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Three of NYC's big consumer-facing startups are expected to go public soon: Blue Apron just filed to do so. Spotify, which has its U.S. headquarters in New York, has told its investors it plans to do so, possibly via a unique direct listing. And WeWork has long been a rumored IPO candidate whose executives have not been coy about their plans to go public.
But before WeWork, Spotify and Blue Apron go public, they may go on buying sprees. This year each company hired an experienced dealmaker to help it snap up tech and tech talent.
• Last month WeWork hired Emily Keeton, former co-head of M&A at IAC, as its head of M&A. In March WeWork bought a visitor registration startup called Welkio.
• In May Spotify hired Sheila Spence, SVP of corporate development at WPP, as its VP of corporate development. In the last three months the company has snapped up four startups: MightyTV, Mediachain, Sonalytic, and Niland. Expect more to come.
• In January, Blue Apron hired Sid Banthiya, a director at Credit Suisse, to be its head of corporate development. In March the company bought BN Ranch.
Here's why this is meaningful to venture investors, especially the ones that have backed New York-based companies: On the surface, a talent sale to another startup isn't much to brag about. But a mediocre deal can turn into a winner if the acquiring company goes public soon after at a premium.
I wrote about this after Twitter's IPO in 2013. Twitter had purchased 29 companies by the time it went public, using stock to buy most of them. As such, investors in those companies became Twitter stockholders and watched their stock double in a matter of months. An example I gave at the time:
Bluefin Labs sold to Twitter for $80 million in February 2013. Twitter's paper valuation was just under $10 billion for secondary sales; its last institutional round had placed its valuation at $9.25 billion. Eight months later, Twitter's valuation more than doubled in the public markets, topping $20 billion. Bluefin investors Softbank Capital, Time Warner Investments, Acadia Woods Partners, Redpoint Ventures, Jim Pallotta, Brian Bedol, Dan Gilbert, Lerer Ventures and Kepha Partners, as well as the company's founders, all did pretty well in the deal.
For investors, selling a portfolio company to a successful pre-IPO startup is almost as good as investing directly in the pre-IPO startup to begin with. For startups, it may mean choosing the private "soft landing" option over a publicly traded acquirer, which is presumably already fairly valued by public market investors or more likely to use cash.
Put another way, for any startups in need of selling, I suggest getting to know Emily, Sheila and Sid.