Derek Norton is head of Los Angeles-based Watertower Group (www.watertowergroup.com), a firm which helps companies raise funding, one of the rare companies which has a track record and good reputation helping companies with fundraising, and also runs its own investment fund. Watertower has been involved in a number of high visibility exits and fundings in recent months, including Riot Games (rumored to be $400M+), Machinima, and ExtendMedia. Norton spent some time talking about his vision of where LA's future in high tech lies.
First off, talk about your involvement in some of the companies here, and also explain your view of where Los Angeles is going in the technology world?
Derek Norton: I'm a fourth generation Angeleno. I'm on Villaragosa's small business advisory council, and I'm trying to do cool things. As you k now, there is so much cool stuff happening in Los Angeles, in Santa Monica. We have been fortunate to be part of a number of exiting Los Angeles companies. I think you know Riot Games, where we put together their first institutional money. We also put together the Series B with Redpoint for Machinima. Those are two big gaming companies. Los Angeles is the creative capital of the world, and we're where the next opportunity is--the connected consumer. It's about the user experience, the interface, and it's very not about the technology. This creative community has always done an amazing job interfacing with consumers, whether that is through film, television, or what have you. I think we're very much positioned to be the next big spot for early stage opportunities. It's like New York, which because of all the advertising folks who have spun out of the companies and agencies there where the economy tanked, and have started creating innovative companies. I think we've got a great opportunity with folks who just left a hemorrhaging industry.
What do you mean by the connected consumer?
Derek Norton: We now have connected consumers, who are unwilling to leave their home without their device, and if they do, will head back home if they've forgotten them. They're also very, very willing to part with dollar through that device. They will buy goods and services across that connected device, and are happy to spend money. That's the big difference now. That means you have access to global consumers, anyplace. There are innovative companies here like Shoedazzle, and others, who are really focused on those connected consumers. I think the benefit here we have in Los Angeles, unlike any other place in the world, is we have a skill set to understand those consumers, we understand marketing to consumers, and we understand the importance of customer experience. That's a byproduct of the entertainment industry. That's why we're called the creative capital of the world. Creativity is what we're able to harness around film, and teleivsion, and music, and leverage into how consumers are using those connected devices and the experience they're having across those devices. I'm not suggesting that it's content, I'm suggesting it is the journey and the experience related to consumer activity. That might be virtual goods, or monthly subscriptions to services like handbags, shoes, baby products, children's products, anything.
Are you saying that developing that technology doesn't matter as much now?
Derek Norton: Technology is a commodity. What is being valued, is a team that can create products, and a consumer experience. That's not dependent on technologies. The underlying technologies are a real commodity, the unique factor where LA comes in, is the creativity.
There's been some turmoil in the local venture capital market, what do you make of the position of capital here?
Derek Norton: It's the most exciting time to be a venture capitalist in LA. There are lots of new and innovative companies being birthed here. I think, also, that we'll clearly benefit from companies like Demand Media, and the newly minted set of angels and entrepreneurs coming out of that. We'll benefit from Riot Games, which will further support the ecosystem of angels and entrepreneurs. In fact, I am running into more venture capitalists in LA now, not from LA, than people who actually live here, if that makes sense. I am seeing all kinds of firm, from Boston, to New York, and obviously from the valley, here all the time looking for opportunities and meeting with entrepreneurs. Entrepreneurs are not having to make the trip up north, because the capital is coming to find them.
Given you work with lots of venture firms and entrepreneurs, what do you think the key thing is that allows those entrepreneurs to get the capital they need?
Derek Norton: It's that old adage--they invest in the entrepreneur. They are investing in the management, in the team, and the people. That being said, I think that because barriers are lower today to build a product and start a company, you don't need as much capital. Entrepreneurs find that they can almost instantaneously build a business, and focus immediately on the consumer and the experience. If you go back ten years, or even five years, they were more focused on raising capital to allow them to build those businesses. Now, time is on their side. If you fast foward to today, entrepreneurs are so busy building businesses, they hardly have time to raise capital to get them to the next level, From our perspective, that's why we're helpful to entrepreneurs, to help provide a resource to provide access to the right investors. When I'm saying investor, that's specifically an investor, not just a firm--because there has to be some personal chemistry in understanding how personalities might mesh. That's something many entrepreneurs don't know.