Los Angeles County saw a large increase in the dollar amount of venture capital investments flowing into growing companies throughout the area, especially in Silicon Beach, in the third quarter of 2013. At the same time, however, the actual number of venture deals declined.

More than $720 million flowed into Los Angeles-area firms – that's more than double the $270 million that was invested in Los Angeles firms in the second quarter of 2013.

Why the big jump? Well, several large deals made the difference.

The largest deal by far was a $500 million second-round financing from the Carlyle Group for Beats Electronics, a Santa Monica consumer electronics firm known for its popular earphones and headphones, including "Beats by Dr. Dre." The firm had already received $60 million in a first-round financing from Access Industries and individual investors earlier this year.

Beats was actually the largest investment in any company nationwide during the third quarter, far outpacing the second largest investment, Uber Technologies Inc., a provider of an on-demand transportation service platform based in San Francisco. Uber received $361 million in a fourth-round financing from Benchmark Capital, Google Ventures and others.

The bad news is that without the large investment into Beats, investments in Los Angeles companies actually declined during the quarter, despite a national trend of increasing venture investments for this quarter. In fact, 27 Los Angeles-area companies received funding in the first quarter, a decline from 36 in the second quarter of 2013.

Taking the Beats financing out of the equation, some of the largest Los Angeles-area deals include:

  • Just Fabulous Inc., provider of a subscription-based online fashion and styling platform in El Segundo that raised $76 million in a third-round financing from Intelligent Beauty, Matrix Management Corp., Rho Ventures and others.
  • WhisperText LLC, a Santa Monica-based provider of an anonymous message sharing app that raised $21 million in a second-round financing from Lightspeed Venture Partners, Sequoia Capital and others.
  • Dollar Shave Club Inc., a Santa Monica-based provider of a monthly delivery service for shaving and grooming products that raised $12 million from Battery Ventures, Comcast Ventures and Pritzker Group Venture Capital.

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

Another discouraging trend was the lack of activity by venture firms based in Los Angeles. Nationwide, the story is different. Top-performing and well-known VC firms are raising large funds. We are seeing the strength of the venture capitalists based in Silicon Valley, New York and Boston.

U.S.-based venture-backed companies raised 11 percent more in venture and equity funds during the third quarter than they did during the second quarter; they also saw the highest number of funds since the fourth quarter of 2008. A total of $8.1 billion was invested nationwide during the quarter in 806 venture capital deals.

Nationwide as usual, companies in the Bay Area received the bulk of venture money, a total of $3.19 billion, while New York metro received $800 million, outpacing Los Angeles's total of 720 million. Boston was close behind with $690 million.

EQUITY FINANCINGS FOR U.S. VENTURE-BACKED COMPANIES

  3 Q 2013 2 Q 2013 1 Q 2013 4 Q 2012 3 Q 2012
Number of Financing Deals 27 36 28 32 35
Amount Invested ($M)   $270.02 $238.26 $320.41 $278.02
 

TOP 10 DEALS IN LOS ANGELES COUNTY

COMPANY NAME DESCRIPTION CITY ROUND TYPE RAISED ($MM) INVESTORS
Beats Electronics LLC Consumer electronics Santa Monica Second Round $500.00 The Carlyle Group
Just Fabulous Inc. Subscription-based online fashion platform El Segundo Third Round $76 Intelligent Beauty, Matrix Management Corp., Rho Ventures, Shining Capital Management, TCMI Inc.
SetPoint
Medical Corp.
Neuromodulation Therapies Developer Valencia Fourth Round $27 Boston Scientific, Covidien Ventures, Foundation Medical Partners, GlaxoSmithKline, Morgenthaler Ventures,
Topspin Partners
Whisper Text LLC Anonymous messaging sharing system provider Santa Monica Second Round $21 Lightspeed Venture Partners, Sequoia Capital, Trinity Ventures
ZESTFINANCE INC. Technology provider to assess the credit risk of potential borrowers Los Angeles Fourth Round $20 Eastward Capital Partners, Kensington Capital Partners Ltd., Lightspeed Venture Partners, Matrix Management Corp., Northgate Capital, Thiel Capital
DogVacay Inc. Online marketplace that matches dog owners in need of pet care Santa Monica Second Round $15 Benchmark Capital, Duff
Ackerman & Goodrich LLC, First Round Capital LLC, Foundation Capital, Sherpa Ventures LLC
Dollar Shave
Club Inc.
Monthly delivery service for shaving and grooming products Santa Monica Second Round $12 Battery Ventures, Comcast Ventures, Pritzker Group
Venture Capital, Venrock
Morphlabs Inc. On-demand apps and delivery platforms for Web-based apps Manhattan Beach Fourth Round $10 Entropy Research Lab, G2iG, Tailwood Venture Capital
Tastemade Inc. Multichannel digital food network Santa Monica Second Round $10 Raine Ventures, Redpoint Ventures
Glow Inc. Mobile app for couples looking to conceive that tracks women's fertility cycles Santa Monica First Round $6 Andreessen Horowitz,
Founders Fund Management LLC, Individual Investors
 

*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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