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Thursday, Jun 8, 2023

INTERNET – New Incubator Weds Celebrities to Startups

Shaquille O’Neal: basketball superstar, rapper and Internet executive? Arnold Schwarzenegger: action movie hero, fitness guru and online media mogul?

That’s the mission of Digital Media Campus, a new local incubator that will give some of the world’s top sports and entertainment celebrities a piece of the Internet action, in much more sophisticated ways than just launching fan sites. Just as important, it will give Internet startups immediate visibility and marketing clout by being associated with celebrity owners.

The incubator, set to officially open in June, already counts names such as O’Neal, Schwarzenegger, Dallas Cowboys owner Jerry Jones and Oracle Corp. Chairman and CEO Larry Ellison among its investors, who are referred to as “strategic partners.” The celebrities participating in Digital Media will serve as spokespeople and advisors for sites, in exchange for an equity stake in the new company they’re touting.

“In order to be successful in building a digital business in sports and entertainment, there are some important resources that need to be marshaled,” said Digital Media founder and sports agent Leonard Armato. “One important element is understanding the industry itself. And it’s important to have an outstanding strategy involved, so one of the things we’ve done is compiled a tremendous all-star list of investors and strategic innovators that spans technology, sports and entertainment.”

By focusing on sports and entertainment sites that use celebrity branding, Digital Media reflects a trend of increased specialization by incubators.

Narrowing the focus

Idealab, the industry-leading incubator founded in 1996, hatches all kinds of Internet companies. But by 1998, incubators began concentrating on specific niches. Business Technology Center, an Altadena-based incubator founded that year, focuses on high-tech infrastructure and support businesses, while Interactive Multitainment Advanced Technology Center, a downtown L.A. incubator also founded in 1998, launches small entertainment, multimedia and technology companies.

With Digital Media leading the way, experts predict newer incubators will continue to target even more tightly focused markets.

“The new ones have to differentiate themselves or else there’s just a lot of clutter out there,” said Jeff Anderson, managing director of Mellon Ventures Inc. “(Specializing) is the hook the new incubators are employing, just like what the venture capitalists went through. Before, they did a broad array of investments, but became increasingly specialized to compete with Joe’s All-Purpose Venture Capital.”

Others agree that such specialization will likely help new incubators succeed.

“You obviously develop a deep knowledge of certain industry sectors, which is helpful when evaluating new investment opportunities,” said Jon Funk, general partner at Media Technology Ventures, an Internet-focused venture capital firm. “When you’re looking at a given business, that gives you a whole lot of context. It’s very useful.”

Specializing also comes with risks, though. “The tradeoff is that you rise and fall with the fortunes of that sector,” Funk said.

Of course, it’s possible to be diverse even within a specific niche. Digital Media, while focusing on celebrity-oriented sports and entertainment sites, is looking to launch sites with a broad range of activities such as e-commerce, business-to-business, information, etc.

By covering all sides of an industry, incubators and venture funds with a specific focus can hedge their bets against the ups and downs of the market, said Tyler Orion, executive director of Pacific Incubation Network, a regional association of business incubators serving the West Coast. It’s a challenge about which Digital Media executives are already very aware.

“The market can be fickle,” Armato said. “There are always going to be cycles. The strategy behind DMC is to really bet on an industry, because it’s difficult to know right now who the winners are going to be, and we don’t want to bet on any one or two horses.”

Armato said sports and entertainment are ideal areas in which to focus because they have an inherent public draw. Plus, those industries require executives who are deeply entrenched and have high-level celebrity and executive contacts and Armato is very well connected.

While sports and entertainment are his expertise, Armato has signed on several tech-savvy investors. Armato himself gained some tech experience while helping his client, O’Neal, last month launch Dunk.net, a site where users can design and sell their own sneakers, in addition to reading feature stories about athletes like Shaq, Rebecca Lobo and Mike Piazza.

Support services

With a centralized campus in Manhattan Beach housing its ventures, Digital Media will be a hands-on operation. The incubator will become a partner in each new venture, taking significant operating control and running the business in an environment with administrative and operating resources dedicated to the numerous businesses being hatched.

In addition to the office space and administrative support offered by Digital Media, a variety of other companies will have offices in the campus to provide services to the fledglings. Among those support-service providers will be a division of ad agency TBWA Chiat/Day, as well as companies that provide back-end technology services.

With the fortunes of tech firms swinging wildly in recent weeks, it’s more unclear than ever what model will ultimately prove successful.

“Whether you need specialized incubators is yet to be determined,” said Anderson of Mellon Ventures. “I think there’s something to be said for just trying to back very promising teams. I don’t know if you want all your eggs in one very defined basket.”

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