Digital Media Has L.A. Firms Venturing Out Again

0

L.A.’s beleaguered venture capital industry is finally showing signs of life as it capitalizes on what analysts consider one of the hottest sectors around.

Digital media, the buzzword on many investors’ lips, is generating widespread interest among venture capital firms, which had tightened their purse strings after the financial crisis but are again looking to fund entrepreneurs.

New opportunities in the space are fueling many of L.A.’s largest firms, including GRP Partners, which took the top spot on the Business Journal’s annual list of the largest local venture capital firms.

While Silicon Valley remains the epicenter for tech startups, parts of Southern California are proving to be fertile ground for digital media ventures, from online video companies to e-commerce firms to in-flight Internet providers.

“Digital media is developing a little ecosystem around Santa Monica,” said Randy Churchill, director of emerging company services for PricewaterhouseCoopers LLC in Los Angeles. “There’s certainly a lot of money going into it.”

Venture firms invested $380 million in 64 local digital media companies in the past year, according to data from Pricewaterhouse’s quarterly MoneyTree report. That’s up from 55 deals the previous year.

Among the recent investments, BeachMint Inc., a “social commerce” company in Santa Monica, received $15 million in funding from firms such as Anthem Venture Partners, also in Santa Monica; Pasadena’s UberMedia Inc., a web-based application developer, raised $21 million from venture backers; and Santa Monica’s Campus Explorer Inc., a college comparison website, got more than $3 million.

Indeed, as the economy has stabilized and the market for initial public offerings has begun a return to normalcy, many firms that had held tight during the recession have put their capital to work. According to the MoneyTree figures, venture capital firms invested a total of nearly $1 billion last year in a wide range of young L.A. companies, a 43 percent increase from 2009 but still off by about one-third from pre-recession highs. Pricewaterhouse expects to report first quarter data this week.

To be sure, the local venture capital market has not yet made a full recovery. The Business Journal’s list of venture capital firms saw few had raised capital since the previous year, which was one of the slowest in recent memory.

Venture capital’s traditional backers – primarily large institutional investors – have been hesitant to give money to what are seen as riskier investments.

“We haven’t heard of very much fundraising, (but) there is increased deal flow,” said Nevena Orbach, past president of the Los Angeles Venture Association and current president of financial PR firm Orbach Co. “We do see improvement on the horizon.”

IPO fever

One factor that has energized the local venture capital market is the loosening of the IPO markets. Nationwide, there were more than 70 venture-backed initial public offerings last year, up from just a dozen in 2009, according to data from Thomson Reuters.

The momentum has carried over into this year, as Demand Media Inc., an online content publisher in Santa Monica, registered a strong $151 million IPO in January. Among Demand’s venture capital backers is Anthem, which has a sizable stake in the local digital media market.

“Looking at the IPO market locally, I think it’s the best we’ve seen in a long time,” Churchill said.

The IPO success has brought liquidity back to the venture capital market and freed some firms to invest cashed-out capital in new opportunities, which for many have been in digital media.

Century City’s GRP made a number of digital media investments in the past year. The firm participated in a $5 million funding round for Twitter ad network Ad.ly, a $1.8 million funding round for mobile ad company Burstly and $1 million for site developer Snowball Factory Inc.

“L.A. has shined in this whole digital media area, which is very hot right now; it’s given (Los Angeles) a bigger footprint in the VC community,” said Dennis McCarthy, president of West L.A. financial services firm Aries Management Inc.

Digital media has thrived in Los Angeles in part because of an abundance of talent, and because the companies in that space require relatively little funding – a key point since Los Angeles has a relatively small pool of venture capital money compared with Silicon Valley.

“Many of these digital media companies don’t require a lot of money because you could do a lot more with virtual resources,” McCarthy said. “In this digital media area, you can create often a really great company with $250,000 of resources.”

No posts to display