Zendesk S-1 filing

http://sec.gov/Archives/edgar/data/1463172/000119312514137878/d665368ds1.htm

by mikeknoop • 12 years ago

82 39 12 years ago

sec.gov

Oculus• 12 years ago

I was expecting an acquisition of Zendesk by Salesforce more so then an IPO.

jw2013• 12 years ago

They want an IPO. Following is from techcrunch Sep. 2012:

Zendesk founder and CEO Mikkel Svane sat down with us to talk about the funding, explaining that the new round will be primarily used for international expansion and product innovation. The company is also preparing for an IPO in the future, but doesn’t yet have a timeline for the offering. “An IPO is the goal,” says Svane. And monthly recurring revenue has grown five-fold since 2010 for the company. While Zendesk’s bread and butter has been catering to small to medium sized businesses, of late, the company has been pulled into a number of large enterprise deals, Svane says.

jaytaylor• 12 years ago

SalesForce already acquired Desk.com and Service Cloud which are both direct competitors of ZenDesk.

pbreit4• 12 years ago

Yep, Salesforce bought its way into the mark with the Desk.com (FKA Assistly) acquisition at the ridiculously low price of around $50m. It looks like Zendesk is going to start trading north of $1b. Talk about inequality!

bevenky• 12 years ago

- Acquired Zopim in March 2014

Revenue - 2011: 15.6M, 2012: 38.2M, 2013: 72M

Losses - 2012: 24.4M, 2013: 22.6M

Seems like going IPO with losses is the new trend

wslh3• 12 years ago

Seems like going IPO with losses is the new trend

My concern is how a company can compete in this scenario without VCs? I am not talking about the technical side of competition but about deploying an army of salesmen.

At some point can this be seen as a new kind of dumping?

opendais• 12 years ago

Ya, intentionally running in the negative for years on end should be considered dumping. Maybe a rule if you IPO you can't be in the negative for the previous two years?

That might help.

jasondc• 12 years ago

An IPO is a fundraising event, companies usually go public to raise money (very few are profitable at IPO). If they are already profitable, what is the main benefit of going public, increased scrutiny, lawsuits, and quarterly expectations?

gamblor956• 12 years ago

Liquidity for shareholders. A private company's shares are in most instances essentially worthless or are substantially discounted because the "value" of the shares can't meaningfully be converted into cash (because there is either no market or a very limited market for those shares). A public company's shares are highly liquidable.

pbreit4• 12 years ago

Please find me a time when it was common to IPO with profits. Here's a hint: you won't find such a thing.

IPOs are fundraising events. High growth companies are almost by definition losing money. The idea is to raise money in order to fund expansion. Companies don't even attempt to be profitable during this phase.

wslh3• 12 years ago

Microsoft? Intel? Google? I think there are a lot of examples.

ihiram• 12 years ago

For context, the following are anecdata from other S-1s that show profit (even if for just 1 quarter):

Google: http://www.sec.gov/Archives/edgar/data/1288776/0001193125040...

LinkedIn: http://www.sec.gov/Archives/edgar/data/1271024/0001193125110...

Salesforce: http://www.sec.gov/Archives/edgar/data/1108524/0001193125030...

While browsing IPOs from at least 2 years ago, eToys and Yelp had S-1s with negative incomes:

eToys: http://www.nasdaq.com/markets/ipos/filing.ashx?filingid=9223...

Yelp: http://www.sec.gov/Archives/edgar/data/1345016/0001193125113...

This isn't enough data to draw any conclusions, but it is interesting enough to ask the anonymous internet to finish the research since I'm tired tonight :)

rahimnathwani• 12 years ago

Profit != Cash flow

A business may be profitable (i.e. revenues greater than costs) but still have negative cash flow. Imagine I'm opening a chain of lemonade stands. I open a new stand each month, at a capital outlay of $3600. The stand will last me 3 years, so only $100 per month per stand shows up as a cost on my income statement. So, as long as each stand can make more than $100 per month per stand in operating profit (revenue, less cost of goods sold, less my staff etc.) from its first month onward, my business is profitable.

My business would be profitable even if I were to open 1000 lemonade stands next month. However, it doesn't mean I have the $3.6m required.

In short, IPO can be about funding growth. Profits can be a poor indicator of cash requirements if significant marketing costs or capital items (all of which cost real cash) are spread over time in the company's accounts. (The accounting treatment is useful, though, as it matches revenues to the costs which generated them, even if they were incurred much earlier.)

hajrice2• 12 years ago

Seems like they bought Zopim for 1,803,345 shares. In their S-1 They mention: "20,267,882 shares of common stock issuable upon the exercise of options to purchase common stock that were outstanding as of December 31, 2013, with a weighted-average exercise price of $1.41 per share;"

Which would bring the Acq. price of Zopim to ~2.5mil USD, if I understood it properly.

hajrice2• 12 years ago

I take that back. It sounds like the purchase price was closer to 15mil.

> In March 2014, we completed an acquisition of Zopim. The purchase price of approximately $15.9 million ($5.0 million of cash and $10.9 million of our common stock) includes $1.1 million of cash and $2.4 million of common stock consideration held back between 12 and 18 months as partial security for standard indemnification obligations and which is payable in the future under terms specified in the stock purchase agreement. In connection with the acquisition of Zopim, we established a retention plan pursuant to which we will pay up to $13.9 million in cash and equity consideration over two and three years, respectively, to Zopim employees in connection with their continued employment.

lucasjans• 12 years ago

Those large enterprise customers are expensive to acquire. Zendesk spent 37M on sales and marketing, with 9M going towards commissions. As they push into the enterprise more, the cost of sales went up. They increased their sales and marketing expenditures by 65%.

Contrast this with Atlassian, which has offices here in Vietnam and the Philippines - which keeps engineering costs down - and who doesn't have an expensive sales force.

Ripe for disruption: changing the way companies sell to enterprises - or changing the way enterprises buy products. Possible?

sdesol2• 12 years ago

I've been studying Atlassian for some time and I really admire their approach to enterprise and this is why I think they have been successful so far:

The majority of their tools can be installed on site. SAAS for enterprise is a lot harder to sell.

Most of their tools are built with Java so things are self-contained which makes it easier to install. Also their installations will most likely not need root access. Anybody who knows enterprise knows root access is usually clamped down in enterprise.

Their pricing model encourages a bottom up sales approach. Traditional sales channel for enterprise is top down where you go after execs, senior management, etc. and work your way down. IBM, Microsoft, Oracle, etc. can afford the top down approach. For most startups, this would be impossible. By making it very affordable for disgruntled employees/departments to use their product, they are able to create internal advocates for their product if it does make their life easier.

tldr; Don't make SAAS. Try to make your tool installable with non-root/admin access. Make it very affordable for individuals and small teams because they will become internal advocates if your product is good.

seeingfurther• 12 years ago

Agreed. But is there a magic number that small internal teams can afford to put on the company expense monthly and have it pass.

malkia• 12 years ago

I had to install JIRA trial on my Windows, and decided to give it a go on a debian-vm through virtualbox. It was smooth - downloaded ~200mb bin file, ran it (not root), and installed it. Then all other updates (as you've said) came as .jar packages and installed them while it was running.

As a C/C++ programmer I felt impressed :) Oh and there is lovely API to talk to the system (unlike say... other systems that I won't name here for which you have to spent 10K only for the API).

datasage• 12 years ago

While I do think being installable on site helps, I don't think that is the primary advantage Atlassian has over other software companies.

In my opinion it has everything to do with the market. They build products for a market which likes good tools, has no problem putting them into their workflow, and telling all their peers about how awesome their tools are.

Contrast that to Zendesk which is largely a customer service tool. In a large company, customer service is largely run business majors who are more concerned with risk of process changes, than they are with (potential) cost savings from better software.

inthewoods3• 12 years ago

I think you're drawing the wrong conclusion from the download correlation. There are tons of companies that offer their products as downloads that don't have the success that Atlassian has.

imkevinxu• 12 years ago

The actual filing says "The overall increase was primarily due to increased employee compensation-related costs of $9.4 million and increased marketing program costs of $3.3 million"

So of that 37M, commissions et al. INCREASED by 9M from 2012-2013. I wonder how much of that 37M is actually salary/commission vs travel + lodging + fancy dinners + customer gifts et al.

inthewoods3• 12 years ago

Yes, but difficult. SaaS is/was supposed to be a different way to sell to enterprise. Transparent easy to understand pricing. Then the enterprise and, more specifically, procurement, stepped in. And they don't care about transparent pricing - their job is to get the price down. Thus, they don't buy online - they want to negotiate (and they want three vendors in the mix) - and the whole model goes right back to where we started.

beachstartup3• 12 years ago

founder mikkel svane owns 7%, founder alexander aghassipour another 7%, no numbers on 3rd cofounder

peter fenton (individual VC partner) owns 20%

devdutt yellurkar (individual VC partner) owns 25%

dana stalder (individual VC partner) owns 9%

and the actual VC firms basically own the rest of it.

nrao123• 12 years ago

If you are suggesting peter Fenton & not benchmark owns the shares - that's probably not correct.

Footnotes in page 120 imply that are representing the VC firms holdings

beachstartup3• 12 years ago

my main point was that venture capitalists own the vast majority of the company, and the founders own a comparatively small fraction.

i think we should be moving away from this model.

zendesk isn't even profitable.

flavmartins• 12 years ago

If I read this right, they lose money...every year.

Is this discouraging to anyone looking to start a SaaS-based startup?

You imagine that your new service will make money, but in reality sales and marketing will cause you to have to chase funding constantly just to stay alive.

Thoughts?

sunir• 12 years ago

We just did the annual summit at http://www.thesmallbusinessweb.com and I looked at the industry landscape with Bjoern Hermann of Startup Compass.

http://blog.startupcompass.co/2014-saas-market-outlook

Basically my assessment is that we are blowing out brains out doing enterprise sales for low ACV sales. It is hardly the promise of subscription software as a money machine.

The problem is that there is not very well organized distribution channels so we all have to spend huge sums on acquisition.

Compare Zendesk's total account book size (40,000) to Intuit Quickbooks (5 million they have claimed).

That's what I would like to help fix with the SBWeb, our trade association. Tough problem though. Lots of things have to change first.

senthil_rajasek• 12 years ago

Anyone know how these guys compare to Freshdesk ?

Zendesk S-1 filing

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