):

The software giant has agreed to pay Inflection approximately $650 million, mostly in the form of a licensing deal that makes Inflection’s models available for sale on the software giant’s Azure cloud service, according to a person involved in the transaction. The startup is using the licensing fee to provide its investors with a modest return on their capital, according to a second person who was briefed on the arrangement…

Investors in the company’s first major round of funding ... will receive one and a half times their investment, according to the person involved in the deal. Investors in a subsequent $1.3 billion funding round last year will receive 1.1 times their investment, the person said.

One reason Microsoft opted to pay for the rights to Inflection’s models was to protect itself from potential lawsuits from Inflection investors if ex-Inflection staff do similar AI development work at Microsoft, even if it doesn’t end up using the software, according to a Microsoft source briefed on the situation.

Typically, when you acquire a company, that smaller company’s employees join your company, you gain access to the smaller company’s technology, and investors who had stakes in the smaller company experience a liquidity event.

So, if the smaller company’s employees join your company, you gain access to the smaller company’s technology, and investors who had stakes in the smaller company experience a liquidity event, but it’s not called an “acquisition,” is it an acquisition?