Facebook is reportedly in “late stage negotiations” to acquire New York-based startup Hot Potato, which launched with promise late last year but hasn’t attracted a big following.If true, this is a smart little “acq-hire” deal for Facebook, likely leading to more success than if Facebook were to have acquired Foursquare when the companies talked earlier this year.
First, because a talent acquisition like this works best when the person’s startup and product can be quickly wound down or worked into the buyer’s broader vision.
Hot Potato isn’t popular enough to keep around as a standalone product/brand, and Facebook can set its talented founder Justin Shaffer — who previously worked at MLB Advanced Media before founding Hot Potato — loose on whatever projects it has in mind for him.
Shaffer has great product sense, has his head around social networking in the right way — the Facebook way, you might say — and his team has built a very slick product that just hasn’t found its audience. Now it won’t need to.
The acquisition could be sort of how the Friendfeed guys have taken on bigger, broader roles since being acq-hired by Facebook last year — a deal that seems to have worked out well for both sides. (The catch: the Hot Potato guys might have to move to Silicon Valley, though we’ve also heard that Facebook could be interested in opening a New York engineering office, and the company currently has one engineering job open in NYC.)
Meanwhile, Foursquare — the service and the company — was already too promising and valuable early this year for Facebook to simply shut down. Facebook would have had to make the tricky move of trying to grow the Foursquare and Facebook brands and products in tandem, while keeping Foursquare’s team committed to two sets of goals. It would have been awkward and potentially messy.
Second, Foursquare would have been much more expensive — the company’s latest round of financing values it at $95 million, and founders Dennis Crowley and Naveen Selvadurai would likely have wanted even more from a potential acquirer.
But Hot Potato will likely go for a fraction of that: The company has only raised $1.4 million, from investors including First Round Capital and RRE Ventures — which, full disclosure, just led our most recent round of financing. A cash and stock deal around $10 million wouldn’t surprise us, and AllThingsD’s Peter Kafka reports that the deal will be around $10-15 million.
In general, it looks like a much better deal for Mark Zuckerberg than buying Foursquare would have been.
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