On this episode of the L.A. Venture podcast, sit down with Daniel Leff, the founder and managing partner of Luminari Capital, as well as the co-founder and managing partner of his latest fund, Waverley Capital.
Leff has spent 22 years investing in media space. Both Waverley Capital and Luminari Capital are focused on investing in digital media disruptors and innovators.
In this conversation, Leff shared some insights on his work with Waverley co-founder Edgar Bronfman Jr., the CEO of Warner Music Group and former CEO of Universal Studios.
Leff says he and Bronfman see their fund's mission as "trying to find invest in and help build what we call category defining media companies."
Leff has devoted his career to this mission; he was the second institutional investor in Roku. Today, his portfolio includes Headspace, Wondery, FuboTV, Matterport and The Athletic.
He says media is a unique industry, especially in L.A.
"In the media industry, it's a different path to be disruptive," he says. "Business is done differently. It's almost never that a very young person can come into the market and rail against the establishment and expect to be successful."
He argues it's important for both startups and enterprise companies to not "chase the past" and to recognize that you cannot "put Disney out of business. You can't put Comcast out of business. You can't put Viacom out of business… but you can disrupt them."
In the rest of this episode, Daniel shared about how he got established in media, his connection with Roku founder Anthony Wood and his plans for moving forward.
Daniel Leff is the the founder and managing partner of Luminari Capital, and the co-founder and managing partner of Waverley Capital.
"People say content wants to be free. No it doesn't. Great content requires a lot of investment."—Daniel Leff
dot.LA Engagement Intern Colleen Tufts contributed to this post.
Venture capital dollars are flowing into Southern California startups at a record pace and it's paying off for top Los Angeles investors who are riding the wave.
Valuations jumped in the second quarter for more than half of the investors surveyed in dot.LA's quarterly poll of top Los Angeles venture capitalists — while optimism remained high about the economic recovery.
"It was almost like we ended 2020, we all survived, the vaccine came out, there was a light at the end of the tunnel," said Petra Griffith, founder of Wedbush Ventures, an early-stage venture fund that invests in seed and pre-seed stage companies. "There was a lot of bullishness in the market, it felt like a lot of momentum in the market overall that also spilled in seed stage."
She said while valuations bumped up, she felt the pace slowed down a little bit in the second quarter.
VC investment in the second quarter for the Los Angeles-Long Beach area totaled $8.5 billion, spread across 365 different deals. That's down from Q1's $9.4 billion, but still more than double the investment from the same time period last year ($3.9 billion), according to a National Venture Capital Association and PitchBook report.
And megadeals of $100 million are becoming more common.
Eric Manlunas — another early-stage investor who is also founder and managing partner at Wavemaker — said he's definitely seeing a fair amount of valuation in part because entrepreneurs are seeing inflation happening and the perception is that everybody is more valuable now.
"Some of them are very stubborn about it and they won't budge, and they'll pick and choose term sheets and they'll take their time and they're optimizing for valuation, which I don't blame them for," he said. "Unfortunately, for early-stage investors, we don't like it when things get out of hand, which we think they are, but it is what it is, and you've got to just pick and choose your battle."
Dustin Rosen, founder and managing partner of Wonder Ventures, said valuations reached new highs in the first quarter for him as the pace of deals continued for him into the second quarter. "I wouldn't say it went any higher or sped up, but it certainly didn't slow down," he said.
All of the 33 investors who took the survey said they saw employee headcounts increase last quarter and more hiring is on the horizon among their portfolio companies, though some said they're having trouble retaining employees.
As more capital flows into tech, companies are expanding their teams resulting in more hiring.
Mark Mullen, co-founder of Bonfire Ventures, said his portfolio companies are having a harder time hiring because of fierce competition among tech companies for talent.
"There are more companies getting funded and therefore those companies need to hire more people, but there's more capital at all these companies so they have the ability to perhaps pay more or offer incentives, there's a lot more people offering more," Mullen said.
While smaller firms were always competing against the Amazons and Netflixes, now the entire ecosystem is competing against each other, he said.
Shamin Rostami Walsh, managing director at BAM Ventures, said she is also seeing more difficulty in hiring.
"There are certain roles that almost all portfolio companies need and lots of optionality for the most talented," she said.
"I find that it's harder to find the right person, but people are doing their homework and weighing the options, so once they do accept a role, they stick around the same way they would have historically."
The second quarter hasn't changed most investors's minds about the speed of economic recovery as the effects of the pandemic wane. Although it is noteworthy that the survey was conducted before L.A. County's public health department reinstated its indoor mask mandate.
Manlunas, who calls himself a pathological optimist, is more hopeful. He believes we are heading into the 21st century version of the "Roaring 20s."
"The pent up demand is driving a lot of unusual behavior," Manlunas said. "On the upside, there's a lot of forced savings that's being unlocked right now, being spent on experiences, being spent on material things, being spent on consumer goods," which could lead into a virtuous cycle.
"What the lockdowns have done and what the pent up demand have done, is it could be a nice kick in the butt, so to speak, to jumpstart a nice economic cycle."
"Let's hope it doesn't end like the 1920s," he added.
Most investors surveyed said they're allowing employees to work both in the office and at home using a hybrid model, while 11% are planning on staying remote and 22% said they've already returned to the office.
Many workers are quitting rather than working out of an office and many tech companies like Apple and Google, are taking a hybrid approach rather than a full return to the workplace.
While valuations are high, it's not preventing deals from closing. Only three investors said they made fewer deals in the second quarter.
While there has been a record number of VC investment, Krisztina "Z" Holly said it hasn't changed the way Good Growth Capital, which specializes in early-stage complex science and technology startups, invests.
"We do the same due diligence. We have a huge number of great deals coming in the door, we just add a lot of value, it hasn't changed how much we can invest," Holly said.
Looking ahead, Griffith said she is excited to see what the third quarter brings given the creativity she is seeing coming out of Los Angeles.
"It feels like there are a lot of really interesting companies in L.A. that took the last six to nine to 12 months to do research and validate the target market and I've seen a lot of interesting companies in the last six weeks to two months," she said.
"I hope that this is not an aberration, but a larger trend and I'll be curious to see how the next quarter or so plays out."
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Growing up in D.C., Cole Van Nice didn't have a hometown baseball to cheer on (the Nationals were still a few decades away from existence). That may have been a cause for consternation for a young sports fan, but when he got older and co-founded the L.A. Dodgers ownership's private investment arm, Elysian Park Ventures, it at least meant there was no gnawing feeling of disloyalty.
Founded in 2014, the firm's name is a nod to the 600-acre city park that hosts Dodger Stadium and the firm's headquarters. It's a way of acknowledging the origins and DNA behind the venture capital endeavor, which boasts a portfolio of around 45 mostly sports-focused companies and has written checks ranging from a $250K to over $100 million for startups at every stage of the growth.
"We can move up and down the capital structure depending on the opportunity," said Van Nice, who wrestled and played football in college. "The only constraint is domain: Everything we do is in the sports world."
Elysian Park Ventures co-founder and Managing Partner Cole Van Nice
Fortunately, the sports world is large. Elysian has investments at every level of competition, ranging from youth all the way up to professional. It's backed companies in esports, sports betting, sports science and technology. It has even had a hand in venue operations, ticketing and fan experience. Van Nice said there's no overarching investment strategy that can be distilled down to a maxim, but a core thesis behind the company is that technology will continue to radically change how people participate and interact with sports.
That thesis, Van Nice said, has been accelerated by the COVID-19 pandemic. As sports everywhere shut down for months, Elysian saw the remains of the industry lean more into the digital realm. Esports, streaming and virtual fitness platforms thrived in the lockdown world. Without live events, delivering content to consumers became a technology question more than ever. Though there were certainly difficulties for some of their partners, (how does one bet on games that are canceled?), Van Nice said COVID ultimately advanced the timelines for the industry.
"Most of our portfolio came out of COVID stronger than they were going in," he said.
Now, with COVID hopefully receding further into the past, the rest of the sports industry is beginning to recover as well. In an analysis of job postings in sub-industries around sports, Rucha Vankudre, a research manager at Emsi Burning Glass, said that growth in the industry appears to be on a sharp rebound. "Obviously in 2020 we saw a big hit across the board. As we look at 2021, growth is higher than what it was in 2019. It's not quite at the same level yet, but the rate that it's growing has increased, which seems like a good sign," he said.
Elysian Park also runs a project called Global Sports Venture Studio, an incubator for ideas and startups in the sports world, with Elysian serving as a link between startups and industry giants like Major League Baseball, Dicks Sporting Goods, or Adidas. The formula has seen some considerable success too. Van Nice points to a 2015 collaboration between two AI-powered sports analytics companies, Keemotion and ShotTracker, that eventually led to a deal in which Keemotion was acquired by SportRadar earlier this spring, buoying the parent company's latest valuation north of $10 billion dollars.
"That's an opportunity where we were able to innovate early, run it through the Venture Studio Program, deploy a lot of capital against it to build it, and then ultimately see it get acquired by one of the global leaders in the space," said Van Nice.
Even though two of its teams are named after literal Disney movies, the Los Angeles metro area is still a hub for professional sports, with 11 major league teams, including two NBA, two MLB, two NHL and two NFL. And Van Nice said the venture scene is equally robust. "We've had nothing but the highest quality experiences here, both with the entrepreneurs that we've worked with, and the local VCs," he said. "Given our ownership group has a lot of ties to Los Angeles, it's a critically important market for us."
Like a kid at a lunch table reciting rushing yard stats, he rattles off a list of a half dozen or so local startups he's impressed with to illustrate his point. It's easy to tell he's a sports guy.
Editor's note: Elysian Park Ventures is an investor in dot.LA.
Correction: An earlier version of this post referred to Van Nice as Elysian Park's CEO. He is their co-founder and managing partner.
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