eCompanies Aims to Conquer L.A.’s Vastness

Los Angeles has often been described as 79 suburbs looking for a city, sprawling as it does over a huge geographic region with police precincts larger than the state of Rhode Island.

This vastness dilutes everything including businesses and technology expertise, making it harder for start-ups to find both the talent and the funding necessary to launch themselves above the smog. Other than Brentwood Associates (which melted down August 18 when its core of heavyweights left to form a new Internet fund), traditional venture capital firms have shied away from the L.A. basin because the lack of focus made it hard to locate investments.

Pasadena-based idealab! was the first to address the problem with the 1996 launch of its incubator operation in the shadow of Caltech.

Now on the other side of the basin, down by the beach in Santa Monica and just west of UCLA comes eCompanies with $130 million in its new fund and another take on solving the same problem. Founded in early June by Earthlink chairman/founder Sky Dayton and Jake Winebaum, former chairman of Disney’s Buena Vista Internet Group, eCompanies’ war chest comes from a consortium that includes (not unexpectedly) Disney and Earthlink, but also Accel Partners, CS First Boston, Goldman Sachs, KKR, Soros Fund Management, Sprint, Sun America and Times Mirror (owners of the L.A. Times).

The fund will be managed by Tim Spicer, formerly president/COO of Sentry Investment Group and CFO of Hambrecht & Quist and Steven Ledger, the earliest venture capital backer of Earthlink.

“I agree that the geographic spread and the abundance of angel money from the entertainment industry made it hard for traditional VCs to see the opportunities,” said Spicer, a founder. But, he added, an even more important aspect was the ability to keep closer rein in start-up investments in an era when a glut of venture capital is chasing too few good investments.

eCompanies has launched two ventures: an incubator operation that will provide office space, expertise and support services to embryonic companies and a venture capital fund that will help nourish those companies. But unlike idealab!, which requires its companies to locate themselves in its Pasadena facilities, Spicer said that eCompanies will also look at investments other than those in its incubator facility and even possibly those located beyond its primary target region: the area between Santa Barbara and Irvine.

The ability to look beyond its own incubator frees eCompanies of the incubator’s biggest investment restriction and allows them to take advantage of opportunities that a company such as idealab! would not have.

While eCompanies said that its operation would allow new companies to get to market more quickly, Daniel H. Rimer, Managing Director of Hambrecht & Quist’s Internet and Media group said: ” In many cases, incubated companies have more difficulty getting off the ground because tinkering is part of the habitat.”

“Jake and Sky want to make things happen quickly,” countered Spicer, “so I don’t that that will be part of our habitat.”

Spicer said the company now has more than 20 employees and has “several” investment deals already done which will be announced in September.

With the venture capital taps as wide open as the Southern California spaces, the Internet Incubator just might become the “L.A. Way” to the nearest cyberspace on-ramp.

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