
Brightcove Acquires Zencoder (YC W10) - fowlduck
http://blog.zencoder.com/2012/07/26/brightcove-acquires-zencoder/
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ChuckMcM
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.

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DigitalJack
Maybe I misunderstand the term in this context, but this doesn't seem like an
exit.

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ChuckMcM
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 :-)

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beagle3
> 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.

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vtry
This is why you excise your options early.

~~~
beagle3
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.

~~~
aptwebapps
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.

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beagle3
> 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.

~~~
vtry
Have "other" people hedge it for you. This is how the big boys do it on Wall
Street.

~~~
beagle3
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!)

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stevencorona
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!

~~~
jon_dahl
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.

~~~
vgurgov
Congrats Jon! Zencoder is killing it! Plz keep the service up! Both videolla
and Virool are proud customers!

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benatkin
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.

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bcrescimanno
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!

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3am
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.

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juddlyon
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.

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answerly
Awesome! Congratulations John, Brandon & Heff!

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lionheart
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.

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mattlong
Big ups to the team! I've always had much respect for ZenCoder in terms of
people, technology, and company.

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datsro
Congrats to Jon, Brandon and Steve! Lots of hard work and dedication making a
great team and product.

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jjcall
This is awesome, they were a hackathon project. Congrats guys!
<http://blog.railsrumble.com/blog/2010/11/01/zencoder-winner>

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mattbauer
A big congrats to the Zencoder team. Well, well done.

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seivan
Congratulations! Smart engineers doing very well!

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mhartl
This looks like a win for everyone involved.

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jeffpersonified
Congrats Jon and Co. A phenomenal team, with a phenomenal product, and
humility and focus to boot.

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rdamico
Congrats to Jon and the Zencoder team! This is really exciting.

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csmajorfive
Congrats guys. This is a great outcome for a solid company.

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philcrissman
Congrats, guys!

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emrosenf
Congrats Jon!

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staunch
Congrats!

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poroporo
congrats jon and team for big W!

