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BrightRoll takes Yahoo deal over risky IPO

Tod Sacerdoti, co-founder and CEO of BrightRoll
Source: BrightRoll
Tod Sacerdoti, co-founder and CEO of BrightRoll

Being a publicly traded independent video advertising company is no fun. Just take a look at Tremor Video and YuMe.

Tremor has lost more than two-thirds of its value since going public in June 2013, and YuMe has tumbled 48 percent since its initial public offering two months later. Combined, the companies are worth less than $300 million.

In the hyper-competitive technology world, that sort of performance makes recruiting a tremendous challenge.

Read MoreYahoo to acquire BrightRoll

It also helps explain why San Francisco-based BrightRoll jumped at Yahoo's $640 million cash offer, in a deal that was announced on Tuesday. BrightRoll's technology helps brands automate the purchasing of ads on video sites. The company says that 87 of the top 100 U.S. advertisers use the service and projects net revenue this year of more than $100 million.

"We've been focused on building a great business here at BrightRoll, and this is an excellent outcome for us," Maya Komadina, a company spokeswoman, said in an email. "We don't comment on the performance of other companies in our space."

Read MoreBeginning of digital video growth

Online ad expert Ari Paparo, an executive at Bazaarvoice, wrote a blog post last December, looking at potential ad-tech IPO candidates for 2014. "BrightRoll is as big or bigger by revenue than the current crop of public video companies," he said. "It certainly could file if it wanted to but might be avoiding the markets because of the poor performance of Tremor and YuMe."

Jayant Kadambi, chief executive officer of Redwood City, California-based YuMe, said in an email that being independent makes his company "particularly well-suited to meet our partners' demand for tailored, customized solutions."

Sales growth at YuMe slowed to 19 percent in the third quarter from 39 percent in the same period a year earlier. That's better than New York-based Tremor, which reported growth of 11 percent, down from 17 percent a year earlier. A Tremor representative declined to comment.

The central problem for all challengers is that Google is a relentless competitor in online ads and owns the market-leading Web video service YouTube. EMarketer predicts that YouTube will reel in $1.13 billion in video ad revenue this year, accounting for 19 percent of the U.S. digital video ad market. The rest of the business is fragmented, creating a price war that benefits those spending the money.

Read MoreGoogle's race for tech supremacy

"One-stop shopping, or at least fewer steps for ad buyers, is increasingly important as digital advertising becomes increasingly complex," eMarketer analyst David Hallerman said in an email. "There are so many companies competing in this space, and having something special to offer becomes essential to distinguish itself from others."

Yahoo can plug BrightRoll's technology into its existing ad network and play in a market where it has struggled. As far as video ad deals go, the price actually looks pretty good. AOL bought Adap.tv last year for $405 million, and Facebook reportedly spent around $500 million on LiveRail in July.

"Video is one of the largest growth opportunities, and BrightRoll is a terrific, strategic and financially compelling fit for our video advertising business," Yahoo CEO Marissa Mayer said in the announcement.

According to a report early this year from comScore, BrightRoll ranked fifth in terms of total number of video ads viewed in January at 2.3 billion. The leader was SpotXChange at 3.5 billion, and BrightRoll was one of seven companies (including Google, AOL and Hulu) that logged between 1 billion and 3 billion.

Since launching in 2006, BrightRoll has raised more than $45 million from investors such as Trident Capital, True Ventures and Scale Venture Partners. While the venture backers aren't getting the kind of blockbuster returns that light up Silicon Valley, they'd highly prefer this to watching a plummeting stock price.

Disclosure: CNBC has a content-sharing partnership with Yahoo's finance site.