Back when entrepreneurs with any half-baked business model could secure millions of dollars in backing as long as the company name ended in "dot-com" incubators were the hottest game in town. Led by Bill Gross' Idealab, which produced a number of companies that pulled off phenomenally successful public offerings, incubators began cropping up all over Los Angeles.
The idea behind tech incubators is to provide management assistance, financial backing, and in some cases basics like office space and equipment, to promising entrepreneurs in exchange for an ownership stake.
While the concept is beginning to fall out of favor, especially with the recent tech-sector meltdown, there's little question that some of the most interesting ideas in the Internet space are being born at incubators. Here's a look at some of the most promising projects at prominent L.A. high-tech breeding grounds.
Look out, Regis Jackpot.com's gaining on you. The online sweepstakes dot-com hatched by Pasadena-based Idealab has already doled out $4 million including three $1 million prizes and plans another $1 million giveaway in December, according to company President Keith Cohn.
The site attracts more than 2 million regulars, who play various gambling games for free. Revenues come from advertisers, whose logos are incorporated into the various games for example, on the virtual slot machines one might see a logo for Nabisco or MasterCard instead of the normal oranges, bars and lemons.
While few advertising-sponsored sites have been able to turn a profit, Cohn expects Jackpot.com to be in the black this month one year after its founding and double its customer base to 4 million users by year's end.
Meanwhile, another of Idealab's companies, DotTV, has changed the fate of a small island nation. DotTV purchased the domain suffix dot-tv from Tuvalu for $50 million, to be paid over the next decade. The money allowed Tuvalu in September to pay the dues needed to join the United Nations and the British Commonwealth giving it economic clout and a say in world diplomacy.
So far, more than 50,000 companies have leased dot-tv names from the company, some paying as much as $100,000 for the privilege, according to Chief Operating Officer Craig Frances. Takers include Pax TV and the Academy of Television Arts and Sciences. Tuvalu now owns 20 percent of DotTV, while Idealab has a 50 percent stake in the company.
Icebox, eCompanies Wireless
ECompanies, the Santa Monica incubator run by tech hotshots Sky Dayton and Jake Winebaum, was launched with great fanfare last year, but so far has little to show for itself. One of its hatchlings, eParties, has already disappeared, with its assets bought at a fire sale and folded into e-commerce site eToys.
The incubator does have some attractive sites, however, notably Icebox and eCompanies Wireless.
Showtime last month inked a deal with Icebox.com, one of eCompanies' partners, to transform the cartoon crew of "Starship Regulars" into live-action heroes with their own half-hour TV gig. It will be the first of Icebox's 23 original series to jump ship to TV, but probably not the last.
"Starship Regulars," penned by "The Simpsons" co-executive producer Rob LaZebnik, also an Icebox founder, sports the same subversive humor as Homer et al. Take a recent webisode in which a crew member's lust for a beautiful alien is tempered by his fear of her species' mating habits. Hint: It's the males who get pregnant.
Meanwhile, at the end of August, Sprint PCS chipped in $15 million to help launch eCompanies Wireless, an incubator that will hatch companies offering wireless services to businesses and consumers. Sky Dayton, co-founder of eCompanies, expects the wireless Internet to unleash a torrent of new companies, along with a brand new market ecosystem.
The Business Technology Center in Altadena is a nonprofit incubator sponsored by the Community Development Commission of L.A. County. It is run by an advisory committee of business people, professors and consultants, and provides advice, office space and equipment to startups, if not seed capital.
One of its more promising hatchlings is Codex, which launched a Web site this month providing a barrage of updated information for professional money managers gleaned from investor relations and government agency sites, chat rooms, user forums, news sources, court rulings and analysts. Think of it as having a thousand live bodies to surf the Web for you all day, says Lauren Weissman, Codex general counsel.
Founder David Leinweber was spurred into action when he discovered that news Web sites didn't report Department of Labor statistics until two days after they were posted. So he created the search engine with $8 million in venture capital from EastWest VentureGroup and Putnam Lovell Group Inc.
ViaChange.com, meanwhile, another of the Business Technology Center's tenants, recently launched an exchange for buyers and sellers of secondary loan portfolios. While it's not the first to offer such an online auction service, ViaChange will be able to do complex portfolio valuations using software developed at Caltech that will help level the playing field for smaller companies without number-crunching staff, said A.J. Abdallat, vice president of business development. ViaChange, which got a $5 million infusion from Divine InterVenture, will take a percentage fee of each transaction.
Meanwhile parent company ViaSpace, which recently snagged a $10 million line of credit convertible into equity from Hewlett-Packard, plans to launch two to three companies a year, using technologies developed at the Jet Propulsion Lab and Caltech. The Federal Aviation Administration is testing humidity sensors developed under contract by ViaSpace hatchling SpectraSensor for use on commercial aircraft.
Promising Hatchling: Adfusion
Adfusion is about to make the job of media buying and selling a whole lot easier, according to company spokeswoman Christine Brodeur. Instead of checking rates on hard copy, followed by a flurry of faxes and phone calls to various media outlets, media buyers beginning in November will be able to punch up Adfusion and obtain a listing of outlets based on the advertiser's specific demographic needs, then negotiate and purchase the time online.
Adfusion has a strategic partnership with L.A.-based Guidance (formerly Guidance Solutions), which doesn't quite fit the unusual definition of an incubator in that it only occasionally takes equity stakes in the companies with which it partners. Guidance is a sort of incubator/consultant, providing expertise to tech entrepreneurs on how to start and run their companies.
Kemi Ajayi found herself in the rat race, working as an information tech consultant for Ernst & Young. She suffered chronic fatigue and eyestrain, so one day last year she quit her job with a dream to create stress-relief products and sell them on an Internet site. So she started Tranquilli Tea and the Kemi Tea Cos. in February 1999 with $4,000, blending tea, aromatherapy oils and herbal organic soaps in her kitchen and selling them online, at what is now tranquilitea.com.
After her company was written up in Self and Essence magazines, her Web sales took off. Embarrassed when clients visited her dining-room office and kitchen factory, Ajayi decided she needed not only a professional place to meet clients but also help with managing her business. So, she turned to the Pasadena Enterprise Center, an incubator that serves both tech and non-tech companies and specializes in helping black- and woman-owned businesses.
In its first six months at the incubator, her company's sales have grown from $800 a month to $10,000.
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