F-U-N-D-E-D: Eyeing innovation, Disney sees big future in tiny companies

The media giant's focus on fledgling startups comes as US companies increasingly play the role of venture capitalists.

Max Taves Staff Reporter
Max writes about venture capitalism and startups while seeking out the new new thing to come out of Silicon Valley. He joined CNET News from The Wall Street Journal, where he contributed stories on commercial real estate, architecture, big data and more. He's also written for LA Weekly, Slate and American Lawyer Media's The Recorder, where he covered legal battles in Silicon Valley. Max holds degrees from Georgetown University and Columbia University's Graduate School of Journalism.
Max Taves
4 min read

The Walt Disney Company is hoping magic will come from its startup funding. Daniel Terdiman/CNET

When one of the largest producers of music, movies and TV shows places bets on the future of technology, what does it pick?

On Thursday, the Walt Disney Company put its cards on the table when it revealed the winners of its two-year-old startup accelerator program.

For the second year, 10 young technology companies are getting $120,000, an option for $100,000 more, and 13 weeks of access to senior execs across Disney's media-entertainment empire. They include:

  • Emotiv, a startup that uses brain research to "track mental performance, monitor emotions, and control virtual objects with thoughts.
  • FEM, another startup that uses neuroscience as well as psychology to map "the emotional dimensions of how and why content resonates.
  • Imperson, an artificial intelligence platform that allows fans to have conversations with their favorite movie and TV characters
  • HYP3R, which helps businesses pinpoint the location, in real time, of their most influential customers.

"Some of them are very future-looking," Michael Abrams, Disney's senior vice president of Innovation, says of the winners. "And that's good."

Disney is all over media and entertainment. After all, it owns ABC, ESPN, Pixar Animation Studios, Marvel and LucasFilm. It's also a part owner of a venture capital firm called Steamboat Ventures, which has invested in startups later in their life cycles such as GoPro, photo-sharing site Photobucket, and Joyus, an online version of the Home Shopping Network.

But now in the second year of its startup accelerator program, which it runs with Techstars -- a traditional startup accelerator, Disney has expanded its role in the VC game, hunting for future innovation and growth in fledgling startups on its own.

With rapid technological changes displacing long-established industries from the book and newspaper businesses to taxi cabs and hotel booking, many US corporations now play the roles of Silicon Valley venture capital firms. Microsoft, Bloomberg, Johnson & Johnson and even 7-Eleven -- yes, the convenience store -- all have venture capital arms. And today American companies are betting larger and larger sums on young technology companies in exchange for the slight chance of a big pay day--or at least some valuable technology.

The data tells the story:

American corporations invested $16 billion in startups in 2014, according to venture capital research firm PitchBook. Last year's figure wasn't just a 45 percent increase over the year before but also, per PitchBook, the highest amount invested by US businesses on startups in at least a decade.

And this year's not looking like it'll disappoint. With $9 billion already invested in the first half of this year, American businesses are already on track to surpass last year's investment totals.

Why the spending spurt?

Garrett Black, a senior financial writer at PitchBook, offers one of the biggest reason. "Innovation is growing faster than ever, and companies want to get in," he says.

Today, companies across very different industries maintain VC arms, though tech companies are among the most active. Google Ventures is the single most-active venture fund run by a US company, having made 380 investments in startups like Uber, Periscope and Nest, since 2009.

Intel Capital, the second-most active venture capital arm of any American business, has made 299, backing companies like Box and DocuSign.

Companies outside of Silicon Valley, such as communications firm Qualcomm, cable company Comcast, GE and Johnson & Johnson, are active startup investors in too.

Last year, Wells Fargo began running a program with other banks to fund and incubate young financial tech companies. And there's even a Hollywood talent firm--Creative Artists Agency--that has its own venture arm, which has invested in dating app Hinge and streaming video company Meerkat.

But not all companies are driven to invest for the same reason.

Pitchbook's Black says that some companies, like Google, make investments across a wide spectrum of technology spaces that sometimes have little or nothing to do with their existing businesses, acting much like traditional venture firms in search of backing the next big thing.

On the other hand, the venture arms of other companies, such as Intel, Cisco Systems and SalesForce, make investments in companies whose focuses hew more closely to their core business.

"It's outsourced R&D for some of them," says Sonya Brown, a general partner at venture capital firm Norwest Ventures Partners. "They're looking to gain intelligence on what's coming, so they're not caught by surprise."

For Brown, the recent rise of corporate venture capital feels a little like déjà vu. In the late 1990s during the first tech boom, companies also ventured into venture. In fact, Brown was part of the last wave, founding iXL Ventures, the venture arm of the web development company.

"Now you're seeing it again," she says.

So what's Disney's interest in playing the venture game? Does it want to pick a billion-dollar company before it pops? Or just outsource some research?

"Our priority is to help them build great companies... not to take them off the market and keep them to ourselves," says Disney's Michael Abrams, who points to the success of last year's graduating class.

The 10 companies that started Disney's accelerator last year have either raised new investment rounds, turned a profit or been acquired, according to Disney. And one of them -- Sphero, a maker of robotic toys -- raised $45 million from investors last month.

"With the rapid change in technology, if you want to win big in the new world, you have to get in early," says Abrams. "The Disney Accelerator is about getting in early."

F-U-N-D-E-D is a regular column looking -- and sometimes laughing -- at what Silicon Valley has backed in the last week.