Derek Norton and Jeremy Milken have recognized one another for twenty years. Over their longtime private relationship, the 2 Los Angeles-based serial entrepreneurs have invested in one another’s corporations and funding companies, however by no means labored collectively till now.
Milken is taking the plunge into institutional investing, becoming a member of Norton as a accomplice in Watertower Ventures simply because the agency prepares to shut on a $50 million new fund.
It’s an auspicious time for each Los Angeles-based businessmen, because the LA enterprise group sees a wave of expertise expertise relocating from New York and San Francisco within the newly distant work tradition created by the COVID-19 epidemic.
“I see two issues occur. One folks take a look at the results of the place the market’s going. We’re seeing much more corporations which are beginning up now on account of a [the pandemic],” mentioned Norton. “New firm formation is occurring quicker than earlier than covid. [And] loads of enterprise capitalists which have relocated to LA. They’ve moved all the way down to LA for way of life causes they usually’re saying that they don’t want to return to San Francisco.”
For Milken, the chance to get into enterprise now could be a operate of the corporate creation and acceleration of digital adoption that Norton referenced. “The pandemic is accelerating change within the market. Issues which may have taken a decade are taking two years now,” Milken mentioned.
These alternatives are creating a gap for Watertower Ventures in markets far past the Hollywood hills. The agency, whose unique thesis targeted on Los Angeles, San Francisco, and New York, is now slicing checks on investments in Texas and Utah, and spending a lot much less time on the lookout for corporations within the Bay Space.
Norton’s newest fund is the one the latest act in a profession that has seen the investor traverse the monetary providers digital media and the early days of the web. Norton constructed Digital Boardwalk, a pioneering web service supplier and the second business accomplice for the trailblazing browser service, Netscape.
Later, at Jeffries Applied sciences, and the $120 million Leisure Media Ventures seed and early stage enterprise capital fund, Norton was intimately concerned in bringing tech to market and specializing in early stage investments. With that in thoughts, the Watertower Ventures group, which launched in 2017 with a small, $5 million fund, is a return to these roots.
The plan, even on the time, was at all times to lift a bigger fund. After founding and working the boutique funding banking enterprise at Watertower Group, Norton knew he needed to increase a starter fund to show the thesis he was engaged on.
That thesis was to offer a bridge between early stage corporations and huge expertise corporations utilizing the community that Norton has constructed within the Southern California tech and leisure group over many years.
“We wish to take our contacts at Google, Apple, Fb, Disney, Microsoft, Cisco, Verizon, AT&T, Comcast, and different corporations we consider ought to have a relationship with our portfolio corporations, and assist the CEOs and administration groups extra successfully do enterprise improvement,” Norton advised SoCal Tech when he closed his first fund in 2017. “We wish to join them to the suitable particular person at these corporations to create a business relationship. That has a very giant influence on early stage corporations, who usually don’t have a deep community of relationships, and the flexibility to get to these kind of individuals. It’s due to our advisory enterprise that we’ve these relationships, and that’s additionally why these relationships keep contemporary and energetic, versus individuals who aren’t in these companies. It’s virtually a full time job to take care of that, and that’s the place our value-add is.”
Milken, who has spent his skilled profession in entrepreneurship, was able to strive investing, and was intimately aware of Watertower and its portfolio, as an investor within the agency’s first $5 million fund.
“Two years in the past we began having these conversations,” mentioned Norton in an interview. “As Jeremy exited his enterprise in September it created the chance to exit and lift collectively because the evolution of our partnership.”
With the brand new capital coming in, Norton expects to again some 30 to 35 corporations, he mentioned. And, in a testomony to the primary fund’s efficiency, which has it within the high decile of enterprise funds for its classic, Norton mentioned he was in a position to increase the capital amidst the financial uncertainty attributable to the COVID-19 pandemic. Some 70 % of the prevailing portfolio has been marked up, in line with Norton.
Although restricted companions, the buyers who again enterprise funds, have been reluctant to commit capital to new companies in March and April, fundraising returned with a vengeance in June and July, in line with Norton. The paper efficiency doubtless was sufficient to woo extra restricted companions and particular person buyers together with TikTok chief government Kevin Mayer, the previous head of streaming at Disney.
Mayer’s presence within the agency’s investor base is a testomony to the agency’s pitch to founders. “We view fundraising as an enormous distraction for these early stage corporations from their enterprise. We attempt to ship that community that’s ours to these founders,” mentioned Norton.
“I believe we’re in a singular place beginning with a contemporary fund right here,” says Norton. “Uncertainty creates alternative and persons are bringing options. We haven’t observed any slowdown in any respect, we’re working with twenty 5 corporations per week. Because the inception of the fund, we haven’t seen deal circulation at this degree.”