Los Angeles County continued to attract venture capital for growing companies throughout the area, especially Silicon Beach, in the first three months of 2013.

That's the good news.

The bad news is that the investments into Los Angeles companies declined during the quarter, reflecting a national trend of declining venture investments for the first three months of this year.

While the amount of money raised by companies in the Los Angeles area declined in the first quarter of 2013 to $178 million from $236 million in the first quarter of 2012 and was down somewhat from the end of last year, City National believes the Los Angeles market for new companies is still strong and are especially encouraged by some positive signs for long-term growth. The report understates or does not reflect "angel" and seed investments, and we are seeing strong start-up activity in the LA market, with higher concentration in Silicon Beach / Santa Monica. Also, we are hearing already about several large equity rounds that have been done or are about to be funded in Q2 in Los Angeles.

In fact, 28 Los Angeles area companies received funding in the first quarter, which, while a decline from 31 in the last three months of 2012, is still a strong number given the overall investments decline for the quarter.

Some of the largest include two in the Silicon Beach area of Los Angeles:

  • Beats Electronics, a Santa Monica consumer electronics firm known for its popular earphones and headphones including "Beats by Dr. Dre," raised $60 million in a first-round financing from Access Industries and individual investors.
  • Science Media Inc., a Santa Monica firm that provides data to financial institutions, raised $30 million from a group led by Hearst Ventures.

With a company like Beats, there is a pattern of convergence of entertainment, fashion and celebrity hybrids that give instant marketing credibility for consumers. Companies like Beats will continue to grow in Santa Monica, and we will see more firms in the Los Angeles tech and consumer community like this.

Other more traditional start-ups in Los Angeles also received funds:

  • FreedomPop, a Tarzana firm that is launching a new product to assist consumers in purchasing WiFi wherever they go, raised $4.2 million in a secondround financing that included DCM and Mangrove Capital Partners.

U.S.-based companies raised $6 billion from 752 venture capital deals, a 6% decrease in number of deals and an 11% decrease in capital investments, in the first quarter.

While Los Angeles was part of this nationwide trend in declining venture capital investments, still Los Angeles and Seattle regions tied for fourth in ranking of number of deals, compared to San Francisco with 229 deals, New York with 82 and Boston with 71 fundings.

The segments that were most popular included business and financial services, consumer goods, and consumer services. Although investments in healthcare firms declined 16% from the previous quarter, it was the largest investment area, accounting for 30% of the total venture capital investments.

Nationwide, the largest deal was for San Francisco-based Pinterest Inc., which received $200 million in a fourth-round investment from a team of venture investors.

LOS ANGELES-BASED EQUITY FINANCINGS*

  2 Q 2013 1 Q 2013 4 Q 2012 3 Q 2012 2 Q 2012
Number of Financing Deals 32 31 29 32 37
Amount Invested ($M) $247.10 $184.56 $209.94 $272.12 $270.89
 

TOP 10 DEALS IN LOS ANGELES COUNTY

COMPANY NAME DESCRIPTION CITY ROUND TYPE RAISED ($MM) INVESTORS
Snapchat, Inc. Mobile photo and video application Venice Second Round $60.0 Benchmark Capital, General Catalyst Partners, Lightspeed Venture Partners
MarketShare
Partners LLC
Marketing analytics Los Angeles Third Round $28.0 Elevation Partners et al
TopLine Game LabsTM Fantasy sports/social media gaming platform Los Angeles First Round $25.0 Cantor Fitzgerald & Co.
United Sample Inc. Online market research Encino Fifth Round $15.0 DuPont Capital Management Inc., OpenView Venture Partners
DAQRI LLC 4-D augmented reality technology Los Angeles First Round $15.0 A-Grade Invesments, LLC, individual investors
OUYA, Inc. Provider of a low-cost video gaming console Santa Monica First Round $15.0 Kleiner Perkins Caufield & Byers, Mayfield Fund
Metacloud Inc. Cloud storage solutions Pasadena Second Round $10.0 AME Cloud Ventures, Canaan Partners, Storm Ventures LLC
NationBuilder Community building software Los Angeles Second Round $8.0 Andreessen Horowitz, Omidyar Network
Engrade, Inc. Online gradebook developer Santa Monica Second Round $5.0 Ed-Mentor, Expansion Venture Capital LLC
Nativo, Inc. Native advertising
technology
Long Beach First Round $3.5 e.ventures, Greycroft Partners
 

 

*Equity financings include cash investments by professional venture capital firms, corporations, other private equity firms, and individuals into companies that have received at 
least one round of venture funding.

The content of Venture Capital Report is compiled from data and sources believed to be reliable, but is not guaranteed as to accuracy or completeness. Opinions expressed are those of the authors or the interviewees and are not necessarily the opinions of City National Bank. This publication is intended to be a source of general information regarding subject matters of interest to our clients. The effectiveness of the advice or suggestions presented, if any, will depend on the reader's situation and are for the reader to determine. If investments are discussed, the discussion should not be considered or relied upon as specific investment advice directed to the reader's specific investment objectives, nor should any discussion of specific securities be taken as a solicitation or recommendation for any reader to buy or sell such securities. City National Bank (and its clients or associated persons) may at times have positions in securities and investments discussed from time to time in this publication and may make additional purchases or sales inconsistent with the discussion. City National Bank, as a matter of policy, does not give tax, accounting, regulatory or legal advice. Rules and regulations in the areas of law, tax and accounting are subject to change and open to varying interpretations. The reader is encouraged to consult his or her own tax and legal adviser.