Tech Merger Frenzy in L.A. Highlights New Set of Startups


By Rob Golum and James Nash

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.

Staying Put

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.

Car Culture

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.

Small Business

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.

Homegrown Companies

“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.”

Angel group investments, valuations climbed in 2013

2013 Halo Report By Region

By: Cromwell Schubarth, Senior Technology Reporter-Silicon Valley Business Journal

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.

Growthinker Melissa Welch Speaking and Giving Back at the Youth Business Alliance Program

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!!

CELEBRATE! on March 26! Surprise Launch Jump-Started by Maverick Angels

Register for the event here. Growthink is a proud sponsor of Maverick Angels.


At this event, Maverick Angels will be unveiling the Launch of our New Company -- and We Want You to Join in the Celebration. This is the night when we will reveal exciting details of our New Venture -- it's a Wild Idea dedicated to the Greatest Pioneers of our Time...Entrepreneurs! 

  
So...if you're the type who crosses at a red light, has your hair on fire exploding with ideas and challenges the Status Quo, then you will feel right at home during our Big Bash on March 26th. Please join us at this historic event and meet up with Angels, Other Investors, Accelerators, Incubators, Crowdfunders, Sponsors & Affiliates and LA's Influencers.

  

We have mastered mixing business with fun, so bring plenty of business cards as we Collaborate, Educate and Get Down to Learning about YOUR Ventures. 

Here's the Deal: 

Who It's About: Entrepreneurs at All Stages
Date: Wednesday, March 26, 2014 - 6PM to 9PM PDT

Location: 

Loyola Marymount University

Roski Dining Hall located in University Hall

1 Loyola Marymount University Drive
Los Angeles, CA 90045
 

Parking:  

On-Campus parking will cost $10 for the evening.

As you enter LMU from Lincoln Ave and pass security, University Hall is the first building you see on the right. Simply enter the adjacent parking lot and park anywhere. The parking fee is payable at machine kiosks located near each elevator bank. You may pay with either cash or by credit card. 

  

Price: $10 + $1.54 (Eventbrite Fee) for Non-Sponsors

NON-REFUNDABLE

 

What's Up at the Launch?

Fire Up for Our Famous Elevator Pitch Contest 
We've Got Swag--Get Your Goodie Bags Ready
Guest D.J. (Name to be Announced) in the Lounge
More Fun Surprises to Tell You about Coming Soon!

 

Don't Miss Our "Ask the Experts" Panel! This evening is all about you--so work it. Make it happen by interacting with our group of Top Mentors who are there to share their knowledge by answering your questions related to the success of your start-ups.

Who Gets Funded? Great Businesses vs. Great Presentations

From ideas come businesses.

From businesses come needs – like raising capital. Raising capital usually means pitching investors.

So which businesses are most likely to be among the approximately 5% who raise funds from professional investors? The chart below tells the brutal truth quickly and easily.



A great business which gives a great presentation is most likely getting funded.

A lousy business with a lousy presentation isn’t getting funded.

But what about a good business with a lousy presentation? Is it more or less likely to get funding compared to a good business with a great presentation? The answer probably won't surprise you.

After speaking with over 110 angel investors, VCs, entrepreneurs and educators, the consensus was solidly in favor of the good business with a great presentation. The deciding factor came down to the team, the single factor which most influences investors.

A person and a team who made a great presentation took the time to practice. Investors like to see the results of preparation and hard work. A great team willing to practice may simply need some advice and be willing to pivot, changing a good business into a great business.

A good business which gives a lousy presentation says to investors, “We didn’t care enough to put in our best effort.” The lack of preparation and the condescending attitude toward investors will derail just about any business seeking capital.

At the very least, it says the team is not ready, not mature enough, and probably not coachable.  With plenty of investing opportunities from which to choose, investors quickly move on. 

Want to improve your chances when pitching to investors? Follow the eight recommendations below to maximize your chance of raising capital.

PRACTICE your pitch
If you didn’t practice 25-50 times before presenting, it will show in your lack of confidence, poor pacing, and use of filler words like “uh”, “um” and “like”. Then you’ll likely resort to the boring reading-slides-to-your-audience-with-your-back-turned method of pitching. Buy the coffin. You’re dead.

GENERATE some enthusiasm!
No one expects you to have over-the-top local sportscaster enthusiasm. But don’t pitch with a sleep-inducing monotone, either. If you don’t have passion for your business, neither will an investor.

PREPARE for contingencies
Fertilizer happens. Prepare for it.
* Know every slide in your pitch deck by heart
* Have two thumb drives with your pitch deck saved in PowerPoint / Keynote and PDF
* Bring your own laptop, projector, clicker, batteries, microphone, cables and cords
* Inspect the room beforehand, if possible. Know the lighting and sound conditions

BREVITY is king
Got 10 minutes to pitch? Finish in 9:45. Almost nobody finishes with a strong close in the allotted time. Investors love someone who can manage time effectively. It sends the message that you can manage other areas of business effectively, too. Keep your pitch deck to 10-12 slides maximum.

NAIL the opening and closing
Tell a brief story; do something unexpected; focus on emotion. Those are great concepts to open a pitch. Close powerfully with your call to action. Now think about how most people open speeches – and don’t do that.

STORIES sell
Sprinkle in stories to drive home a point, to magnify emotions, and to keep your audience engaged. Generally, a single story should take no longer than about 7% of your total pitch time. For a 10 minute pitch, a story is most effective when 45 seconds or less.

Use storyboarding, a technique invented by Walt Disney in the 1930s, to create your overall theme. Do this before designing your pitch deck.

VISUALS, not text
Your pitch deck should be primarily visual. You’re the focus, not your pitch deck. If your slides are full of text, your investor audience is reading the slides and not listening to you. Your audience can read faster than you can speak. When they finish and you’re still talking, they’ll disconnect. After that, they’re almost impossible to re-engage. Great visuals enhance your story because vision is the most dominant sense in people.

WIIFI: What’s In It For Investors?
Why you? Why now? Why should an investor care? When your pitch answers those questions in a concise yet detailed manner, your chance of funding improves. 

Knowing your investor audience is essential. Pitching friends and family is somewhat causal, pitch angel investors is more serious and pitching institutional investors is sophisticated. Tailor your pitch accordingly.

 

Successfully raising investor funding is often a long, frustrating and complex process. Getting turned down dozens or hundreds of times will test an entrepreneur’s patience. Persistence doesn’t guarantee success but quitting guarantees failure. Investors use the process to find the most resilient entrepreneurs worthy of funding. Getting investor funding will often change your life and your world for the better. The guidelines above will make your process faster and easier. 

The Hardest Round to Raise for Startups

By Tomasz Tunguz

Over the past few years, I've debated the existence of a Series A crunch and found in that analysis that the volume of Series As was increasing. This trend hasn't abated. The number of Series As has grown by 31% annually for the past 5 years, reaching more than 831 Series As in 2013, up from 284 in 2009. In short, no founder should be concerned about the Series A market.

Rather, the Series B market is worrisome. At the moment, Series Bs are the hardest rounds to raise for startups. The data proves the point. The chart above compares the number of Series A rounds and the number of Series B rounds recorded by Crunchbase over the past eight years. Series As have grown dramatically, by more than 30% per year. In contrast, Series Bs lag behind at 10% annual growth. Before 2013, the Series B market was basically flat.

Let's dig one level deeper into the Series As and Bs by round size. The first chart below shows smaller Series As, those with investment sizes under $5M, drive the majority of growth in round volumes. $5-$10M rounds, the brown line, have grown more modestly. Relatively speaking, all other round sizes are flat and irrelevant.

The Series B charts by round size tell us that sub $5M Series Bs are also the fastest growing segment, followed by $5 to $15M Series Bs. But the number of $5 to $15M Series Bs hasn't changed since 2007. Again, larger rounds are largely irrelevant because their numbers are just too small to be significant.

Despite the 3x increase in Series A rounds led, the Series B dollars haven't grown to support an additional 400 startups in the market for a Series B. Needless to say, competition in the Series B market is heating up!

I'll speculate about why this is the case. Perhaps there's a latency in the market and investors need a few years to seize upon the opportunity. Perhaps there has always been a significant difference in the size of Series B and Series A dollars because the post Series A companies are acquired or fail at a substantial rate. While there has been an enormous expansion of seed funds that catalyze Series A rounds, there has not been an equal expansion in the number of Series B firms, which require larger funds and are harder to raise as a first-time fund manager investor. I'm not sure which is the right answer or if it's a combination of all of them.

In any case, the conclusion is clear. Right now, Series Bs are the hardest rounds to raise. The competition for Series B dollars is about 3x as intense as a few years ago*. Now, more than ever, founders ought to reverse engineer their startup's Series B pitch to maximize their chances of success.

  • I'm assuming that the rates of company acquisition, company failure and general founder behaviors have remained constant over the past ten years. Unfortunately, it's hard to prove this point using the Crunchbase data because it's too noisy.

http://tomtunguz.com/the-hardest-round-to-raise/

First Los Angeles Company to go Public since 2011

Rubicon Prices IPO, Values Company at $450 Million

By JUSTIN YANGThursday, March 20, 2014

Tech advertising platform Rubicon Project Inc. priced its initial public offering Thursday at $17 a share, valuing the company at more than $450 million.

The Playa Vista company intends to offer 6.7 million shares to the public, setting aside an overallotment of another 1 million shares. Rubicon, considered one of the earlier automated ad exchange players, claims it reaches 97 percent of U.S. Internet users, and 600 million users worldwide. Competitors include AOL, Google and Microsoft.

Despite its wide reach, the company has had trouble reaching profitability according to its S-1 form. The company reported a net loss of $9.2 million in 2013. Revenue rose 47 percent to $84 million compared to the year earlier. Rubicon has raised $51 million in venture capital funding.

Frank Addante, Rubicon’s chief executive, is the largest individual shareholder of the company with 10 percent. Clearstone Ventures owns 21 percent, News Corp. owns 19.3 percent and Mayfield Fund owns 14.2 percent.

Rubicon is the first Los Angeles tech company to go public since Demand Media’s IPO in 2011. The stock will be listed on the New York Stock Exchange under ticker symbol RUBI.

Source: http://www.labusinessjournal.com/news/2014/mar/20/rubicon-prices-ipo-values-company-450-million/