Stephen Foley: Facebook's Hot Potato has start-ups drooling

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The Independent Online

US Outlook: Hot rumour of the week: Hot Potato to be acquired by Facebook. The social networking site everyone has heard of is about to buy the little New York start-up you almost certainly haven't. That at least is the industry gossip this week, but I hope it's not true.

Hot Potato is a much-hyped little app for smartphones, which allows users to share information about where they are and what they are doing. Except it doesn't really have any users. Facebook is apparently planning to shut it down, making the deal something that people in start-up world are calling a "talent acquisition", or an "acq-hire".

What Facebook would be paying the rumoured $10m for is founder Justin Shaffer and the Hot Potato team. Outside of the tech enclave these "golden hellos" are frowned upon by investors, and they ought to be by Facebook's backers. Meanwhile, Hot Potato's venture capital investors have somehow contrived to make a return on an investment that failed to create any economic value.

This is not to say Mr Shaffer is not talented. Hot Potato has been rightly praised for its development prowess.

But when did Facebook shift from being a company that talented developers queued up to join, to being one that felt the need to lavish millions to lure a chosen few? Across the start-up landscape, entrepreneurs and VCs will be licking their lips, as Facebook appears to move into the Microsoft/Yahoo role of being a buyer of last resort for their loss-making companies. As I said, I hope it's not true.

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