What happens to the AI exit market if the FTC cracks down on ‘acquihires’?
Some high-profile acquisitions take out a rising competitor, such as Facebook’s acquisition of FriendFeed in 2009, some immediately expand a business’s suite of offerings, such as Salesforce’s 2020 purchase of Slack, and some may morph into an unrecognizable asset, like Amazon’s 1999 purchase of Alexa Internet, then a web traffic-tracking website. (The first Amazon Echo marking Alexa’s debut would launch in 2014.)
But many lower-profile tech company acquisitions are made at least in part to gain access to specialized engineering talent. So-called “acquihires” haven’t traditionally raised many eyebrows. But the term’s definition has been expanding as the AI arms race has accelerated a new form of tacit takeover, the “reverse-acquihire.” In this move, which isn’t technically an acquisition, a company either takes a minority interest in a company or makes no financial investment in it at all. However, it hires one or more founders or key members of the executive team.
This can leave the “reverse-acquihired” company rudderless or can cut off less senior staff from employment opportunities or liquidity. It can also allow the company conducting the reverse-acquihire to avoid the kind of process and oversight that comes with an acquisition.
The Federal Trade Commission has said that it’s starting to scrutinize both reverse and traditional acquihires more closely given their potential for abuse. “The canonical answer is that one avoids regulatory scrutiny, right?” says Kyle Jensen, professor in the practice of entrepreneurship at Yale School of Management. “Particularly antitrust scrutiny.”
A formal acquisition can trigger merger reviews and give regulators a clear set of documents, valuations, and control rights to interrogate to decide whether or not healthy competition has been diminished. Reverse-acquihires don’t do any of that. So the FTC is now starting to ask whether hiring the team is basically the same as buying out a company (which would retro-correct the term’s definition drift), but avoiding regulatory scrutiny.
“My understanding is that [the FTC] really wants to make it more of a level position between standard acquisitions and the so-called [reverse-]acquihires,” says Igor Letina, associate professor at the University of Bern, Switzerland, speaking in an academic capacity. (Letina is also a vice president of the Swiss Competition Commission.) “What they’re signaling is that they will examine both types of deals in the same way according to the same standard, and make sure that they are compliant with antitrust laws.”
Letina is wary of any attempts to call it a crackdown by the FTC. But what the Commission decides could have huge ramifications for the industry. Reverse-acquihires are expedient exits for the executive team. If the fastest exits become harder, what happens to hiring, to equity promises—and the idea that a “soft landing” is always an option when setting up a company?
Mergers and acquisitions have long been key to the world of business, argues S. Somasegar, managing director at Madrona Venture Group, a Seattle-based venture capital firm. It’s how companies can acquire talent, customers, and technology. But particularly with the urgent imperative to tap leading AI talent, big firms’ strategic framework has shifted in recent years from “build, buy, or partner” to “build, buy, and partner”—an ideal scenario for reverse-acquihires. “It’s somewhat of a new construct,” he says.
Indeed, that construct is now becoming familiar: A big tech firm hires a founder and a chunk of the team while signing a licensing deal or service agreement with what’s left of the startup. Google brought on board Character.AI cofounders Noam Shazeer and Daniel De Freitas in August 2024 and then licensed its tech, all while avoiding an investment. Meta acquired 49% of Scale AI in June 2025 for $14.8 billion and made cofounder Alexandr Wang Meta’s Chief AI Officer. Given how closely the impact matches that of an acquisition, Letina’s view is that competition authorities should treat it that way. “We really shouldn’t focus on the form,” he says. “We should focus on the economic essence. Is it an acquisition of assets or not?”
Not everyone thinks reverse-acquihires are inherently suspect. For Jensen, there are plenty of legitimate reasons a buyer might prefer people over the corporate entity. “There is a company that has really talented people,” he says. “Things haven’t really worked out. Maybe the company has a bunch of debts and weird assets and things like that. You don’t even want those.” The danger, he suggests, is when a deal stops being “just a hire” and starts operating as a “shadow acquisition”.
The problem is what to do about it. If such deals are made so risky in regulation that big firms stop doing them, entrepreneurs’ decision-making could start to shift. Every founder wants their company to succeed, but a good backup plan is to exit by selling the top team. If that’s closed off, it could impact the rate of new startups being founded. The individuals in the startups also potentially lose their free will to work for a potential acquirer, argues Jensen. “Am I forbidden from working for Google?” he asks. “That’s a weird outcome, right? I ought to be able to work for whomever I wish to work for.”
Even if a clampdown is politically popular, it’s not obvious it would protect the people startups employ. Letina points out that the recent move to cherry pick staff and leave the remainder of the team can be especially ugly for what it leaves afterwards. “All those people who were left behind got, in essence, a rather bad deal,” he says. The recent trend of management leaving rank-and-file staff left holding the bag after they leave may also harm the ability for startups to hire staff. A stricter regime from the FTC could push big firms back towards full acquisitions that scoop up or provide liquidity for more staff.
But Somasegar worries any regulatory change could impact on the speed of innovation. “Things are moving fast,” he says. “Industries are changing fast. You can’t put arbitrary speed breakers along the way,” he says. “I don’t want to be in a situation where a company wants to buy another company and it takes two years before you know whether the acquisition can happen or not.”