Will ECompanies Stand Test of Time?

When Jake Winebaum and Sky Dayton joined to create a new Southern California business incubator, ECompanies, a year ago this week, they attracted the kind of local attention not seen since DreamWorks SKG was unveiled in 1994.

Some observers called it a sign of the Los Angeles area’s economic revival, even a cornerstone of the Tech Coast, and supporters said it might rival the success of Bill Gross’ Pasadena incubator, Idealab. With backers such as Winebaum, 40, who launched Walt Disney Co.’s online unit, and Dayton, 28, founder of Internet service provider EarthLink, how could it lose?

But with stock market fortunes shifting as quickly as new companies are being created, some area venture capitalists and tech specialists are questioning the long-term staying power of several of ECompanies’ start-ups and wondering whether the ECompanies team may be more successful building publicity than going concerns.

Can enterprises such as EParties, an online invitation firm inspired in part by Winebaum’s 9-year-old daughter; EMemories.com, which develops film and posts pictures on the Web at no charge; and EHobbies, a community for hobby enthusiasts attract enough users--and, ultimately, new investors--to survive?

Skeptics point to the crowded spaces on the Internet and an investment market now hostile to firms specializing in selling goods and services to consumers online.

Some say the incubator hasn’t picked start-ups that have “breakthrough concepts” with clear advantages in important areas, and question whether ECompanies can produce successful publicly traded companies--the goal of most incubators and their venture investors.

“It would appear in the current climate that the bets they’ve made aren’t the way the market is going,” said Jon Goodman, who heads EC2, an incubator at USC. “But it’s not reasonable to judge any venture capital company in a one-year time frame. You need to give them at least five years.”

Winebaum and Dayton say that though their companies haven’t yet tested the public markets, they believe their venture is already successful. They point out that they have incubated 11 companies--nearly one a month--hired more than 450 people and made 29 investments with their $160-million venture fund.

The recent stock market shake-out is “a return to rational investing that we like,” Dayton said. “Our purpose is not to create public companies, but companies that change the world.”

“Judge us by the companies we build and their record over the long haul,” Winebaum added.

ECompanies’ incubator, which focuses exclusively on Web-based services, develops ideas generated internally as well as those brought in by other entrepreneurs. The incubator helps firms with the seven disciplines Winebaum and Dayton have identified as critical for start-ups: strategy, finance, recruiting, creativity, technology, business development and marketing.

Because an entrepreneur typically spends 90% of his or her time at a start-up raising money, getting partners and hiring, ECompanies’ strategy is to free up these people to focus on what they should be doing: developing the product.

“One of the great things about being in the incubator is that you can rely on their resources,” said Peter Gumbel, 42, former Los Angeles bureau chief of the Wall Street Journal who is helping develop Winebaum’s brainchild, Business.com, an online directory.

Several high-profile investors, such as billionaire George Soros, Goldman, Sachs & Co. and Sprint Corp., are betting on ECompanies.

ECompanies Venture Group’s first venture fund raised its money in just 60 days, faster than normal. EVG is now raising a second venture fund, which is expected to reach $300 million.

“It’s different than a year ago--harder [to raise money], yes, but it’s not impossible,” said Tim Spicer, managing partner at the venture fund, who honed his investing skills as chief financial officer at San Francisco investment bank Hambrecht & Quist during the 1980s. As an accountant in the 1970s, his clients included the venture capital firm Kleiner Perkins.

Spicer argued that the latest market swing is common in new industries such as the Internet.

“I just turned 50 and I’ve seen this movie before, three and four times,” he said. “The filter is tighter for people to get through and there is greater emphasis on near-term profitability and spending marketing money wisely. It’s painful, and I’m sure some companies won’t make it through. But it hasn’t changed since the 1970s.”

Meanwhile, the mood at ECompanies is upbeat, and the building is crowded, with more companies starting up in the firm’s Santa Monica office space near the Water Garden office complex.

Dayton said he has high hopes for Icebox, which develops animation content and was the first company to move out of the incubator when it leased offices in Culver City earlier this year.

Icebox (https://www.icebox.com) is wooing top writers and producers associated with such TV shows as “The Simpsons,” “King of the Hill,” “Seinfeld” and “The X-Files” and is getting rave reviews with its flash animation show “Zombie College,” which appears most Wednesdays on the Internet. The New York Times said in a review last week: “Every episode is smart and funny.”

Winebaum and Dayton say they have grown closer in the intense environment of the last year.

“We finish each other’s sentences,” said Winebaum, who focuses on the business Internet market, while Dayton focuses on the consumer market. “We get twice as much done with very little overlap.”

Many of the other venture capitalists in town praise the team.

“They are well-connected, well-respected and very smart people,” said Bill Elkus, managing partner at Idealab Capital Partners, a venture fund affiliated with Idealab. “Whether they can implement or not is another question.”

One of the biggest surprises in the last 12 months, Winebaum and Dayton agree, is how dramatically and rapidly investment trends have shifted.

They point to the hype around the once-hot business-to-consumer, or B2C, area, which quickly fell out of favor earlier this year.

“These shifts have been so extreme,” Dayton said. “If you focus on that--which we don’t--you don’t make wise investments.”

Nor does Dayton fret about the stalled market for initial public offerings, in which hundreds of companies are backed up, waiting for the environment to stabilize before launching their IPOs.

His philosophy: “Focus on your boat, and don’t worry about the weather.”

With so many technology companies being developed--there are now at least 800 business incubators nationwide--most start-ups already have competitors in their space or will shortly, Winebaum said.

“What’s going to differentiate our companies? Speed and execution of the idea.”

And Winebaum said the criticism from some corners is all part of the game.

“People are going to say what they are going to say. We are building companies that we think people need.”

Debora Vrana, who covers investment banking and the securities industry for The Times, can be reached at debora.vrana@latimes.com or at Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

ECompanies’ Companies

Since its formation a year ago, ECompanies has incubated an average of one new company each month. So far, only Icebox has officially left the incubator (it moved to offices in Culver City). ECompanies’ venture arm has made investments in 29 Internet companies. Here is a sampling of the start-ups in the ECompanies stable:

SANTA MONICA INCUBATOR:

Business.com: Helps businesspeople find business information on the Web.

Change.com: San Diego-based firm that allows businesspeople to find best prices for products. ECompanies decided it didn’t need to be physically located in the incubator--unlike the other start-ups--although it still gets support from the incubator’s team.

EFavorites.com: Network of people who make recommendations about everything from restaurants to dentists.

EMemories.com: Develops film and posts it on the Web.

EParties: Helps users create better parties.

Icebox: Provides entertainment-oriented animated content.

ECOMPANIES VENTURE GROUP:

AllAutoRepair.com: An Atlanta-based online automotive parts seller, linking businesses.

Backofficeweb.com: A Torrance-based processor of back-office transactions for business customers.

Bizbots.com: A San Francisco provider of technology for the business-to-business marketplace.

BizBuyer.com: Santa Monica-based business-to-business marketplace

for small and mid-sized companies.

Craftopia: Philadelphia-based Internet craft store and resource.

EHobbies: Santa Monica-based online community for hobby enthusiasts, such as model-train builders, to share information.

EmployeeService.com: San Francisco-based company offering outsourced employee-relations services.

ESubscriber: San Francisco-based platform for online sale of subscription products.

EWork Exchange: San Francisco-based online exchange to help businesspeople complete projects.

Exist: Santa Monica-based server to help companies improve their online business.

HardCloud: San Francisco-based site for people who “live to skateboard, snowboard, surf or mountain bike.”

HyCurve: San Francisco firm trains businesspeople on how to use the Internet throughout their business operations and to help their businesses.

LowerMyBills.com: North Hollywood-based site that allows customers to research, compare and lower their bills.

Mexico.com: Mexico City-based firm that offers a variety of Mexico-centric content.

Newsletters.com: Washington-based provider of expert information on various subjects, such as agriculture, biotech and human resources.

TheBrain: Santa Monica-based developer of graphics tools for organizing information.

ValueStar: Oakland-based rating system to help consumers determine the best local business services in industries such as auto repair and health care.

Wishclick: Mountain View-based personal gift registry for various occasions.

X:Drive: Santa Monica-based Internet hard-drive provider.