Two new venture capital funds in L.A.: One for gaming. One for business software
Investing in start-ups trying to make video games has fallen out of favor in much of the venture capital community.
They’re difficult-to-predict businesses, driven more by characters and animation than by novel technology and often have limited potential buyers if they don’t work out as well as expected.
But Xsolla, a Sherman Oaks company that helps game makers offer virtual goods and process payments, needs more developers to thrive to keep its own business healthy. So its founder is stepping in to help fund small gaming companies.
Alex Agapitov and two business partners pooled their personal money along with cash from other wealthy individuals to form Xsolla Capital. None of the money is from Xsolla’s profits, Agapitov said.
The quirk in their $30-million fund is they won’t be waiting to generate profits until when a company sells or holds an initial public offering. Instead, Xsolla Capital plans to back specific games and collect up to 50% of their revenue for about a decade.
The royalty structure is aimed at creating a more sustainable way to replenish funds and keep investing in new companies, Agapitov said. The firm hopes to generate a threefold return on its principal.
Game makers could land similar deals from publishing companies that help distribute games, except publishers take up to 75% of sales and demand more input in the look and feel of games, Agapitov said.
“We want people who make the games to have independence and creativity,†he said.
On average, Xsolla Capital plans to offer start-ups $2 million. If they accept, they would get advice on marketing and help landing connections in Hollywood to get movie characters or actors in their game. But they won’t be required to use Xsolla’s services. Marketing its technology is an impetus for the fund though.
Xsolla, which employs about 250 people and mostly works with desktop computer game makers such as Ubisoft and Hi-Rez Studios, has been growing sales at nearly 30% annually. It’s begun landing customers in Asia and for virtual reality games.
Fika Ventures hopes to avoid the acqui-hire
Two Los Angeles venture capitalists who left their former firms have teamed on Fika Ventures, with plans to invest primarily in local companies developing business software.
Eva Ho, who’d been at Susa Ventures, and TX Zhuo, formerly of Karlin Ventures, raised $40 million from several institutions and funds and plan to make about 35 investments.
“We wanted to be a stronger, bigger franchise in L.A.,†Zhuo said.
They’re putting an emphasis on identifying entrepreneurs committed to developing a gigantic business as opposed to ones willing to create a foundation and then quickly sell to a bigger firm.
Small acquisitions — sometimes known as acqui-hires when they’re more about securing workers than technology — don’t make for spectacular profits for investors, Ho said.
“We don’t bemoan those outcomes, but that’s just not the kind of outcome we’re looking for,†she said.
Ho and Zhuo said they would try to more closely vet the motivations of entrepreneurs by sitting in on their meetings with customers and potential employees and asking them to meet with people in Fika’s social network.
“We ask the question around why [they’re doing this] in multiple different ways over multiple different days,†Ho said.
They’ve made three undisclosed investments so far. Some of their cash comes from Los Angeles start-up founders, including Nick Green of Thrive Market and Gil Elbaz of Factual. Fika’s office is in Sawtelle.
Karlin Asset Management, which had formed Karlin Ventures, didn’t respond to a request to comment. Karlin Ventures, with $35 million, has become a prolific tech start-up investor in Los Angeles.
Experience-rental start-up Joymode launches widely
Joymode, a subscription service that offers short-term rentals of irregularly used goods such as movie projectors and beach chairs, started welcoming all Los Angeles customers Tuesday.
The service had been invitation-only for about a year, amassing about 1,000 individual subscribers and several corporate members in that span.
Chief Executive Joe Fernandez said the company is prepared to handle more demand now that it’s figured out how to do deliveries without glitches.
Subscriptions cost $99, and people use the service about every six weeks, Fernandez said. Joymode aims to save customers money and space by supplying items like vacuum cleaners, specialty cooking tools and now childrens’ toys only on occasions they’re needed.
Joymode offers about 100 kits, with a goal of adding at least one a month. The Los Angeles company provides one experience as a free trial.
Elsewhere on the Web
Blavity, a news website aimed at young black people, relies on reader-submitted articles for 60% of its content, according to Wired.
Start-up development program Amplify.LA recorded nearly $370 million in seed investment to Los Angeles companies last year, according to the Los Angeles Business Journal. About 250 investors disbursed the cash across 180 deals, according to the firm’s tally.
Tinder acquired Los Angeles video-sharing app company Wheel for an undisclosed amount, according to Variety.
In case you missed it
Snap’s IPO builds an “impregnable fortress†where only the founders have power.
Snap sets IPO targets: $3.7-billion windfall and $22-billion valuation.
How much money Snap’s existing shareholders could reap in the IPO.
Snap is headed toward Los Angeles’ biggest IPO ever. How come local venture capitalists missed out?
Snap poached a top Instagram executive in 2014. But it ended in an expensive resignation.
San Francisco loves tech and fancy coffee. So of course it has barista robots.
Coming up
Splash Ventures, a Los Angeles mentorship program for Israeli start-ups, is scheduled to hold a showcase of eight such companies on Wednesday. Presenters include a company building a virtual assistant to help with math homework and a company trying to build a simple gardening system for marijuana.
Twitter: @peard33
