Digital Coast Partners Prepares for Birth of Its Own Internet Incubator
A new Internet business incubator is expected to be hatched in the Southland this week, joining such ventures as Idealab in Pasadena and ECompanies in Santa Monica.
Digital Coast Partners, a Santa Monica-based merchant bank formed in September to advise, incubate and invest in Southern California technology companies, plans to formally unveil its Web incubator, EVentures. Digital is leasing 15,000 square feet in Santa Monica for the incubator and has commitments of $20 million in initial funding.
James W. Montgomery, Digital Coast’s founder and the interim chief executive of EVentures, believes the Southern California tech community is strong enough to support another business incubator. He hopes Digital can help get Web and media companies started and then provide financing, management teams and advice as the firms grow.
“All of the pieces are there, like the Big Bang. We are just trying to get our arms around it,” said Montgomery, 40, adding that EVentures will unveil a permanent management team in January. “The deal flow is here, and there is a whole ecosystem in place, with lawyers and intermediaries providing support.”
While some question how many incubators Southern California can support--there are already about half a dozen--others in the tech community, such as Idealab founder Bill Gross, have said that new ones stimulate the region’s business climate, expanding the entrepreneurial pie. Idealab, the best known of the bunch, created such companies as EToys Inc., the Internet toy seller, and GoTo.com, the Web search engine.
“We have seen nothing but a huge increase in the amount of companies coming to us and the number of people coming with ideas to form companies,” said Bill Elkus, managing director with Idealab Capital Partners, the venture arm of Idealab. “The term ‘incubator’ has become very fashionable. . . . If it means early stage--getting companies formed--of course there is plenty of room. This is the second biggest city in America.”
Southern California is increasingly becoming a center of start-up financing, with venture capital investment up 66% to $1.8 billion for the year so far, according to the accounting firm PricewaterhouseCoopers.
The number of incubators is rising in other parts of the country as well, including in North Carolina’s “research triangle” and in Florida. Atlanta has more than half a dozen new for-profit incubators hoping to cash in on the tech boom.
Digital Coast has already helped such Internet companies as Rightstart.com, a Westlake Village-based retailer of goods for newborns and children, by providing advice and completing a $15-million private equity placement, and Gotajob.com, a Denver-based Web employment firm it helped secure $8 million in venture funds. Most recently, Digital Coast helped complete a first-round $1-million financing for Speakeasy, a Seattle-based DSL, or digital subscriber line, service provider.
James’ older brother, Michael Montgomery, 45, recently resigned as president and chief executive of Los Angeles-based Sega GameWorks to join Digital Coast. Michael Montgomery is working to raise $250 million for Digital’s first venture fund, to be called Digital Coast Capital. The fund will focus on Internet and media firms.
“It’s ambitious, but I think given the kind of people we are talking to, it can happen,” said Michael Montgomery, a former treasurer and vice president at Walt Disney Co. and a former senior executive at DreamWorks SKG, where he led an effort to raise $1 billion in private equity financing. “Ours would not be [the investors’] first fund.”
Digital Coast has a strategic relationship with Palomar Ventures, an $80-million fund in Santa Monica that has invested in seven companies so far, including Rightstart.com, said James Gauer, Palomar’s general partner.
“Rightstart.com is an example of the click and mortar concept that seems to be working so well now,” Gauer said, referring to the company’s strategy of generating sales on the Web and at retail stores. “[James] Montgomery finds a lot of interesting deals in the early stage. These guys are relentless at the kind of networking you need to do to find these opportunities.”
Digital Coast Partners, which has 20 employees and plans to expand, has folded in two of James Montgomery’s existing ventures, the boutique investment bank CEA Montgomery and the consulting firm Montgomery & Associates.
One of Los Angeles’ largest law firms, Gibson, Dunn & Crutcher, is providing legal advice to Digital Coast. Partners are considering establishing a technology group to service start-ups, including those incubated at EVentures.
Eric Spivey, chief executive with San Mateo-based NetGravity Inc., an Internet advertising company that recently announced plans to merge with New York-based DoubleClick Inc., said he plans to invest with Montgomery’s fund.
“His Rolodex is solid,” Spivey said. “There is an incredibly strong group of people that he knows, not just in Silicon Valley, but in Asia and Europe.”
Montgomery is a graduate of Pacific Palisades High School, UC San Diego and Cambridge University.
A father of four, he funds scholarships to underprivileged youth pursuing careers in the high-tech industry.
His incubator will join local competitors such as ECompanies, which was formed in June by Jake Winebaum, a top executive from Disney’s Buena Vista Internet division, and Sky Dayton, founder of EarthLink Network, the Pasadena-based Internet service provider.
“We think there’s plenty of room here,” Montgomery said. “We want to be part of a very successful tech community--we don’t want this to be a flash in the pan.”
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Debora Vrana covers investment banking and the securities industry for The Times. She can be reached at debora.vrana@latimes.com or at Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053.
