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Friday, Jun 2, 2023

Disney Aims to Draw Startup Stars

Set to take the stage on Tuesday is a new kind of Mickey Mouse Club.

Walt Disney Co. will host a Demo Day unveiling the first graduating class of the Disney Accelerator, a 12-week program in which media tech startups received investment capital, mentorships, workshops and Disney resources to help them quickly scale up. Ten startups will present to high-level Disney executives, potential investors and other studio heads in the hopes of snagging their next big client.

The Disney effort, in which it and TechStars, a Boulder, Colo., accelerator that helped run the program, take an equity stake in exchange for their resources and a small amount of cash, is the latest example of Hollywood’s growing interest in bankrolling tech startups.

United Talent Agency last year partnered with USC and VC firm Kleiner Perkins Caufield & Byers to create the Viterbi Startup Garage, a university-run accelerator to help student and alumni entrepreneurs. And Warner Bros. graduated the second accelerator class from its Media Camp in August.

“Technology is changing Hollywood and has been changing Hollywood for decades,” said Ashish Soni, an associate professor at USC’s Viterbi School of Engineering and founding director of the Startup Garage. “Having programs like this lets studios tap into a broader set of ideas and helps these companies transform themselves for the next generation.”

The programs offer a creative environment that can help a startup get past the lobby floor of the Mouse House and other entertainment studios.

But this is show business. And for studios, an in-house accelerator is a great way to get first dibs on emerging media technology that could give it a leg up on the competition.

Starting out

Ubooly, a creator of children’s learning toys whose content can be updated via a mobile app, is one startup that was chosen to participate in the Disney Accelerator. Chief Executive Carly Gloge said the company was already in high-level and exploratory talks with Disney about future products when Ubooly was accepted into the accelerator.

“We felt the Disney Accelerator would allow us, instead of negotiating across the table, to be on the same side as Disney,” she said.

But some of Ubooly’s early investors were wary. It had already graduated from a TechStars accelerator program in Boulder in 2012, and joining a second accelerator could imply the startup wasn’t doing so hot. But one of Ubooly’s angel investors had her own company acquired by Disney, and Gloge was told she’d be crazy not to join.

She said Ubooly sold a 6 percent equity stake to Disney and TechStars for an initial investment of $20,000, but said it passed on the option to take a $100,000 note that would convert to common shares after the startup completes a Series A round of financing.

As a late-stage startup, Ubooly didn’t need the money.

“We had plenty of mentorship on technology but not really a lot on branding, working directly with consumers or creating content,” she said.

During the 12-week accelerator, Ubooly and other startups received direct face time with Disney executives and leaders of various subsidiaries, including Pixar Animation Studios, Lucasfilm Ltd. and Marvel Entertainment. By day three, the participants had been introduced to Disney Chief Executive Bob Iger. Gloge said she had more than 90 meetings with various Disney departments throughout the program.

The intensive curriculum included three to five workshops a week. Topics ranged from how to build growth into a product to venture capital trends. Startups also had access to key customer behavior and consumer trend data, expensive reports that are often beyond a budding startup’s budget.

“To get to work together with a company like Disney is massively powerful for startups,” said Cody Simms, TechStars’ managing director who handled the accelerator’s day-to-day operations.

Through the two accelerators, Gloge has parted with roughly 11 percent of the business – that in addition to the stakes taken by early angel investors.

Still, she said, it’s been worth it.

“There hasn’t been a piece of the company that has been given away that we have regretted,” she said.

Mouse hunt

A Disney stamp of approval can do wonders for a startup. So what does Disney get out of this?

It’s all about fostering innovation, according to Michael Abrams, the Disney senior vice president of innovation who oversaw the program.

“The Disney Accelerator program is really an opportunity to bring Disney’s creativity and imagination to startups and entrepreneurs in a way we haven’t before,” Abrams said.

There is no exclusivity clause. A participating startup is free to shop around its product. In fact, Disney has helped make introductions to other studios, and executives from outside the Disney compound are expected to attend Tuesday’s Demo Day.

“If commercial relationships that make sense happen, that’s magnificent,” Abrams said. “It’s all, for us, a positive and good thing.”

But it’s also an odd situation, one in which Disney plays the roles of investor, client, potential acquirer and even maybe future competitor. Unlike traditional investors or VC firms, Disney Accelerator’s interest goes beyond just getting a good return.

All of the 10 startups offer products and services that appeal to any number of Disney divisions. From video monetization platforms to interactive play systems, parenting devices and mobile entertainment app developers, it’s easy to see why these startups were chosen.

“For most corporate venture programs or accelerators, it’s always going to be tied back to their core business,” said Erik Rannala, co-founder and partner at Mucker Capital, a Santa Monica VC firm that runs the MuckerLab accelerator.

And for Disney, with its $150 billion market cap, $20,000 a pop is a small price to pay for a chance to discover the newest breakout entertainment or media technology. Even if a graduate makes a deal with another studio, Disney still scores as an investor.

It’s a win-win situation.

And nothing is stopping Disney from reaching out to startups left off its roster.

“Not only do you get to pick the final 10, but you get to see a lot of applications,” said Startup Garage’s Soni. “It’s a great way for parent companies to keep posts on what’s out there and what you can potentially use.”

Industry revs up

Disney’s not the only studio on a high-speed tech kick.

Debra Baker, Warner Bros.’ senior vice president of global business development, is tasked with finding business opportunities whose innovations would benefit the studio and the media space.

In an August interview as Media Camp was graduating its second class, Baker said that while a first look is good, the studio is taking the long view.

“Our goal is not to keep these companies for ourselves because they don’t get really valuable unless what they’re doing takes off,” she said.

Toggle, a Media Camp graduate that creates video-streaming devices, received additional seed funding from Warner Bros. after completing the program. Chief Executive Adam Johnson said Warner Bros. has helped his West Hollywood startup reach out to retailers even post-Media Camp.

“Most investors tend to be very fairly passive,” he said. “Warner Bros., I wouldn’t say it’s a stressful proactive, but it’s a productive proactive. They’re our only investor who’s really like that.”

Justin Wu, founder and chief executive of fellow Media Camp graduate Sidevision, said his e-commerce video platform startup received instant validation that other accelerators couldn’t provide. Warner Bros. has helped Sidevision enter talks with other major motion pictures studios to secure deals with the biggest names in media and entertainment.

But Warner Bros. does come first.

Wu said Sidevision has been working on customizing its product to help various Warner Bros. departments with their video marketing needs. The studio’s games division, for example, is looking to make its videos active across different social media feeds.

Sidevision did not receive further investment from Warner Bros., but for Wu, it didn’t matter.

“Hey, we’ve got Warner Bros. as a client,” Wu said. “From there, we’ve been able to branch out of Hollywood.”

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