By Michael Carney
On April 4, 2014
When it rains, it pours. And these days in Los Angeles the thing falling from the sky is venture returns. The first 100 days of 2014 have been the most prolific in the region’s history, seeing a half dozen companies exit for nine-figures or more.
Today, nine-year-old automotive pricing comparison website TrueCar joined the mix, filing for a long-awaited IPO that could see the company raise as much as $125 million. Unlike most recent tech listings, which in the wake of the Facebook IPO debacle have preferred the human touch of the NYSE, TrueCar will list on the technology focused NASDAQ.
The Santa Monica company has yet to price the offering. Considering that TrueCar has raised more than $189.5 million in venture capital to date (approximately $50 million of which remains), and grew revenue 67 percent year-over-year to $134 million expect the company to command a high nine or low ten figure market cap. TrueCar is EBITA profitable, clearing $2.1 million for the year.
(Editor’s note: The above paragraph originally stated that TrueCar was not profitable, posting a net loss of $25 million and contradicting statements that CEO Scott Painter had made to Pando in November. This fact was corrected at on 4/4/2013 at 3pm PST after further inspection of TrueCar’s filings and comparison to Pando’s prior interview with Painter.)
TrueCar is not profitable – somewhat surprisingly given that CEO Scott Painter told me the opposite as recently as November – posting a net loss of $25 million for the year down 66 percent from a year prior.
TrueCar marks another win for Los Angeles VCs with Upfront Ventures owning 15.2 percent of the company and Anthem Ventures owning another 9.3 percent. The company also counts insurer USAA as a 26 percent shareholder, Jeff Skoll’s Capricorn Investment Group at 16 percent, and Microsoft co-founder Paul Allen’s Vulcan Capital at 9 percent. TrueCar founder and CEO Scott Painter owns 11.7 percent.
Certified TrueCar dealers must agree to honor the “fair price” set by the price comparison service, saving consumers the hassle of negotiating but also guaranteeing dealers a minimum price. As I wrote last fall:
Behind the scenes, the company collects auto transaction data from thousands of sources including the majority of insurers and automotive lenders nationwide – something it has been doing all along, even before the dealer revolt. With this data, TrueCar can see what prices consumers are actually paying, not what dealers label as “MSRP,” “Invoice,” or other industry standard terms of spurious meaning.
The company then takes this a step further by providing consumers a Guaranteed Savings Certificate based on real average sales prices across the industry. Each of the company’s 7,000 dealer partners is contractually bound to honor the prices on these certificates without hassle or negotiation. Consumers pay nothing for this service, and dealers pay TrueCar a flat fee on each completed sale, but nothing if a sale doesn’t close.
The service is growing in popularity, helping users purchase 400,000 cars last year, a third of the 1.1 million vehicles it’s helped sell since launching nine years ago.
“We estimate that users of our platform purchasing cars from TrueCar Certified Dealers accounted for approximately 2.0 percent of all new car sales in the United States in 2013,” a company spokesperson says.
The service is free to use for consumers, but requires registration. The company gets paid by its 7,000 dealer partners when vehicles are purchased. These pay-for-performance fees make up 89 percent of TrueCar’s revenue, with the other 11 percent coming from sales of data and consulting services.
TrueCar’s path to this point wasn’t without its bumps. The company lost 50 percent of its dealership partners in 2012 amit a revolt to its deep discount messaging. It almost killed the business. The year 2012 “really was hell,” Painter told me in November. “We went from 6,000 dealers to 3,000 overnight. And when your revenue comes from dealers, that’s pretty tough. It almost killed us.” But Painter righted the ship and now 18 months later the company is preparing its Wall Street pitch.
In many ways, TrueCar is the type of startup story LA was known for prior to the hype-filled last three years. The company launched with a monetization strategy from day one and has been slowly growing its user-base with little fanfare. Many members of the local tech community don’t even know TrueCar is based in LA, that it has 250 employees here (and 350 total), or scale of its success.
If Wall Street hops on the TrueCar bandwagon, LA might soon be adding Painter’s company to its short list of billion dollar tentpole technology companies.
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Last year, on the eve of the fifth anniversary of the mobile revolution, Flurry issued its five-year report on the mobile industry. In that report we analyzed time-spent on mobile devices by the average US consumer. We have run the same analysis, using data collected between January and March of 2014, and found some interesting shifts that we are sharing in this report.
Time spent on a mobile device by the average US consumer has risen to 2 hrs and 42 minutes per day from 2 hrs and 38 minutes per day in March of 2013. Apps continued to cement their lead, and commanded 86% of the average US mobile consumer’s time, or 2 hrs and 19 minutes per day. Time spent on the mobile web continued to decline and averaged just 14% of the US mobile consumer’s time, or 22 minutes per day. The data tells a clear story that apps, which were considered a mere fad a few years ago, are completely dominating mobile, and the browser has become a single application swimming in a sea of apps.
The chart below takes a closer look at app categories. Comparing them to last year, gaming apps maintained their leadership position at 32% of time spent. Social and messaging applications, including Facebook, increased share from 24% to 28%. Entertainement (including YouTube) and Utility applications maintained their positions at 8% each, while productivity apps saw their share double from 2% to 4% of the overall time spent.
Coming back to the overall time-spent on mobile, the average US consumer spent an additional 4 minutes/day on a mobile device compared to last year. That is just a 2.5% year-over-year increase. Time spent in apps was 2 hours and 19 minutes this year compared to 2 hours and 7 minutes last year. That is an increase of 12 minutes per day or 9.5%. This is a modest increase in time spent, yet not as spectacular as the five previous years.
Google and Facebook: The First Franchises in Mobile…
While examining the chart above, it is hard to ignore the time-spent on Facebook. As in the previous year, we placed Facebook (including Instagram) in its own category, albeit in the social segment. In terms of time spent, Facebook still has the lion’s share of time spent in the US. While the social segment grew, driven mainly by messaging applications, Facebook was able to maintain its position with the help of Instagram. That position will be even more cemented, if not increased, by the reach and time-spent inside WhatsApp. This has given Facebook a great degree of confidence on mobile allowing it to start focusing on the next platform. The following statement from Mark Zuckerberg’s post on the Oculus acquisition was very revealing: “We have a lot more to do on mobile, but at this point we feel we're in a position where we can start focusing on what platforms will come next to enable even more useful, entertaining and personal experiences”.
In this year’s analysis, we have added YouTube as its own segment, albeit in the entertainment category. On its own, YouTube is a whopping 50% of the entertainment category. Google has many other widely adopted apps, such as maps, but we kept those in their respective categories.
Both Google and Facebook have very well established franchises on mobile, but the market is still very fragmented. In fact, Google and Facebook combined probably command less than 25% of the total time spent by the average US mobile consumer. In addition the top ten franchises, according to ComScore, account for less than 40% of the time-spent. So despite massive efforts by Google and Facebook, the market still hasn’t consolidated and over the past couple of years we have seen new franchises emerge in almost every sector of mobile. Apps like Pinterest, Snapchat, WhatsApp (acquired by Facebook), Waze (Acquired by Google), Spotify and many more received wide adoption and commanded a percent or two of the time spent. In short, six years into the mobile revolution, there are numerous opportunities for new franchises to emerge in almost every segment of the mobile economy.
…and in Mobile Advertising
There is an old saying in the world of advertising: “time-spent is the timeless currency”. It means that advertising revenue distribution follows time-spent distributions. As an example, if an app commands 17% of time spent, it should command 17% of the ad revenues for that channel. This is exactly the position Facebook is in right now and this is reflected in the chart below.
According to eMarketer, at the end of 2013, Facebook earned 17.5% of the overall mobile advertising revenues. That is in-line with their share of the time-spent. On the flip side, Google, according to eMarketer, earned 49.3% of the overall mobile advertising revenues, much more than its fair share of time-spent. (For the time-spent analysis, we accounted for YouTube and all the time spent in browsers where Google monetizes search and display.)
There are other display networks and other search monetization players out there, but if we combined mobile search and display ads on the mobile web, Google probably has a high market share in terms of ad revenues. The rest of the apps, including gaming apps, are simply not getting their fair share of advertising spent. The “other” apps command 65.3% of time spent but only receive 32% of ad revenues. This represents a massive opportunity for applications, including gaming apps, to monetize through advertising. eMarketer also projects that the mobile ad market will grow 75% this year, making the opportunity even bigger. In fact, analysts predict that in-app ad revenues will surpass web display ads in 2017.
It is still too early to predict the trajectory apps will take in 2014. But one thing is clear - apps have won and the mobile browser is taking a back seat. Now every company in the world including Google is adjusting to that reality.
A very happy anniversary and thank you for her three year Growthink anniversary to our Director of Expert Market Research Bridget Quinlan! Bridget - thanks for all of the hard work and awesome attitude and look forward to building on all of the great successes of the DFYMR program and beyond in the months and years to come!
Pete started with us back on April 1, 2005.
During his 9 years with Growthink, Pete has been instrumental on numerous projects.
Please join me on congratulating and thanking Pete for all of his efforts!
Two takeovers in two days are putting a spotlight on Southern California’s role as a hotbed for technology startups.
Facebook Inc. said March 25 that it agreed to buy the virtual reality company Oculus VR Inc., based in the Orange County city of Irvine, for at least $2 billion in cash and stock. A day earlier, Walt Disney Co. plunked down a minimum of $500 million for Maker Studios, a supplier of shows for YouTube that has its headquarters in Culver City, next to Los Angeles.
Southern California has developed enough talent and financing for a self-sustaining community of tech startups to take root and grow, from the seed capital stage on up. Local universities are pushing entrepreneurship programs, the flow of venture capital money is on the rise and earlier startups have helped attract talent that’s remained instead of moving north to Silicon Valley.
“There’s been a proliferation of both angel and seed capital over the last couple years, and that’s allowed companies to stay here, build and grow,” said Paul Bricault, a venture partner with Greycroft Partners, a backer of Maker Studios.
Facebook’s interest in the region came to light last year, when Chief Executive Officer Mark Zuckerberg unsuccessfully tried to buy SnapChat Inc., a mobile photo-sharing service in Venice, a beach community on the west side of Los Angeles.
The company, founded by two Stanford University graduates, turned down his offer of about $3 billion, people with knowledge of the matter said at the time.
Bricault,who’s also managing partner of Amplify.LA, which assists startups, said the climate for new businesses has changed over the past two decades.
In the past, entrepreneurs in Southern California would leave as their funding needs grew and not return, he said. Now “companies are not only electing to stay here, but they are drawing capital from outside L.A. to fill the gap.”
Southern California ranks No. 3 worldwide for technology startups, behind Silicon Valley and Tel Aviv, according to a 2013 report by Be Great Partners, a technology incubator based in Los Angeles.
A concentration of immigrants and universities are driving the growth in technology businesses, said Stephen Levy, director of the Center for Continuing Study of the California Economy in Palo Alto.
Some companies are big enough to be considering initial public offerings. The Rubicon Project Inc., anonline advertising company based in Los Angeles, expects to raise as much as $132.4 million in an offering of up to 7.79 million shares at $15 to $17 each, according to a regulatory filing.
TrueCar Inc., an online auto shopping service, attracted a $30 million investment from Microsoft Corp. co-founder Paul Allen’s Vulcan Capital in December. The Santa Monica-based company is working with Goldman Sachs Group Inc. and JPMorgan Chase & Co. on a possible IPO, people familiar with the matter said in November.
Venture capital financing in Los Angeles and Orange counties has amounted to more than $17 billion over the past decade, according to data from PricewaterhouseCoopers LLP. The two counties cover almost 5,000 square miles, about the size of Connecticut, according to Census Data.
The number of deals in the region rose to 267 in 2012, the highest since 2004, according to Esmael Adibi, head of Chapman University’s Center for Economic Research in the City of Orange, citing PricewaterhouseCoopers statistics.
The role of digital business in the region is still small relative to the wider local economy, which is led by shipping, the entertainment industry and construction, as well as aerospace and fashion. Los Angeles is the largest manufacturing center in the U.S., according to Mayor Eric Garcetti’s Office of Economic and Workforce Development.
Small and midsize businesses play a particularly large role in Los Angeles, according to Helena Yli-Renko, director of the Lloyd Greif Center for Entrepreneurial Studies at the University of Southern California.
The back-to-back sales of Oculus and Maker Studios underscore how vibrant the startup climate has become, said Bricault, whose company oversees investments of $400 million.
“If you look today, the number of companies that have raised money in excess of $500 million and their private market valuations, it’s probably higher than it ever has been before,” he said.
In Los Angeles, employment in e-commerce and digital entertainment has climbed 24 percent in the past five years to 14,920 jobs, according to the Milken Institute in Santa Monica.
“Los Angeles and Silicon Beach are profiting from the shift to digital entertainment leveraging the large number of entertainment workers already living in the area,” said Kristen Keough, a Milken research analyst.
Locals shouldn’t view the sales of homegrown companies as a setback for the regional economy, Yli-Renko said. Oculus plans to continue running independently, while Maker Studios will remain in Culver City.
“Both of these companies look to be at the point where they can really benefit from additional resources to grow and expand, so I don’t think there’s a negative to it,” she said. Oculus and Maker Studios have demonstrated “strong proof of concept and strong proof of market adoption.”
Investments by angel groups last year grew with increases seen in investments in startups in the Internet, health and mobile sectors, according to a new report.
The findings came in the Halo Report, which measures only the activities of angel groups and doesn't include the seed investment activities of venture firms, accelerators or angels who act independently. The report is issued quarterly and annually by the Angel Resource Institute, Silicon Valley Bank and CB Insights.
The three most active angel groups in the country last year were the Golden Seeds, Tech Coast Angels in Southern California, the Houston Angel Network and Silicon Valley-based Sand Hill Angels, according to the Halo Report.
California had the largest share of deals involving angel groups (19%) and the greatest amount of investment (20%). The report also showed that about three-quarters of angel group investments are done in their home state.
Five regions of the country accounted for about two-thirds of the deals and dollars invested: They are California, New England, Great Lakes, Mid-Atlantic and the Southeast.
Median angel group round sizes have remained steady over the past three years at $600,000. But when angel groups co-invested with other types of investors, the median round size reached a three-year high of $1.7 million.
The amount invested in healthcare startups by angel groups rose from $1.1 billion in 2012 to $1.5 billion last year. In the Internet sector it rose from $935 million to $1 billion. In mobile/telecom it went to $1.1 billion from $1 billion.
Melissa went above and beyond and gave back to the community with 60 minute presentation at the Alliance College Ready Academy in South Los Angeles o 30 high school students accepted into the Youth Business Alliance Program based on having the highest GPAs in the school and having an interest in and passion for business and entrepreneurship.
Great and inspirational work, Melissa!!