Report: Over $3B invested in LA tech in 2014, the highest funding total ever
2014 was a record breaking year for LA tech
Los Angeles digital tech companies had another record-breaking year in 2014, raising a total of $3.04 billion in investments and exiting for more than $5.9 billion. The year was fueled by several large events including Snapchat’s $486 million fundraising round and Maker Studio’s $500 million sale to Disney. In fact, 2014 investment totals were 188 percent higher than 2013 levels and acquisition totals were 430 percent higher than 2013 levels. In 2014, over 250 digital tech companies received funding and over 80 companies were sold.
All of this investment and sales activity comes as Los Angeles is increasingly viewed from the outside as a legitimate place for entrepreneurs to build their companies. Recently, Silicon Valley-based entrepreneur and venture capitalist Peter Thiel called LA tech "underestimated," and said to the Los Angeles Times: “I'd definitely be short New York and long LA.”
Undoubtly 2014 was the year when the impact of Los Angeles tech startups became readily apparent.
“2014 was a banner year for LA’s tech ecosystem, which has helped grow our economy and reduce our unemployment rate by 2%,” said Mayor Eric Garcetti. “This report shows that Los Angeles has the creativity and talent needed for the digital tech industry to thrive."
The year of the YouTube MCN and the Maker Studios effect
In March 2014, Disney’s $500 million purchase of YouTube MCN Maker Studios turned heads and gave new legitimacy to YouTube focused tech startups. After that deal a cascade of investments started flowing into LA-based YouTube startups, including $25 million to TasteMade, $10 million to MiTú, $5 million to All Def Digital, $4 million to The Young Turks, and $500,000 to Omnia Media.
Several other YouTube startups also had nice exits in 2014 including MCNStyleHaul, which sold a majority stake to RTL Group for $107 million, and MCN Big Frame, which sold to Dreamworks Animation’s AwesomenessTVfor $15 million.
LA’s innovative advertising technology
Los Angeles advertising startups are often pioneering new advertising mediums, technologies and networks — they flourished in 2014.
In 2014, true[x], a company that has created an interactive pre-roll video advertising platform raised $6 million and later sold for $200 million to 21st Century Fox; Ad Colony, a mobile video advertising network, sold to Internet browser company Opera for $350 million; and The Rubicon Project, an automated buying and selling advertising exchange, raised $102 million in an IPO.
Snapchat’s $486 million funding round leads LA tech
Los Angeles’ most well known startup is Snapchat, and hours before 2014 ended the disappearing messaging and social media app company reminded the world why. On December 31st, Snapchat declared that it had raised $486 million in 2014; by far the largest fund raising round in 2014, and reportedly the 10th largest raise in US history. It is rumored that the company is valued at $10 billion. Not content with big investments and valuations, Snapchat launched paid advertising this fall.
E-commerce excellence: Dollar Shave Club, JustFab & The Honest Company
Another strength of Los Angeles, e-commerce had a good year. Several e-commerce companies raised large funding rounds and received big valuations.
Dollar Shave Club, a monthly razor subscription business that has grown via hilarious viral marketing videos, raised $50 million; JustFab, a monthly clothing subscription business, raised $85 million; and The Honest Company, a non-toxic consumer goods company, raised $70 million. The Honest Company and JustFab were each given valuations of around $1 billion.
All three of these e-commerce companies are brand-centric, a trait that is increasingly important to maintain customer loyalty, as large e-commerce operations like Amazon try to woo away consumers with low prices.
Bubble, what bubble? Money is finding opportunity
The stock market is up, unemployment is down and money is flowing into tech startups: are we seeing a return of the tech bubble?
Los Angeles-based investors don’t think so.
“We have not seen pricing become an issue for us,” said Mike Jones, CEO and co-founder of Santa Monica-based startup studio Science Inc. Overall, Los Angeles is "on a pretty strong path and I am excited to see where it leads.”
“I think it is a fool’s errand to predict when you’re going to hit the top of the market,” said Chirag Chotalia, a vice president at the Los Angeles office of venture capital firm Pritzker Group. “There are always compelling opportunities regardless of what part of the cycle you are in.”
As Los Angeles tech has grown, investors are seeing higher and higher valuations of companies, but that doesn't necessarily mean deals have become unhinged from the underlying value of startups.
"You certainly have to be choosier and more careful at this point in the cycle, and maybe even pay up a little more for the dominant company in any given industry, but there are still opportunities, ” said Chotalia.
Los Angeles focused Angel investor Paige Craig sees things similarly.
"I've seen overpriced deals every year - this one isn't any different in my mind. More importantly this(price) is the worst question to ask upfront as an investor: what's more important, investing in a great company or getting a "deal" on valuation?" said Craig. "I'd rather pay a small premium to work with amazing people."
The quality of the Los Angeles startup scene appears to be rising across the board.
“For several years now, LA has seen companies founded by not only first time entrepreneurs, but repeat entrepreneurs,” said Chotalia. “This, along with a healthy local capital base and a robust exit pipeline, is one of the key hallmarks of a healthy ecosystem.”
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