Venture capital investment in Los Angeles County businesses ended 2013 on a weak note, bucking the trend of a modest pickup in the U.S. as a whole.
Still, the fourth quarter saw another round of funding for one of the hottest names in L.A.’s burgeoning Silicon Beach area: Snapchat Inc., the now-you-see-it-now-you-don’t photo-sharing app, received a $50-million investment from a major hedge fund. It was L.A.’s biggest deal in the quarter.
Other up-and-coming Silicon Beach firms getting venture dollars included TrueCar Inc., an online car-pricing site, and Honest Co. Inc., actress Jessica Alba’s baby-products firm.
Overall, L.A. County saw 30 venture deals reported in the quarter, up slightly from 29 deals in the third quarter but down from 32 in the same quarter of 2012. The amount of venture dollars invested sank to $199.4 million last quarter from $748.5 million in the third quarter and $320.4 million a year earlier.
The third quarter total had been skewed by a $500-million investment in earphone maker Beats Electronics, which ranked as the single biggest deal nationwide in the period. But even excluding that deal, venture investment in L.A. County firms declined in the fourth quarter from the third.
For the full year, L.A. recorded 127 venture deals, down 15% from 150 in 2012. Total funding rose 32%, to $1.48 billion, but was off nearly 13% from 2012 excluding the Beats Electronics deal.
The San Francisco/Silicon Valley region, the perennial leader in venture investments, also saw a slowdown last quarter and last year. The number of reported deals fell to 250 in the fourth quarter from 295 in the third quarter and 311 in the final quarter of 2012.
For the full year the Bay Area’s deal total slipped to 1,125 investments, down 11% from 2012. Dollars invested were flat at $12.7 billion.
Rod Werner, managing director of tech banking for City National in Palo Alto, said L.A. and the Bay Area may be losing out in part as competition drives venture funds to look for business ideas outside the traditional hotbed of California. “In a strong market money flows out to other areas,” such as New York City and Texas, Werner said.
Nationwide, there were 901 reported venture deals in the fourth quarter, up 5% from the third quarter and up 3% from a year earlier. Total venture dollars invested rose to $8.9 billion, up 2% from the third quarter and up 7% from a year earlier.
For the year there were 3,480 venture deals nationwide, down 5% from 2012, while dollars invested inched up 1% to $33 billion.
In L.A. County, the Silicon Beach strip of Santa Monica, Venice and Venice Beach remains a magnet for start- ups -- and for venture investors.
Venice-based Snapchat, co-founded in 2011 by former Stanford student Evan Spiegel, is rumored to have turned down separate multi-billion-dollar takeover offers from Facebook Inc. and Google Inc. last fall. Instead, the company stayed on a go-it-alone path with the help of a $50-million Series C venture investment from Coatue Management LLC, a giant New York hedge fund managed by brothers Thomas and Philippe Laffont.
After Snapchat, the second-largest L.A. venture deal last quarter was a fourth-round, $30-million investment in Santa Monica-based TrueCar by billionaire Paul Allen’s Vulcan Capital. TrueCar, founded in 2005, offers a no-haggle pricing service for new and used cars via thousands of dealers nationwide. The company has been rumored as a candidate for an initial public stock offering in 2014.
The third-biggest L.A. venture financing last quarter was a $25-million infusion for Honest Co., the Santa Monica firm co-founded by Jessica Alba two years ago to develop non-toxic baby products and other goods. The third-round investment came from a group led by Silicon Valley titan Institutional Venture Partners, one of Honest’s initial funders.
EQUITY FINANCINGS FOR U.S. VENTURE-BACKED COMPANIES
|4 Q 2013||3 Q 2013||2 Q 2013||1 Q 2013||4 Q 2012|
|Number of Financing Deals||30||29||38||30||32|
|Amount Invested ($M)||$199.4||$748.5||$280.0||$255.1||$320.4|
TOP 10 DEALS IN LOS ANGELES COUNTY
|COMPANY NAME||DESCRIPTION||CITY||ROUND TYPE||RAISED ($MM)||INVESTORS|
|Snapchat Inc.||Mobile photo- and video- sharing app||Venice||Second Round||$50.00||Coatue Management LLC|
|True Car Inc.||Online car-pricing platform||Santa Monica||Fourth Round||$30||Vulcan Capital|
|Honest Co. Inc.||Retailer of non-toxic beauty, home
and baby products.
|Santa Monica||Third Round||$25||General Catalyst Partners, Institutional
Venture Partners, Lightspeed Venture Partners, Pritzker Group Venture Capital
|Chrome River Technologies Inc.||Online platform for automating accounts payable||Los Angeles||Second Round||$17||Argentum Group, Bain Capital Ventures, First Analysis|
|Medical and Dental Commerce Corp.||Operates Brighter.com dental services shopping site.||Santa Monica||Third Round||$15||Benchmark Capital, Mayfield Fund, Tenaya Capital|
|Shift Labs Inc.||Real-time marketing platform||Santa Monica||Third Round||$6||DN Capital|
|MomentFeed Inc.||Location-based marketing software||Santa Monica||Second Round||$5.5||DFJ Frontier, Draper Nexus Ventures, Signia Ventures Partners|
|Pixalate Inc.||Real-time ad analytics platform||Santa Monica||First Round||$4.6||Javelin Venture Partners|
|Shop-Hers Inc.||Online marketplace for luxury goods||Santa Monica||First Round||$3.2||Elevation Partners, Floodgate, individual investors, Resolute.vc|
|Card Corp.||Online banking solutions||Santa Monica||First Round||$3.0||Anthem Venture Partners, individual investors,
QED Investors LLC, Resolute Networks
*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.|