A good chunk of startups funded by top-tier VCs get "acqui-hired" rather than closed if it's clear they won't succeed.
How do VCs get these "acqui-hires" done and avoid a complete loss? Is having contacts at companies like Google the only way? i.e. someone without such contacts can't replicate their approach.
I am going to just post a quote from an article by Steve Blank on acquisitions of startups that I believe answers the question of "how".
Five Types of Innovation to Buy. If they decide to buy, large companies can:
- license/acquire intellectual property
- acquire startups for their teams (and discard the product)
- buy out another company’s product line for the product
- acquire a company for the product and its installed base of users
Corporate business development and strategic partner executives are flocking to Silicon Valley to find these five types of innovation. In response, venture capital firms are hiring new partners just to work with their portfolio companies and match them to corporations. They are actively organizing annual and quarterly activities to bring the portfolio and Fortune 500 decision makers together– in both large events and one-on-one visits. The goal is to get a corporate investment or an outright acquisition of the startup.
- buy out an entire company for its revenue and profits.
Source: Corporate Acquisitions of Startups: Why Do They Fail? by Steve Blank
Here is top answer by Andrew Chen on Quora for a similar question.
TLDR: Large companies ARE seeking innovative startups to acquire and VCs invest in resources to help match companies in their portfolios to potential corporate buyers. Innovative of course doesn't always equal profitable and the value could be the team itself.
EDIT: Added a link to a similar question on Quora.