For the acquired company you have traded in illiquid stock you have a lot of control over for illiquid stock you don't have control of. Only worth doing if you really, really believe in the acquiring company or can cash out a significant percentage of the stock.
Or, illiquid stock in a company with no market traction and cash flows for illiquid stock in a company with large traction and cash flows. It's a trade of control for reduced risk.
A supplementary article that the returns of acquisitions through portfolio companies (known as bolt on acquisitions) can create better value than investments in new firms (from the perspective of an investor) - http://seekingalpha.com/article/175698-the-economics-of-bolt...
From the link in the OP: "Despite speculation that Apple's acquisition of PA Semiconductor was motivated by the chip maker's specific products, a new report reveals that the iPhone designer is interested more in the buyout for its promises of intellectual property and development expertise -- and may be causing a crisis for the US Department of Defense in the process." (my emphasis).
While Apple isn't a startup, PA Semi was a startup. More importantly, and exactly on topic, Apple acquired PA Semi for the people, not for their technology. PA Semi was making a PowerPC architecture CPU that was low power and fast. When Apple bought the company they stopped development on their PowerPC architecture CPUs, dead-pooling their CPU technology (the physical representation of their IP). Apple actually tried to stop building the CPUs, but the government (military is a heavy user of the PowerPC architecture) stepped in and "persuaded" them to continue to manufacture their CPUs.
What Apple bought was a team consisting of some of the brightest minds in the low power, fast, CPU (and more?) hardware design field. I assume that Apple has them working on new, fast, low power (probably ARM-based) CPUs for their iPhone/iPod (and laptop?) product line.
Fred's post isn't about big companies doing talent acquisitions. It's about both why a successful startup would want to do this, and how to structure a deal correctly so both startups are pleased with the deal.
I'm not disputing anything in your link, I just don't think it's very relevant to the discussion of Fred's post.
