L.A. Tech’s Family Tree

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Tree of Life: Several local tech companies have branched out from Myspace.

Myspace Inc., sold last week for a bargain-basement price, had a quick boom-and-bust arc. But on the whole, was the social networking company a bad experience for the L.A. economy?

Not at all, say many insiders. In fact, several pointed out that Myspace virtually made Los Angeles a nationally recognized center of technology. In its few fast-growth years, the social network imported hundreds of talented tech entrepreneurs, software engineers and the like, many of whom stayed and started their own companies.

“It’s great that the wheels fell off at Myspace,” said David Siemer, a Santa Monica investment banker who specializes in technology. “It’s helped foster new companies.”

Indeed, Myspace may no longer be a mighty oak, but from it came many acorns. At least eight companies have taken root locally from ex-Myspacers. One, Demand Media Inc. of Santa Monica, is public and has a market cap of $1.1 billion and 600 employees, making it one of L.A.’s biggest Internet companies.

In fact, Myspace’s boom-and-bust history – normally hard on any local economy – is seen as a benefit in the tech world, which is populated by fast-growing companies.

“You learn how to work in a hypergrowth situation,” said Josh Berman, a co-founder and chief operating officer of the social network who now heads e-commerce startup BeachMint. “You don’t always get to experience that. I’ve taken a lot of those lessons to BeachMint.”

Other Myspace co-founders, Chris DeWolfe, Aber Whitcomb and Colin Digiaro, teamed up last year to acquire MindJolt, a social gaming startup in Beverlywood.

Digiaro, who led sales and later international corporate development for Myspace, said the co-founders could have searched for high-profile jobs at big media companies after leaving News Corp., the former owner of Myspace. But they wanted to work with startups and grow new businesses instead.

“We still love being close to the business, being involved in all aspects of the business,” he said. “We still have entrepreneurial blood running through our veins.”

Despite its once-immense profile, Myspace was never all that big a company in terms of personnel. At its peak, it employed about 1,600. A series of layoffs and the departure of the company’s co-founders in recent years have whittled down that number to 400 or so, although more pinkslips could be on the way as a result of the sale.

The much anticipated sale of Myspace’s remnants came last week when News Corp. offloaded it to Irvine ad network Specific Media for $35 million – one-sixteenth the $580 million it spent to acquire the company in 2005. Specific Media is expected to refocus Myspace on music, which has long been a strong point for the site.

Leaving a legacy

During its boom years of 2005 to 2008, Myspace recruited hundreds of engineers and developers to the L.A. area. Just like the Silicon Valley tech giants that attract top employees, Beverly Hills-based Myspace was able to bring talented people to the region.

“A lot of the developers and engineering talent, we moved from outside of L.A. to work at Myspace,” Digiaro said. “A lot of the innovation you see now is because Myspace attracted an incredible group of talent.”

Myspace was founded in 2003 out of technology incubator Intermix Media Inc. Employees at Intermix and Myspace were encouraged to start businesses, said Adam Goldenberg, former chief operating officer of Intermix.

“The company operated with an entrepreneurial spirit,” said Goldenberg, who has gone on to co-found El Segundo incubator Intelligent Beauty with Intermix colleague Don Ressler. “It was such a broad and diverse company, that’s part of what led there to be so many successful tech companies that sprung from it.”

Besides Demand Media, co-founded by Richard Rosenblatt, who was chief executive of Intermix Media and chairman of Myspace, another company that grew from Myspace was online invitation startup Cocodot, co-founded by Shawn Gold, who headed marketing and content for Myspace.

Another is Altly, a Venice company that bills itself as a Facebook alternative, co-founded by Dmitry Shapiro, Myspace Music’s former chief technology officer, and Jordan Fowler, a former senior software engineer.

In addition to starting companies, Myspace veterans have also taken leadership roles at startups and established companies. Some also have invested in or advised local startups.

Berman of BeachMint said people have found opportunities because of relationships they formed at Myspace.

“A lot of us at Myspace established great connections and business contacts throughout the community,” Berman said. “It makes it easier for us.”

Myspace money

Myspace has also helped raise the profile of the L.A. tech scene. It was one of the first successful companies to rise from the wreckage of the dot-com crash and the early leader of the social networking craze, all of which helped give Los Angeles a name as an emerging technology center.

“Myspace was so high profile that, to a large extent, it put Southern California on the technology map,” said Siemer, chief executive and managing director of Santa Monica investment bank Siemer & Associates. “It gave a huge amount of legitimacy to the area and its venture capitalists.”

Myspace’s sale to News Corp. also infused the region with new capital, granting huge payoffs to the co-founders, investors and employees with a stake in the company. That money fueled a new class of entrepreneurs looking to invest in early stage companies or start companies of their own, said David Young, a partner and chairman of the Southern California emerging companies group at law firm DLA Piper in Century City.

“One of the things that has really helped in a lot of markets around the country in growing the entrepreneurial community is having companies that have made successful exits and then people go on to spawn new and interesting ventures,” he said. “That’s definitely something that we saw from Myspace.”

The Myspace credential has also helped generate interest in the veterans’ new companies.

“As an entrepreneur, when you go out talking to venture capitalists or when you’re recruiting an interesting top candidate, by having the experience that we have, it definitely helps,” said Berman, whose BeachMint recently raised $23.5 million in funding.

But there’s also the pressure of reaching Myspace success without becoming the next case study of what went wrong.

“There’s a lot of internal pressure we place on ourselves to continually build and innovate,” said MindJolt’s Digiaro. “That’s what drives me day in and day out. I want to build and I want to succeed.”