Neil here.

On July 6th, public rideshare behemoth Uber announced that it will acquire its rival food delivery startup, Postmates, in a $2.65 billion all-stock deal.

In an all-stock deal, shareholders of the acquired company (Postmates, in this case), receive shares of the acquiring company (Uber, in this case) as part of the deal terms.

Basically, Postmates’ shareholders chose to obtain equity in Uber rather than exit and take cash in exchange for their shares… a risky move.

All-stock deals can be great for investors if they increase the acquiring companies’ stock value. But there’s always a chance that a company’s stock value could drop – and that’s where the real risk lies.

Now, in the wake of COVID-19, Postmates has been doing exceptionally well, as more people rely on food delivery services. Its competitors, including DoorDash, Grubhub, and UberEats, have also seen huge upticks in demand lately.

Considering that, here’s my take: Uber acquired Postmates in a move to hold stronger footing on the public trading floor and gain a tighter hold on the food delivery services industry.

It could be a smart move. After all, it hasn’t always been a pretty picture for Uber in the past.

In its 2010 seed round, Uber raised $1.58 million at a pre-money valuation of $3.86 million.

Fast forward eight years to its late stage Series G round, and Uber raised $1.25 billion at a pre-money valuation of $68.33 billion, according to PitchBook.

Uber’s explosive growth prompted its leaders to file initial public offering paperwork in April 2019, in a move that was expected to launch a $100 billion IPO – the largest since Alibaba’s $169 billion public debut in 2014.

Only, it didn’t.

Uber’s May 10, 2019 IPO became one of the biggest flops in IPO history. The company sold 180 million shares at $45 each with over 1.6 billion shares outstanding, valuing Uber at $75.71 billion by the end of the day.

In other words, Uber’s late stage and IPO investors saw billions of dollars evaporate before their eyes.

However, this story paints a familiar – and positive – picture for angel investors, who bought in around that low $1.58 million valuation 10 years ago.

Even at the company’s IPO valuation, those investors still would have seen their stakes grow by around 48,000X.

Knowing that, I’m sure those later-stage investors were kicking themselves on IPO day.

Uber’s acquisition of Postmates could be an attempt to repair the damage done by their IPO bust and sweeten the deal for those who lost big bucks… which relays an important lesson for investors and companies alike.

When we’re talking about exits, remember that not every company is going to make an IPO… and that’s okay.

There are plenty of ways to exit a company, be it through an IPO, a merger, an acquisition, or simply just by selling your shares.

But IPOs aren’t for every company, and quite frankly, not every company should go public if there’s a foreseeable risk of getting torn to pieces on the trading floor.

That was certainly the case for Uber.

Time will tell how the company progresses now that they’ve acquired Postmates… and Uber’s newest shareholders better hope it progresses well.

But for Uber’s very first investors… well, they’ve struck gold regardless. Just another reason why you shouldn’t wait on angel investing.

I’ll be back soon with another update.

Until next time,

Neil Patel