There is nothing wrong with being consistent, and LA was just that in 2015. After bringing in $3.04 billion in capital and over 250 fundings in 2014, the city kept its stride with another $3.06 billion in capital and over 200 fundings in 2015. The symmetry didn’t stop there. The same two names once again appeared atop the funding leaderboard this year: NantHealth and Snap.
But despite the funding similarities, Los Angeles had a drastically different year in 2015.
With eight rounds over $80 million dollars, 2015 saw a wider variety of large rounds, whereas a bulk of the previous year’s funding went to three tech giants ( Snap, NantHealth, and Privlo). Excluding the $100M+ outliers, this year had a significantly higher funding average per round.
“If you ask entrepreneurs about the availability of funding, I think people will tell you it’s a good time,” said Pritzker Group Venture Capital Vice President Chirag Chotalia. “From a source of capital perspective, there are new funds that have come in to LA. Every valley firm of note has been spending more time in LA so I think if you’re the average LA entrepreneur, you have more options from a fundraising perspective now compared to a couple years ago.”
Industries hold steady
Both enterprise software and e-commerce had predictably good years, both netting over $400 million in funding comprised of around 30 financed companies each. Meanwhile, consumer web had the second most companies funded, but raised just north of $200 million.
It comes as no surprise that health tech, media and fintech posted glossy numbers, but it’s important to note that their heavy lifters — NantHealth, Snapchat and ZestFinance — accounted for a majority of their respective totals.
A quieter year on the acquisition front
LA saw a dip in acquisitions and exits in 2015, totaling 67 exits for $2.15 billion. However, comparing that number to the previous year’s data doesn’t give a fair barometer of success. In 2014, Conversant ($2.1 billion), Internet Brands Inc. ($1.1 billion), and Maker Studios ($500 million) juiced the exit totals. This year only 19 of the 67 exits reported a value, so it's safe to assume the 2015 number is actually far higher.
Notable acquisitions included Rizvi Traverse's $551 million purchase of RealD, Tencent Holdings $350 million buyout of Riot Games, Time Inc.’s purchase of Hello Giggles for a rumored $20 million, Brand Network’s $50 million buy out of Shift Labs, and Germany’s ProSieben’s $83 million buyout of Collective Digital Studios.
But no company made a bigger splash in the 2015 acquisition pool than Zealot Networks. Amid their wide array of national acquisitions, they grabbed four LA companies, including AllScreen for $85 million.
Measuring the media madness
A majority of this year’s rounds remained in media, an industry considered LA’s bread and butter.
“LA is one of the best places to be a tech entrepreneur, particularly if you are focused on any aspect of content or media,” said CEO Rich Rosenblatt. “Over the past 20 years, I have seen LA mature from a small enthusiastic group of entrepreneurs to a city where tech influences all aspects of business, education and society. I see the LA tech ecosystem continuing to mature, as will the partnerships and collaboration between technology and Hollywood. I frequently meet young LA entrepreneurs and am encouraged by their talent and enthusiasm for media and tech.”
The future of media and content tech has been growing brighter with the emergence of e-sports and virtual reality. Companies like Mobcrush have capitalized on the growing community around professional gaming and VR innovators like Wevr are seizing opportunity on the distribution side of the virtual reality craze.
“I think digital media will continue to interest investors,” said Chotalia. “We’re spending time getting familiar with the VR ecosystem. I think it’s still sort of questionable when exactly it will inflect but when it does, LA will be the hub because we have a lock on content creation.”
Can Los Angeles keep it up?
2015 saw 177 companies raise rounds north of $1 million, a slight increase from last year. However, most rounds in the $1 million to $5 million range are considered bridge rounds by investors (bridging between Seed and Series A), and if the stock market’s early performance is any indication, 2016 may see less companies receive this type of capital.
“There has been a lot of feeding done in LA, which is great — the ecosystem is stronger than ever,” said Double M Venture's Mark Mullen. ”And in the past couple years, there was a higher chance of getting a bridge, but I think that bridge door is going to be a lot harder to open this year. There needs to be some progress with companies differentiating themselves from the average startup. There are so many early stage startups here in LA, we need to figure out the ones that are becoming outliers and those people will always be able to raise capital, even in this current market.”
This frugal market outlook isn’t just coming from the VC perspective. Joanna McFarland, CEO of the recently-funded HopSkipDrive, had a similar forecast for 2016.
“There may be a tightening in the fundraising space. The good companies, with great leadership, strong value propositions and business models will continue to get funded, but it may be more of a challenge than it was before.”
Despite varying views on the ecosystem’s future, everyone we talked to agreed on one thing: the amount of tech talent in LA is undoubtedly growing. USC, UCLA and Cal Tech graduates are no longer flocking north to the Valley and the emergence of more local VCs is encouraging startup growth within the city. Whether you’re a LA tech veteran or a newcomer to the scene, there are many reasons to believe 2016 will be another record-setting year.
*Sources: SEC filings, press releases and confirmed news reports (amongst other public information)
**Los Angeles County-based digital tech companies counted only. Computer hardware and electronics excluded
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