Venture capital investment in Los Angeles County companies fell modestly in the first quarter of 2014, a weak spot in a period that saw funding nationwide at its highest level since 2001.
But the 10 biggest L.A. venture deals showed the diversity of young growth businesses in the county, spanning sectors including video technology, software, and drug development and consumer products.
Leading the pack was Zefr, a Venice-based firm that manages and promotes video content on YouTube for major film studios and other media. The company got $30 million in Series D financing from a consortium of funds.
The Silicon Beach area of L.A., including Venice, saw 14 companies financed in the first quarter, up from 10 in the first quarter of 2013.
In all, venture funds invested a total of $174.5 million in L.A. County companies in the quarter, down 7% from a year earlier, according to data firm CB Insights. The number of companies funded was nearly even, however, at 36 versus 37 a year earlier.
Likewise, though first-quarter L.A. venture investment was down 35% from the fourth quarter of 2013 in dollars, more companies were funded in the latest round than in the fourth quarter. So the average L.A. deal size fell to $4.8 million from $8.4 million in the previous quarter.
L.A. could be in the vanguard of a shift by venture investors toward funding new businesses that haven’t attracted significant venture money before, said Rod Werner, managing director of tech banking for City National. “I see more funds looking to invest in early-round deals now,” he said.
The top 10 venture deals in L.A. County in the first quarter included four Series A financings. One of those was $7.1 million invested in Violet Grey, a high-end beauty products e-commerce site launched by Cassandra Huysentruyt Grey and her husband, Paramount Pictures chief Brad Grey.
In a Series B funding, Atara Biotherapeutics took in $13.5 million in the quarter, on top of $38.5 million received in the fourth quarter. The company, which has its research operations in Thousand Oaks, was spun off by biotech titan Amgen Inc. in 2012. Atara is developing new drug therapies for certain debilitating diseases.
By contrast, the jump in venture financing nationwide in the first quarter was paced by investments in companies that had previously received multiple rounds of venture dollars. Such “late-stage” financings accounted for 47% of total funding, the highest percentage in five quarters.
In L.A., venture funds pumped $18 million in Series D financing into gaming and media network Machinima, which calls itself the “dominant video entertainment network for young males around the world” – i.e., the coveted 18-to-34 demographic.
Heavy late-stage funding is a sign that venture investors are looking to prep more of their previously funded companies for initial public stock offerings, as Wall Street’s appetite for IPOs has revived.
“A lot of venture money last quarter went for late-stage deals, including for companies hoping to go public in the next nine to 18 months,” Werner said.
Total U.S. venture funding in the quarter reached $9.99 billion, up 44% from the same quarter of 2013 and the highest since the second quarter of 2001. The number of companies receiving funding was up 5% to 880.
Venture funds’ optimism was buoyed by the IPO market’s health: 35 U.S. venture-backed companies went public in the first quarter, the most since the tech heyday of the third quarter of 2000, according to CB Insights.
EQUITY FINANCINGS FOR LOS ANGELES COUNTY VENTURE-BACKED COMPANIES
|1 Q 2014||4 Q 2013||3 Q 2013||2 Q 2013||1 Q 2013|
|Number of Financing Deals||36||32||24||39||37|
|Amount Invested ($M)||$174.5||$270.5||$188.6||$287.2||$188.2|
TOP 10 DEALS IN LOS ANGELES COUNTY
|COMPANY NAME||DESCRIPTION||CITY||ROUND TYPE||RAISED ($MM)||INVESTORS|
|Zefr||Solution provider for professional content owners on YouTube||Venice||Series D||$30||U.S. Venture Partners, Shasta Ventures, First Round Capital, Institutional Venture Partners, Richmond Park|
|TigerText||Provider of secure, real-time messaging for the enterprise||Santa Monica||Series B||$21||Shasta Ventures, OrbiMed Advisors, New Science Ventures, New Leaf Venture Partners, TELUS Ventures, Reed Elsevier Ventures, Easton Capital|
|Machinima||Next-gen video entertainment network for video gamers||Los Angeles||Series D||$18||Google Ventures, Redpoint Ventures, MK Capital, Warner Bros. Entertainment|
|Chrome River Technologies Inc.||Online platform for automating accounts payable||Los Angeles||Series C||$17||Argentum Group, Bain Capital Ventures, First Analysis|
|Atara Biotherapeutics||Drug development company with a focus on therapeutics||Thousand Oaks||Series B||$13.5||Kleiner Perkins Caufield & Byers, Domain Associates, Alexandria Real Estate Equities, DAG Ventures, Amgen Ventures, Celgene, Baupost Group, EcoR1 Capital|
|SpinMedia Group||Digital media focusing on music brands||Los Angeles||Series A||$10||Focus Ventures, M/C Venture Partners|
|Realty Mogul||Crowdfunding for real estate||Beverly Hills||Series A||$9||Canaan Partners|
|Fullscreen||Global network for creators and brands||Culver City||Series B||$7.8||Comcast Ventures|
|Violet Grey||Digital magazine and beauty products||Los Angeles||Series A||$7.1||Undisclosed Angel Investors, NV Investments, WGI Group, Marker|
|Bitium||Enterprise software company creating an OS for cloud-based apps||Santa Monica||Series A||$6.5||Polaris Partners, Rob Glaser, Amplify L.A.|
*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.
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