Investment in Los Angeles County companies picked up dramatically in the second quarter of 2013, reversing the decline in venture capital funding that started in the third quarter of 2012.
Los Angeles-area companies raised $247.1 million in April, May and June, a 34% increase from the $184.6 million funded in the first quarter of 2013. This excludes biotech deals.
In fact – L.A.'s increase was a bright spot. The added investments bucked a nationwide trend of declining venture investments. Overall, U.S. venture capital investment posted its worst quarter in almost three years.
We believe that L.A. will continue to be a solid market, with its convergence of entertainment and technology, and we are encouraged by the strong early stage investment in the market. Here's what one venture capitalist told me.
"I now have five portfolio companies in L.A. and only one in the Bay Area. I'm an outlier, but this does reflect the sort of innovation that companies like Snapchat, ShoeDazzle, The Honest Company, Whisper and ZestFinance are generating in L.A.," said Jeremy Liew, partner at Lightspeed Venture Partners. "L.A. has the finger on the pulse of the rest of America and always has, thanks to its roots in the entertainment business – more so than the Bay Area does – and this insight is creating products that appeal to millions of people, not just the technorati."
A strong market for initial public offerings and some large purchases of venture-backed companies in the quarter should spur additional investment in the area in the next year.
A total of 32 Los Angeles area companies received funding in the second quarter, an increase from the 25 companies in the preceding three months, down from 37 in the second quarter of 2012. This quarter's L.A. investments represented a 9% decline from the $270.9 million raised in the second quarter of 2012.
In the second quarter, Los Angeles ranked fourth in the country in deal flow behind San Francisco, New York and Boston.
The largest concentration of deals was in and around L.A.'s own Silicon Beach area, which stretches from Playa Vista to Santa Monica. Here, gaming companies, software firms and mobile app developers landed funding from a large number of investors located outside the L.A. area. Only 15 of the 32 deals were locally funded.
Two of the largest deals in the quarter were focused on mobile entertainment, including:
- Snapchat Inc., a Venice-based developer of a mobile application that allows users to share disappearing photos and video, raised $60 million in second round financing from Benchmark Capital, General Catalyst Partners and other investors.
- TopLine Game Labs, a mobile-focused fantasy sports and social gaming start-up that is looking for permanent office space in west Los Angeles, raised $25 million from New York-based Cantor Fitzgerald & Co., one of several major fantasy sports investments in the U.S. this year.
- MarketShare Partners LLC, a Los Angeles-based company that provides advertising analytics across multiple media channels, allowing customers to gauge the impact and interaction of their efforts from YouTube to television, which raised $28 million in third-round financing from Elevation Partners and FTV Management Co., L.P.
Nationwide, the numbers weren't so good. A total of 801 U.S. companies raised $7.2 billion in April, May and June, a 2% decrease in funding, and a 0.5% dip in flow.
The largest deal in the U.S. was for Fab, Inc., a New York-based shopping site for design aficionados, that raised $150 million in a fourth-round funding from a number of investors including Andreesen Horowitz and Atomico.
LOS ANGELES-BASED EQUITY FINANCINGS*
|2 Q 2013||1 Q 2013||4 Q 2012||3 Q 2012||2 Q 2012|
|Number of Financing Deals||32||31||29||32||37|
|Amount Invested ($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|
|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
|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.|