It is hardly uncommon for founders and employees of successful companies to cash in their chips and go on to start other successful companies. Perhaps the best-known example is PayPal , the Web payment service whose leaders went on to found and invest in a bunch of other companies— YouTube , LinkedIn , Yelp , Tesla —and to earn the nickname the PayPal mafia.
More recently, the alumni of another Internet company—a social network based in California—have generated an impressive number of spin-offs. But what is notable about these spin-offs is that they have been generated not by a spectacular success, like PayPal or Facebook, but by a distant also-ran: Myspace.
It is easy to forget that Myspace started before Facebook and could have been worth billions, but a variety of miscalculations and missed opportunities turned what was once a nearly $600 million company into an afterthought. By 2011, many of its users had abandoned it, the founding team had departed and its owner, News Corp. , sold it for just $35 million. (It is now reinventing itself as a site for musicians and other artists to connect with their fans.)
Yet from the ashes, a surprising number of start-ups have risen. Almost every member of Myspace’s founding team has begun a new venture, and several are among the leaders of Los Angeles’ blossoming start-up industry, now known as Silicon Beach. That community is growing for a number of reasons—an influx of capital, lots of young programming talent, a convenient nexus with Hollywood celebrity—but the Myspace spin-offs are a factor, too.
“In terms of creating enterprise value, of starting companies that are hiring and generating revenue, I’d say by far this is the most successful aggregation of entrepreneurs that has yet come out of LA,” said Paul Bricault, a venture capitalist at Greycroft Partners and a managing director with a digital media accelerator, Amplify.
Until recently, it was conventional wisdom that entrepreneurs in Los Angeles had little choice but to move north to Silicon Valley to finance their ventures, but the rise of Silicon Beach and the Myspace connection have helped alter that thinking. While the businesses started by former Myspacers have yet to produce a big exit or payday, they have amassed more than $100 million in venture capital financing.
Two of Myspace’s founders, Chris DeWolfe and Josh Berman, met as MBA students in a class taught by Bricault at the University of Southern California. It was in that class that DeWolfe wrote a business plan for a social network he was then calling SiteGeist. When the site made its debut as Myspace in 2003, DeWolfe began putting together an unusual team, often basing his hiring decisions more on gut feelings than on resumes.
In early 2005, when Amit Kapur interviewed for a marketing job at Myspace, he was a year out of Stanford and his only work experience was a year in business development and digital strategy at NBCUniversal. He met with DeWolfe and they talked for a few hours, after which DeWolfe asked Kapur, 23 at the time, to join the company as head of business development.
“I said: ‘Chris, I don’t really know what I’m doing yet. I can figure it out, but I don’t have the experience,’” Kapur said. “Chris said: ‘I believe in you. We’ll figure things out together.’” Although the job was daunting at first, Kapur said, he was energized by the challenge: “I wanted to prove myself, to make a dent, and Chris recognized that and gave me those opportunities.”
Today, Kapur is chief executive and co-founder—along with two friends from Myspace—of Gravity, a Web personalization technology company. As Kapur began to assemble his team at Gravity, which now has 40 employees, he modelled many of his practices on what he had seen at Myspace.
“One of things I learned from Chris,” he said, “was to hire people that have the potential to do great things, well beyond what their experience and skill set show.”
But, perhaps predictably, there was a downside to the Myspace chaos. Many of the company’s survivors trace its decline to its uncontrolled growth and its purchase by News Corp. for $580 million in 2005. At its peak, Myspace had 76 million unique visitors a month, but in the post-acquisition period was less nimble and wound up missing opportunities to innovate, according to several early members of that team. As it swelled to more than 1,500 employees, it became cautious, political and bloated, Kapur said.
“That affected our performance and ability to innovate,” he said. “There were opportunities we just couldn’t take advantage of.”
The advent of YouTube is a good example. When the site started in February 2005, many at Myspace wanted to introduce a similar feature. Travis Katz, who had joined Myspace as general manager of international business just after the acquisition, said he remembered telling News Corp. representatives that they would need to hire 40 developers immediately and 200 the next year.
“That was much faster than anything they were accustomed to,” Katz said. “They said, ‘We’re going to do a hiring freeze for six months and take a deep breath and determine then what we really need.’ But we couldn’t wait six months. In six months, YouTube went from 2 million to 80 million users.”
(Julie Henderson, a spokeswoman for 21st Century Fox— one of the two companies resulting from News Corp.’s recent split—said, “At that time, every department head was begging for 40 people, and ultimately we believed that simply adding more heads wasn’t really the right answer.”)
Because of Myspace’s initial success, its early leaders managed to enjoy a payday from the sale to News Corp. Although none of the co-founders have revealed what they earned, Bill Burnham, a venture capitalist who analyzed the sale at the time and is now managing partner of Inductive Capital, a hedge fund in Reno, Neveda, estimates that the core group collectively took home $20-25 million.
“We did well,” said one of the Myspace founders, Colin Digiaro. “It was life-changing. It gave us the freedom to start companies and invest in other companies, too.”
In 2010, three of the founders, DeWolfe, Digiaro and Aber Whitcomb, founded SGN, or Social Gaming Network. DeWolfe is building the company at a moderate pace, largely through acquisitions.
“When you grow too fast you become unfocused,” he said. “At Myspace, instead of getting really good at our core product, we would be working on 20 different products and we would get those products to a certain level and leave them there.”
In 2012, Digiaro left SGN to start Eclipse.io, a mobile ad technology company. He said his experience at Myspace taught him to “never fall in love with any one idea.”
“You take measured bets; you evaluate the results of those,” he added. “What works, you refine. What doesn’t work, you see if you can get it to work. If you can’t, you fail fast. Too many entrepreneurs ride their ship all the way down, rather than pivot with the market.”
In the years since Myspace’s founding, the Los Angeles area’s tech scene has changed significantly. Most notably, there has been tremendous growth in capital, early-stage investors, university entrepreneurship programmes, start-up competitions and accelerators, all of which have helped entrepreneurs take advantage of the area’s strengths in entertainment, media, business and technology.
Consider Berman, the Myspace co-founder, who in 2010 introduced the subscription e-commerce venture BeachMint, now often cited as one of Silicon Beach’s rising stars. It offers products—like clothing, jewellery and shoes— that are exclusive to its shopping sites in collaboration with celebrities like Mary-Kate and Ashley Olsen and Justin Timberlake, and it has received more than $80 million in venture capital. Berman said Santa Monica, where BeachMint has its headquarters, had become a hub of start-up activity.
“It’s a really tight community,” he said.
That kind of tightness has been hard to replicate throughout the Los Angeles area—mostly because of traffic and sprawl. DeWolfe, among others, cited the challenges in trying to unify a community spread across neighbourhoods and cities from Santa Monica to Hollywood to Pasadena.
“It’s not a minute or two walk down the street to get to these places,” he said. “I think the ecosystem needs to coalesce more.”
This is part of the reason that SGN, DeWolfe’s current company, maintains dual headquarters in Los Angeles and Silicon Valley. And Kapur acknowledged that, for a pure tech company like Gravity, “the Valley is still the center of the universe.”
Even so, the Startup Genome project, a collaborative research effort that compiles data on start-ups around the world, has ranked Los Angeles third among the world’s top 20 start-up ecosystems. And in the first half of 2013, more than $500 million in venture financing was raised by 92 start-ups in Los Angeles, according to Built in Los Angeles, an online resource for the city’s entrepreneurs.
© 2013/The New York Times