Are Venture Capitalists Sabotaging Founders During Acqui-Hires?

The venture capitalist is often seen as a necessary ally—a provider of capital, advice, and connections that help early-stage companies grow.

But as Parker Conrad, founder of Rippling, recently pointed out on Twitter, there's a dark side to this relationship, especially when things don’t go as planned. In a striking tweet, Conrad revealed that some VC firms “shiv” founders during acqui-hire deals, leaving them with virtually nothing while the investors walk away with the spoils.

But is this really happening? And if so, how do these last-minute betrayals unfold?

What’s an Acqui-Hire, Anyway?

An acqui-hire is a deal where a larger company buys a smaller startup primarily for its talent.

For the acquiring company, this is a quick way to get skilled employees without building a team from scratch. For the startup’s investors, it’s a chance to cash out on a business that may not have reached unicorn status. But for founders, this kind of deal can be a mixed bag, especially if it wasn't part of the original dream.

Ideally, the acqui-hire provides a soft landing—a chance for founders and their team to continue their work, but within a bigger, more established organisation. The reality, as Conrad hints, is often much harsher.

The VC Backstab: How Does It Happen?

The phrase "shiv the founders" paints a vivid picture of what can go wrong in these deals.

Founders may enter negotiations thinking they’re about to secure a respectable outcome for themselves and their team, only to find that the VCs—supposedly their partners—have struck side deals or restructured terms to maximise their own payout.

VCs often have liquidation preferences, giving them the first claim on the proceeds of a sale.

In a successful exit, this might not be a problem. But in an acqui-hire, where the payout is relatively small, these preferences can consume the entire pot, leaving founders and employees with nothing. It’s the business equivalent of getting stabbed in the back after running a marathon.

Conrad suggests this practice is not uncommon and involves the usual suspects—certain VC firms that prioritise their bottom line over the founders they once championed. And because acqui-hires often fly under the radar compared to high-profile IPOs or acquisitions, these cutthroat moves rarely make headlines.

Who’s to Blame?

The blame, in part, lies with the structure of VC-backed deals.

The startup ecosystem incentivises investors to protect their interests at all costs. VCs are accountable to their limited partners, who expect returns regardless of whether a startup fails or succeeds. But that doesn’t justify unethical behavior. At the heart of the matter is a power imbalance—founders are often first-timers navigating the complexities of deal-making, while VCs are seasoned pros who know how to negotiate for their slice of the pie.

So, is it any wonder that some founders find themselves on the losing end?

The industry’s secrecy compounds the problem. Most founders don’t know what’s happening until it’s too late. And because acqui-hires are low-stakes in the grand scheme of tech news, the stories of founders getting screwed over often stay untold.

Conrad’s tweet is a rare public call-out of this practice. It’s the kind of transparency that’s long overdue in the venture capital world. Founders deserve to know what they’re up against. This includes understanding what liquidation preferences mean and negotiating better terms that protect them in an acqui-hire scenario.

But transparency alone won’t solve the issue. Founders need to do their homework, get the right legal counsel, and demand better deals from their investors. If more people like Conrad start speaking up, perhaps the industry will start rethinking how it handles these situations.

The Firms You’d Expect

While Conrad didn’t name names, his tweet leaves us wondering which firms are the culprits.

In a way, the comment that it’s "always exactly the firms you'd expect" hints at the reputations already surrounding certain VCs. It’s a warning that founders should be wary of investors who have a history of cutting corners or undervaluing the human side of the business.

So, what’s the solution?

Regulation isn’t likely to step in anytime soon, given how the startup world thrives on limited oversight. But founders can arm themselves with knowledge, and VCs who care about their reputations should be more proactive in treating founders fairly during acqui-hires. The power dynamic may be skewed, but it doesn't have to lead to unethical outcomes.

The question that remains is: will enough voices like Conrad’s emerge to create a ripple effect? Until founders demand more transparency and fairness in these deals, this “shiv” may continue happening behind closed doors.