If you’re a venture capitalist, you dream of backing the next billion-dollar startup to one day feast on the returns of a sale. The buyer? A gargantuan tech company, of course. But these days, Big Tech isn’t buying so much as “acquihiring” the most promising artificial intelligence firms, specialized deals that scoop up the industry’s hottest talent while avoiding antitrust scrutiny, often by leaving behind business operations, a.k.a. the husk of a company.
The phenomenon has been great for tech giants who can remove potential rivals more cheaply, but it’s left venture capital investors in a rut with fewer returns than they would have expected from a traditional sale or even an initial public offering. How they react could set the whole industry on a different path and if we’re lucky, a better one.
One reaction to the trend has been to grumble. “I dislike this phenomenon,” says Ali Ojjeh, chairman of Northgate Capital, a venture capital firm with $5 billion of committed capital. Ojjeh was an early personal investor in Inflection AI, whose 70-strong team was acquihired by Microsoft Corp. last year. Inflection promised its investors would be made whole, and they were, but with modest returns. Much the same happened with Scale AI, when Meta Platforms Inc. bought a 49% stake in the firm for $14.3 billion and hired its chief executive officer, Alexandr Wang, to head Mark Zuckerberg’s new Superintelligence Labs division.
Another recent example: Google paid $2.4 billion for the senior leadership team and licensing rights of Windsurf, an AI coding assistant.
Acquihires are nothing new. For well over a decade, large tech firms like Alphabet Inc.’s Google, Microsoft and Meta typically paid a few million dollars to hire talented engineers and product teams from small, early-stage startups, leaving their investors with modest or no returns. But the generative AI arms race supercharged that strategy, beginning with Microsoft’s Inflection deal in 2024, and it has deflated the blockbuster returns that venture investors count on to drive their portfolios.
The venture capital industry’s so-called power-law model means payoffs for investors usually come from just one or two runaway successes like Inflection or Scale AI. But if a hot startup like Scale gets a $14.3 billion investment instead of a $29 billion sale in a traditional acquisition, the difference means a fund returns just two times its investors’ money instead of four times. Acquihires are “hitting the outlier companies,” Ojjeh says. “It’s favoring founders over shareholders and employees.”
Board members of these startups are similarly boxed in, lacking alternatives and sometimes worried about burning bridges with tech giants for whom their most high-profile startups are the only realistic acquirers.
What if the acquihiring trend becomes a permanent fixture? The mergers and acquisitions teams at tech giants are no doubt exploring all manner of hybrid deals that could help this new playbook keep working over the coming years, especially as antitrust regulators show no sign of softening. More acquihires would further entrench their dominance and be bad for the industry. But what if in the long term it led to a healthier market?
Instead of pushing startups to get the highest possible valuation for a sale, VCs in an acquihiring market would prefer firms with a greater chance of running a long-term business and floating on the public markets. Strategic sales to Big Tech have always offered a premium over IPOs, but when such sales are less likely, going public becomes the more viable option. That could put venture investors on the hunt for startups with more sustainable businesses, not just those with a pitch deck promising hockey-stick growth and a total addressable market the size of Canada.
That would be better than today’s market dynamics. For all the money the power-law model has made for renowned firms like Sequoia Capital and Greylock Ventures, it has led to a cascade of negative outcomes for the public and wider market. VCs have pushed startups to move fast and break things, to blitzscale so they can dominate a market before competitors catch up. The costs have been high for both the market and public, from social media addiction to poorly treated workers and vanishing competition, as the book The World Eaters by Catherine Bracy vividly lays out.
Venture firms, in one way, have brought these latest frustrations on themselves by relying for so long on just a couple of big exits to drive their fund returns. That model has helped extend Big Tech’s financial dominance, such that nearly half of the S&P 500’s earnings growth in 2025 comes from a handful of tech giants.
But sometimes actions lead to unintended consequences. In her quest to strengthen antitrust oversight of Big Tech, former Federal Trade Commission Chair Lina Khan may have inadvertently led tech companies to avoid scrutiny with just another flavor of anticompetitive behavior. Yet, while their new acquihire trend may be an ugly one for the industry, it could also paradoxically spawn something better for everyone. Let’s hope that’s the case.
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