With New Year’s Eve now just a speck in the rear view mirror, the number-crunchers have had time to reconcile the year that we just put in the books. This morning Pricewaterhouse Coopers and the National Venture Capital Association released their annual MoneyTree report, revealing that VC invested $29.4 billion in 3,995 deals in 2013, representing an dollar value increase of 7 percent and a deal volume increase of 4 percent over 2012. It’s a useful 30,000 foot view of the ecosystem, but makes it difficult to see what’s going on at the ground level.
Looking specifically at individual ecosystems can be more helpful. Built in LA released its own year-end report which shows reflects a similarly strong year in the LA startup ecosystem. This year was the first in which LA startups attracted more than $1 billion in venture capital, with the year’s $1.09 billion funding total topping 2012’s total of $871 million raised. The region also generated more than $1.1 billion in M&A returns across 25 deals. The report shows that 200 new digital companies were started in Los Angeles in the last 12 months.
Before going much further, it’s important to point out that data of this sort is inherently flawed because the details of many private company transactions go unreported. For that reason, similar reports and databases often disagree on the exact figures for investment activity a particular region or industry. (See our December coverage of the CB Insights LA Venture Capital Almanac, for example, which lumps together data over a four year period and also encompasses Orange County.) But, rising above this minutia, studying overall trends and year over year changes in data can still be rather enlightening.
Like most ecosystems, LA was heavily weighted at the top, with 12 companies raising more than $25 million and, with $489 million raised, representing nearly 45 percent of all capital flowing into the region. In total 133 companies raised more than $1 million during the year. The big winners were SnapChat which amassed $123 million over two in new funding at eye-popping valuations, JustFab which raised $55 million (across two rounds), and EdgeCast which raised $54 million just six months before selling to Verizon for $350 million. Other big raisers include Marketshare, TrueCar, FullScreen, Science, Maker Studio, Knowledge Adventure, OpenX, Honest, and TopLine Game Labs.
Following national trends, software was the dominant category in LA. Roughly 23 percent of all deals in LA were in the software sector, which collectively attracted $304 million in investment. Nationally, that ratio soared to 37 percent, according to MoneyTree, up from 27 percent the year prior. Investors also found plenty of things to like in the consumer Web, ecommerce, and mobile sectors in LA, which attracted $273 million, $221 million, $194 million respectively over that last 12 months. LA may not be known for its enterprise scene, but the fact that companies in this sector attracted $100 million validates our earlier report that SoCal has a budding SaaS ecosystem.
On the exit front, EdgeCast was joined by Goodreads (acquired by Amazon for an undisclosed sum, thought to be north of $100 million), mFoundry (acquired by Fidelity for $120 million), Awesomeness TV (acquired by Dreamworks for $117 million, including incentives), Dermstore (acquired by Target for north of $100 million), and Kotura (acquired by Mellanox for $82 million).
Perhaps more important as any other stat in the Builtin.LA report is that more than 180 different VCs and angels invested in Los Angeles startups in 2013. The biggest knock on SoCal over the last decade has been a lack of capital. And while there is still room to grow in this regard, this data supports the anecdotal trend that capital is more mobile than ever these days, and that the LA is warranting more attention from both out of town investors and those locally who are choosing to be more active in this current market.
Overall, the picture of the LA startup ecosystem is one the is trending in a positive direction. More so than 2012, this last year was a period dominated by activity at the top of the food chain. Large companies seemingly raised high profile funding rounds and struggled to live up to their potential in equal measure. The year prior, by comparison, was the year of the accelerators, and of a new startup raising seed funding seemingly every day.
In the shift from hype to substance, we can watch LA maturing as a startup market. There is still plenty of activity at the early stage, but it is being met with the appropriate balance of excitement and skepticism, something that was sorely lacking just a few years ago. People on the ground and watching from places like Silicon Valley and New York are demanding that these companies deliver on their promise of disrupting markets and delivering value to their business and consumer end-users.
For those with a vested interest in the LA ecosystem, hopefully 2014 will be the year that a few of these large and promising companies take that final leap to multi-generational status. The region has Cornerstone OnDemand, and seemingly SpaceX and Tesla in this camp. For LA to cement its status as an elite startup ecosystem, it needs to add to this list.
Looking over the 2013 data suggests that LA isn’t a pretender. But, getting over the hump to sustainability remains an “if” rather than a “when” proposition.