Big Tech's Reverse Acquihires: Gaining Talent, Stripping Startups Bare

At least six AI startups have undergone reverse acquihires, a deal where Big Tech companies pay to hire top talent and license technology without acquiring the company. Character.AI, Scale AI, and others have experienced key leadership exits and limited opportunities. The deals can create misaligned incentives and make it harder for startups to hire. However, they provide a way for Big Tech to gain an advantage in the AI talent wars without government approval.

In recent years, the AI sector has witnessed a surge in a novel form of transaction known as reverse acquihires. This deal structure, where Big Tech companies pay to hire top talent and license technology from startups without acquiring the companies themselves, has become increasingly popular. At least six AI startups, including Character.AI, Scale AI, and Inflection AI, have undergone this process, leading to significant changes in their leadership and business models.

Character.AI is one such example. In August 2024, the company announced that its founders, Noam Shazeer and Daniel De Freitas, had exited for Google as part of a $2.7 billion licensing deal. The remaining team, under the leadership of interim CEO Dominic Perella, had to adapt to the new reality, focusing on developing AI characters instead of training large language models (LLMs). The company has been providing monthly cash payouts to employees equivalent to their unvested equity to soothe frustration, using funds from the Google deal [1].

Scale AI, another notable example, was reverse-acquihired by Meta Platforms Inc. in June 2024. The deal involved a $14.3 billion investment, with the company's CEO, Alexandr Wang, joining Meta. Since the deal, Scale has shifted its focus to expanding its business in custom enterprise and government AI applications under interim CEO Jason Droege [1].

These deals have not been without criticism. Venture capitalist Jon Sakoda argues that they undermine Silicon Valley's social contract, where founders and employees work towards a shared goal and split the upside. Moreover, the deals can create misaligned incentives and make it harder for startups to hire, as employees may become wary of being "gutted out" by Big Tech companies [1].

The reverse-acquihire trend started in earnest in March 2024 when Microsoft hired away the founders of Inflection AI, along with most of its staff, as part of a $620 million licensing deal. Inflection, seen as a promising early AI entrant, raised $1.3 billion at a $4 billion valuation just months earlier. The deal allowed the company to focus on enterprise clients, with the consumer-focused "Pi" chatbot being shut down and pivoted to serve businesses [1].

Vast Data, an AI infrastructure startup, is also in the spotlight. Alphabet's CapitalG and NVIDIA are reportedly in advanced talks to invest in Vast Data, valued at up to $30 billion. Vast Data specializes in storage technologies for large-scale AI data centers, serving clients such as Elon Musk's xAI and CoreWeave. The investment round is expected to conclude in a matter of weeks [2].

The rise of reverse acquihires provides Big Tech companies with a way to gain an advantage in the AI talent wars without the need for government approval. However, these deals also raise concerns about the impact on startups, their employees, and the broader tech ecosystem.

References:
[1] https://www.bloomberg.com/news/articles/2025-08-04/what-happens-to-ai-startups-after-big-tech-lures-away-their-founders
[2] https://www.ainvest.com/news/alphabet-nvidia-mull-investment-ai-infrastructure-startup-vast-data-2508/