Brightcove Acquires Zencoder (YC W10)(blog.zencoder.com)
blog.zencoder.com
Brightcove Acquires Zencoder (YC W10)
http://blog.zencoder.com/2012/07/26/brightcove-acquires-zencoder/
20 comments
congrats jon and team for big W!
Congrats, guys!
Congrats johndahl and the rest of the team! It seems Zencoder was conservative in how much money it took, and was doing well at the time of the acquisition, so I'm guessing that it was a success for investors.
Nice, the kind of acquisition we like to see where the result is a continuation of the product but with even more capital behind it.
Also another successful exit to add to the YC record so grats to YC as well for helping another entrepreneur achieve their goals.
Also another successful exit to add to the YC record so grats to YC as well for helping another entrepreneur achieve their goals.
Maybe I misunderstand the term in this context, but this doesn't seem like an exit.
Zencoder is acquired by BrightCove, a publicly traded company (NASDAQ:BCOV), no doubt for stock and cash. (I've not seen specific terms of the deal). Given they are publicly traded their stock can be converted into cash.
When my startup was acquired by a publicly traded company it was great for the employees because their vested stock turned into publicly tradeable shares overnight. Sort of like an IPO if you squint :-)
When my startup was acquired by a publicly traded company it was great for the employees because their vested stock turned into publicly tradeable shares overnight. Sort of like an IPO if you squint :-)
> When my startup was acquired by a publicly traded company it was great for the employees because their vested stock turned into publicly tradeable shares overnight. Sort of like an IPO if you squint :-)
It is sort of an IPO if you squint. With all the potential downside:
I was an investor in a startup that was acquired by a publicly traded company. The deal was cash+stock, for a ~3X return on investment after a year. Not bad.
Except for SEC rule 144, which meant the stock was locked up for 6 months, during which the acquiring company dropped 50% (for reasons unrelated to this acquisition).
Had the deal been all stock, that would mean 1.5X return the day I could realize .... except that I've already paid 48% taxes (35% federal + 13% nyc) on the 3X number. So it wouldn't have been a 3X return -- it would have been COMPLETE LOSS OF CAPITAL on a successful investment - or 100% loss.
Luckily for me, the stars, dates and cash/stock percentages aligned in such a way that it ended up being a modest 20% return after taxes. But a deal such as this could end up a significant net loss. (and so can an IPO).
Luckily for the other employees and most other investors, the acquired company was located in a country that has a reasonable tax regime - in which you only ever pay taxes on realized gains, and only on the day you actually get any cash into your hands. Unfortunately for me (and a couple of other investors), I have to deal with the US tax regime.
It is sort of an IPO if you squint. With all the potential downside:
I was an investor in a startup that was acquired by a publicly traded company. The deal was cash+stock, for a ~3X return on investment after a year. Not bad.
Except for SEC rule 144, which meant the stock was locked up for 6 months, during which the acquiring company dropped 50% (for reasons unrelated to this acquisition).
Had the deal been all stock, that would mean 1.5X return the day I could realize .... except that I've already paid 48% taxes (35% federal + 13% nyc) on the 3X number. So it wouldn't have been a 3X return -- it would have been COMPLETE LOSS OF CAPITAL on a successful investment - or 100% loss.
Luckily for me, the stars, dates and cash/stock percentages aligned in such a way that it ended up being a modest 20% return after taxes. But a deal such as this could end up a significant net loss. (and so can an IPO).
Luckily for the other employees and most other investors, the acquired company was located in a country that has a reasonable tax regime - in which you only ever pay taxes on realized gains, and only on the day you actually get any cash into your hands. Unfortunately for me (and a couple of other investors), I have to deal with the US tax regime.
This is why you excise your options early.
Except .. there were no options involved. And even if there were, exercising earlier or later makes no difference.
Since shares of the acquired company were exchanged for shares of the acquiring company, the IRS considers this a tax event. Regardless of whether you have already exercised or not, as far as taxes are concerned, it is equivalent to the case in which you sold the acquired company's shares, and bought the acquiring companies shares. It also resets the clock on the "long term capital gain" counter. And being a small investor who wasn't driving the deal, there was nothing I could do about it.
(If I were in the driver seat, there is a way out: if the deal falls under the definition of ">80% stock forward triangular merger" or ">50% reverse triangular merger", then there is no tax event. But it rarely ever does - google the requirements)
Your largest expense is taxes.
I like it how all the armchair dealmakers on HN know how to navigate the tax system. Except those who actually tried, that is.
Since shares of the acquired company were exchanged for shares of the acquiring company, the IRS considers this a tax event. Regardless of whether you have already exercised or not, as far as taxes are concerned, it is equivalent to the case in which you sold the acquired company's shares, and bought the acquiring companies shares. It also resets the clock on the "long term capital gain" counter. And being a small investor who wasn't driving the deal, there was nothing I could do about it.
(If I were in the driver seat, there is a way out: if the deal falls under the definition of ">80% stock forward triangular merger" or ">50% reverse triangular merger", then there is no tax event. But it rarely ever does - google the requirements)
Your largest expense is taxes.
I like it how all the armchair dealmakers on HN know how to navigate the tax system. Except those who actually tried, that is.
I'm sure what you say is true, but it's seems a bit rough for it to be a tax event if you are locked out of liquidating for six months. I guess you could have hedged or something.
> it's seems a bit rough for it to be a tax event if you are locked out of liquidating for six months.
Life is not fair. And the tax code is totally ridiculous.
> I guess you could have hedged or something.
A prior version of rule 144 explicitly stated that any kind of hedging is unlawful. The current revision is unclear on that. My counsel advised me against doing anything, as (in the extremely unlikely case of an SEC inquiry) my representation would cost several times the profits I would have insured. (And .. I had no reason to expect a 50% drop, practically overnight, a couple of months after the deal went through).
There's apparently complex ways to legally avoid the tax event until your profits are realized, which are worthwhile if you're a big VC or something and manage tens of millions of dollars. But they would probably trigger an audit and the IRS deciding you are cheating if you do that as an individual.
Romney can afford these things. I can't. The tax code is completely borked.
Life is not fair. And the tax code is totally ridiculous.
> I guess you could have hedged or something.
A prior version of rule 144 explicitly stated that any kind of hedging is unlawful. The current revision is unclear on that. My counsel advised me against doing anything, as (in the extremely unlikely case of an SEC inquiry) my representation would cost several times the profits I would have insured. (And .. I had no reason to expect a 50% drop, practically overnight, a couple of months after the deal went through).
There's apparently complex ways to legally avoid the tax event until your profits are realized, which are worthwhile if you're a big VC or something and manage tens of millions of dollars. But they would probably trigger an audit and the IRS deciding you are cheating if you do that as an individual.
Romney can afford these things. I can't. The tax code is completely borked.
Have "other" people hedge it for you. This is how the big boys do it on Wall Street.
Well, if you're willing to run afoul of SEC regulations, you can do much more lucrative things, like manipulate the LIBOR, provide inside information to select customers and use it yourself :)
(And what do you know - the big boys on Wall Street actually do those lucrative but not really legal things!)
(And what do you know - the big boys on Wall Street actually do those lucrative but not really legal things!)
Heh, I'm sure no pun was intended but I did chuckle, since to 'excise' is to remove whereas 'exercise' would be to take possession of. As someone who struggles daily with this type of typo I feel that pain. The humor comes from the fact that the sentence works both ways.
M&A is the most common exit (other than failure). Even if a company like woot continues basically unaltered after amazon buys them, it is an exit from the perspective of venture investors.
I see. That makes sense, thanks.
Awesome! Congratulations John, Brandon & Heff!
This looks like a win for everyone involved.
I love this for both the Zencoder team and my former colleagues at Brightcove; glad to see that positive acquisitions can still happen--and not at all surprised that Brightcove is behind one of them!
Brightcove is a great team, and Jeremy Allaire is a great executive. I don't know as much about Zencoder, but they found a really good place to land.
It seems to have gotten lost in the other chatter, but BCOV nicely beat their estimates and guided FY2012 revenue up, too.
It seems to have gotten lost in the other chatter, but BCOV nicely beat their estimates and guided FY2012 revenue up, too.
Congrats!
I am happy that they are keeping Zencoder as it is. My business, and those of many others I'm sure, depends on Zencoder.
I am happy that they are keeping Zencoder as it is. My business, and those of many others I'm sure, depends on Zencoder.
Congrats!
I built a CMS integration with Zencoder recently and was blown away with their API request builder and speed of file conversion. Great service.
I built a CMS integration with Zencoder recently and was blown away with their API request builder and speed of file conversion. Great service.
Big ups to the team! I've always had much respect for ZenCoder in terms of people, technology, and company.
Congrats!
Congrats to Jon and the Zencoder team! This is really exciting.
Congrats guys. This is a great outcome for a solid company.
Congrats Jon and Co. A phenomenal team, with a phenomenal product, and humility and focus to boot.
This is awesome, they were a hackathon project. Congrats guys! http://blog.railsrumble.com/blog/2010/11/01/zencoder-winner
I love ZenCoder. The product is awesome and their company culture/fast dev cycle/docs/api is one we should all try to mimic (i.e, the CEO gets onto sales calls and answers tech questions. WHAT!?).
I know that they are promising not to pull a Sparrow, but with all of the aqui-hires lately- I'm scared. Please don't make me go back to a homebrew ffmpeg setup- there aren't many good competitors in this space!
Hi Steve - we have express plans to _not_ shut down or make you go back to a homebrew setup. This isn't an aqui-hire; Brightcove is getting into the encoding API market. Hope to work with you for many years to come.
Congrats Jon! Zencoder is killing it! Plz keep the service up! Both videolla and Virool are proud customers!
Congrats Jon! What wonderful news. We still need to grab dim sum with our families!
Keeping ZenCoder running is right in line with BrightCove's core business. I can't foresee them shutting it down.
Congrats Jon!
Congrats to Jon, Brandon and Steve! Lots of hard work and dedication making a great team and product.
Congratulations! Smart engineers doing very well!
A big congrats to the Zencoder team. Well, well done.