Slowest quarter in two years for L.A. start-up investment

Beatriz Avecedo and Doug Greiff supervising production for Mitu, an online video maker that raised $27 million from Upfront Ventures and others in January.

The first quarter marked the slowest period for investment into Los Angeles start-ups in two years, with just under $400 million going to about 50 companies.

The last time so little came into the Los Angeles region was the first three months of 2014, with $319 million across about 50 start-ups, according to the National Venture Capital Assn. and PricewaterhouseCoopers. Funding has been trending downward since the beginning of 2015, as investors wait to see how big bets placed in the last couple of years play out.

It’s taking a while because start-ups are growing more slowly and conserving more cash — reducing their need for new capital — amid an uncertain economic climate that has led mutual funds, hedge funds and corporate investors who once wrote big checks to hold back more often. 

Investors are also losing out on some outside signals that could help them judge the strength of their companies because the number of acquisitions of venture-funded start-ups has dipped over the last year and few tech companies have gone public since last summer.

Venture capitalists have adjusted, saving their cash to prop up existing investments, sharply cutting into the number of start-ups they back for the first time.

The total spent in first-time financing decreased 31% to $1.7 billion in the first quarter compared to a year ago, and the size of the average first-time deal in the first quarter was $5.7 million, down from $6.9 million in the quarter before.

Tom Ciccolella, U.S. venture capital market leader at PwC, called it a “shift towards relatively mature startups.” The top first-quarter deals in Los Angeles included about $60 million to video doorbell company Ring and $27 million to Latino-focused online video company Mitu

While seed and late-stage investment stayed relatively flat in Los Angeles, early and expansion stage investments took a hit. Early stage investment into Los Angeles area companies fell to $78 million in the first quarter, down from a quarterly average of $247 million in 2015. Expansion stage investment came in at $185 million, falling from a quarterly average of $352 million last year.

"The fear of missing out from last year changed to a 'I can wait' position" in recent months, said Carl Kirchhoff, who as co-founder of online video app EverSport Media has been in talks with investors. "Blue-chip VCs all around the world are less interested in leading [investment] rounds than in advising their existing portfolio companies on cash-flow management and profitability."

Blockbuster financings are disappearing too. Just five deals across the world in the first quarter valued the company receiving new funds at more than $1 billion, compared with 25 each during the second and third quarters last year, according to research firm CB Insights and auditing firm KPMG. Meanwhile, 18 companies in North America received more than $100 million during the quarter, compared with 24 companies or more in each of the first three quarters last year.

Demand ditches Cracked

Santa Monica online media and arts company Demand Media sold humor website to TV station company E.W. Scripps Co. for $39 million in cash, a return that offsets years of losses after purchasing it from an investment group for under $1 million in 2007.

For Scripps, the 40-employee Cracked operation provides a portal to aggressively develop infotainment for young consumers. Right now, Cracked pulls in readers from social media with silly numerical lists and offbeat articles. Scripps hopes to do the same using video — with a focus on news, albeit with a shade of comedy.

Cracked generated an undisclosed profit last year and revenue of nearly $11 million, accounting for about 9% of Demand’s annual total.

For Demand, the substantial cash infusion will help it invest in fast-growing online art and design websites Saatchi Art and Society6. The company also owns how-to site eHow and health-tips provider Livestrong.

Highlights from an Ohio State vs. Michigan State "League of Legends" game in Riot Games' Campus Series tournament.

‘League of Legends’ hits TV

College sports broadcaster Big Ten Network plans to air a “League of Legends” competition between rivals Ohio State and Michigan State.

The eSports action, which begins Friday afternoon, will stream live online. A taped TV broadcast is set for April 25. The airing is Los Angeles gamemaker Riot Games’ latest experiment with sharing tournaments for its computer game beyond apps like Twitch and YouTube. Previous forays have brought gaming to ESPN and BBC. 

A successful showing would be great news for the Big Ten Network, which, like other regional sports networks, is starving for affordable content and new viewers. ESports represents a big, though unproven, opportunity.

“The Big Ten Network was ahead of the trend in recognizing the growing popularity of collegiate esports and scholarship programs,” Riot’s director of business development Sean Haran said in a statement.

Haran previously held a similar role at 20th Century Fox, whose corporate sibling Fox Entertainment Group co-owns the Big Ten Network with the collegiate conference.

The matchup is an exhibition of sorts. Ohio State already eliminated Michigan State from the playoffs of Riot’s university-level competition before being knocked out themselves. But players, who go by handles like “BaconSeeker” and “IndianMama,” still see a plenty of bragging rights at stake in the intraconference battle.

The Final Four of the actual playoffs taking place this weekend include Robert Morris University, University of Maryland, Georgia Tech and the University of British Columbia.

Elsewhere on the Web

Livit, a Los Angeles company developing a service to live stream 360-degree videos, aired content from a recent political conference and a music festival, according to Fox News.

Anonymous message board app Whisper has soared to 30 million monthly users from 10 million last fall, and the Venice start-up introduced a polling tool, according to Adweek.

Smart toys maker Spiral Toys, based in Agoura Hills, is raising $1.18 million through convertible debt sales, according to the San Fernando Valley Business Journal.

The computer programming staff of the city of Los Angeles' Information Technology Agency is 42% female after working with industry groups and providing management training, the unit’s head wrote in an op-ed for StateTech.

In case you missed it

The California Competes committee awarded app maker Snapchat Inc. and Chinese-funded electric car start-up Faraday Future millions of dollars in tax breaks last Thursday. But first, both of the Southland start-ups fielded questions from a committee member about employing and providing leadership opportunities to people of all backgrounds.

Nothing prepared the Central Valley for high-tech nut thieves, an organized network that has hacked databases, falsified documents and shifted tactics to adapt to security measures.

Never mind, phone addicts: AMC won't let you text in theaters after all.

Coming up

Yahoo reports first-quarter earnings Tuesday, a day after potential suitors for the struggling online media and advertising company faced a deadline to submit takeover bids. Even as its days may be numbered, Yahoo continues to list hundreds of open positions at headquarters in Sunnyvale and at offshoots in Los Angeles elsewhere. Jobs available include a senior director of global partnerships and business development for sports in Los Angeles and an intern for the Yahoo Entertainment Studio in Santa Monica

Twitter: @peard33

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