Thanks to its Hollywood history and the local startup scene, Los Angeles has become a hub for digital media companies looking to combine entertainment and tech.
To better work with these hybrid companies, L.A. law firm Manatt Phelps & Phillips LLP has created a division to provide legal and business consulting services to the digital media, entertainment and advertising industries. The new division, called Manatt Digital Media, will also make investments through the firm’s venture fund.
Manatt has hired technology entrepreneur and digital media veteran Peter Csathy to run the investment operation, Manatt Digital Media Ventures. The fund will focus on investing in 10 to 15 early-stage digital media and technology companies across the United States.
“This venture arm is going to be aggressive about cultivating startups and growth companies in and around the digital media landscape,” said Csathy, who was most recently president and chief executive of Sorenson Media in San Diego.
Manatt – which works primarily with the media, entertainment, advertising and tech sectors – was founded in the 1960s and has since grown to 450 employees in nine offices, eight in the United States and one in Mexico.
The firm has been investing through the Manatt Venture Fund since 2000, a time when it became en vogue for law firms servicing the technology community to start venture funds.
A number of firms, like Manatt, have continued the practice today, such as Stubbs Alderton & Markiles LLP in Sherman Oaks.
“In the technology world, it is fairly common,” said Dana Warren, director of the business law practicum at Loyola Law School. “It provides law firms the opportunity to take advantage of access to a vibrant investment situation.”
Firms do have to be careful about how they operate a venture arm, Warren said, since they are often investing in the same clients they represent. To prevent a conflict of interest, many firms limit investment amounts and keep those decisions separate from the legal counsel.
“Regardless of what you do, it does create the potential for a conflict,” Warren said. “The desire of the lawyer to cash out can never play a role in the kind of legal advice that the lawyer is giving the company.”
Manatt Partner T. Hale Boggs, who has been named chairman of Manatt Digital Media, said his firm’s investments are small in scope and often serve as a way for the firm to connect and support its clients.
Manatt typically invests up to $600,000 in a company. Previous investments include New York craft marketplace Etsy and San Francisco social network Pinterest.
Money for the fund comes primarily from the firm’s profits, a portion of which partners choose to allocate to the fund each year. Partners who are accredited investors can also participate in the funding rounds.
Boggs said the firm decided to expand its investment reach into digital media because of its growing presence in the L.A. tech and entertainment industries.
“We’re excited about the L.A. digital media market and we’re excited about what we’re doing,” Boggs said. “We think it’s just a great place to be.”