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As it adds Jeremy Milken to the partnership, Watertower Ventures nears $50 million close for its new fund

Derek Norton and Jeremy Milken have known each other for twenty years. Over their longtime personal and professional relationship, the two Los Angeles-based serial entrepreneurs have invested in each other’s companies and investment firms, but never worked together until now.

Milken is taking the plunge into institutional investing, joining Norton as a partner in Watertower Ventures just as the firm prepares to close on a $50 million new fund.

It’s an auspicious time for both Los Angeles-based businessmen, as the LA venture community sees a wave of technology talent relocating from New York and San Francisco in the newly remote work culture created by the COVID-19 epidemic.

“I see two things happen. One people look at the effects of where the market’s going. We’re seeing a lot more companies that are starting up now as a result of a [the pandemic],” said Norton. “New company formation is happening faster than before covid. [And] a lot of venture capitalists that have relocated to LA. They’ve moved down to LA for lifestyle reasons and they’re saying that they don’t need to go back to San Francisco.”

For Milken, the opportunity to get into venture now is a function of the company creation and acceleration of digital adoption that Norton referenced. “The pandemic is accelerating change in the marketplace. Things that might have taken a decade are taking two years now,” Milken said.

These opportunities are creating an opening for Watertower Ventures in markets far beyond the Hollywood hills. The firm, whose original thesis focused on Los Angeles, San Francisco, and New York, is now cutting checks on investments in Texas and Utah, and spending much less time looking for companies in the Bay Area.

Derek Norton, founder, Watertower Ventures: Image Credit: Watertower Ventures

Norton’s latest fund is the only the most recent act in a career that has seen the investor traverse the financial services digital media and the early days of the internet. Norton built Digital Boardwalk, a pioneering internet service provider and the second commercial partner for the trailblazing browser service, Netscape.

Later, at Jeffries Technologies, and the $120 million Entertainment Media Ventures seed and early stage venture capital fund, Norton was intimately involved in bringing tech to market and focusing on early stage investments. With that in mind, the Watertower Ventures group, which launched in 2017 with a small, $5 million fund, is a return to those roots.

The plan, even at the time, was always to raise a larger fund. After founding and running the boutique investment banking business at Watertower Group, Norton knew he had to raise a starter fund to prove the thesis he was working on.

That thesis was to provide a bridge between early stage companies and large technology companies using the network that Norton has built in the Southern California tech and entertainment community over decades.

“We want to take our contacts at Google, Apple, Facebook, Disney, Microsoft, Cisco, Verizon, AT&T, Comcast, and other companies we believe should have a relationship with our portfolio companies, and help the CEOs and management teams more effectively do business development,” Norton told SoCal Tech when he closed his first fund in 2017. “We want to connect them to the right person at those companies to create a commercial relationship. That has a really large impact on early stage companies, who typically don’t have a deep network of relationships, and the ability to get to those type of people. It’s because of our advisory business that we have those relationships, and that’s also why those relationships stay fresh and active, versus people who aren’t in those businesses. It’s almost a full time job to maintain that, and that’s where our value-add is.”

Milken, who has spent his professional career in entrepreneurship, was ready to try investing, and was intimately familiar with Watertower and its portfolio, as an investor in the firm’s first $5 million fund.

“Two years ago we started having those conversations,” said Norton in an interview. “As Jeremy exited his business in September it created the opportunity to go out and raise together as the evolution of our partnership.”

Jeremy Milken, general partner, Watertower Ventures. Image Credit: Watertower Ventures

With the new capital coming in, Norton expects to back some 30 to 35 companies, he said. And, in a testament to the first fund’s performance, which has it in the top decile of venture funds for its vintage, Norton said he was able to raise the capital amidst the economic uncertainty caused by the COVID-19 pandemic. Some 70 percent of the existing portfolio has been marked up, according to Norton.

Even though limited partners, the investors who back venture funds, were reluctant to commit capital to new firms in March and April, fundraising returned with a vengeance in June and July, according to Norton. The paper performance likely was enough to woo additional limited partners and individual investors including TikTok chief executive Kevin Mayer, the former head of streaming at Disney.

Mayer’s presence in the firm’s investor base is a testament to the firm’s pitch to founders. “We view fundraising as a massive distraction for these early stage companies from their business. We try to deliver that network that’s ours to those founders,” said Norton.

“I think we’re in a unique position starting with a fresh fund here,” says Norton. “Uncertainty creates opportunity and people are bringing solutions. We haven’t noticed any slowdown whatsoever, we’re working with twenty five companies per week. Since the inception of the fund, we haven’t seen deal flow at this level.”

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As threats to the company mount, TikTok pushes back

As TikTok’s existential rollercoaster ride continues to rattle on, the company is trying to sway regulators and the public with a flood of dollars and arguments wrapped in free enterprise and free speech to ensure that its parent company Bytedance can retain control of its operations.

The push to validate its business comes as reports swirl around a potential Presidential ban and bid from Microsoft to take over the company’s business in the U.S.

As it confronts domestic competitors and political attacks, TikTok and its parent company Bytedance have picked up some defenders from the American civil rights movement.

Late last night, the American Civil Liberties Union tweeted its objections to the proposed ban by President Trump.

“With any Internet platform, we should be concerned about the risk that sensitive private data will be funneled to abusive governments, including our own,” the ACLU wrote in a subsequent statement. “But shutting one platform down, even if it were legally possible to do so, harms freedom of speech online and does nothing to resolve the broader problem of unjustified government surveillance.”

Meanwhile, the sentiment in China seems resigned to the U.S. forcing Bytedance to divest of its US interests. In a survey by Sina Technology on the social media platform, Weibo asking what people think of Bytedance potentially selling TikTok to Microsoft, 36.7k of the total 75.3k respondents saw it as “a reluctant and helpless solution that’s understandable,” while 35.1k said they are “disappointed and hope [the company] can hold up for a bit more”.  https://m.weibo.cn/1642634100/4533238409991735
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随时随地发现新鲜事!微博带你欣赏世界上每一个精彩瞬间,了解每一个幕后故事。分享你想表达的,让全世界都能听到你的心声!

Even as ownership of the service remains an open question, the company moved quickly to reassure its users that TikTok would continue to operate in the U.S.

The company is also redoubling its efforts to appeal to creators even as it faces defections over its potential mishandling of user data.

On Tuesday, a clutch of the company’s largest celebrities, with a collective audience of some 47 million viewers, abandoned the platform for its much smaller competitor, Triller.

Founded in 2015, two years before TikTok began its explosive rise to prominence, Triller is backed by some of the biggest names in American music and entertainment including Snoop Dogg, The Weeknd,  Marshmello, Lil Wayne, Juice WRLD, Young Thug, Kendrick LamarBaron Davis, Tyga, TI, Jake Paul and Troy Carter. 

Now, TikTok stars Josh Richards, Griffin Johnson, Noah Beck and Anthony Reeves are joining their ranks as investors and advisors. Richards, Johnson, Beck and Reeves are also being compensated by Triller, but the reason they cited for leaving the service are the security concerns from governments.

Triller is compensating Richards, Johnson, Beck, and Reeves, though the details of the deals are undisclosed. Despite that, the creators say they’re leaving TikTok because they’ve grown wary of the Chinese-owned company’s security practices.

“After seeing the U.S. and other countries’ governments’ concerns over TikTok—and given my responsibility to protect and lead my followers and other influencers—I followed my instincts as an entrepreneur and made it my mission to find a solution,” Richards, who’s assuming the title of chief strategy officer, told the LA Times. 

TikTok has responded by announcing a dramatic increase in the company’s creator fund. Initially set at $200 million, in a blog post earlier this week, TikTok chief executive Kevin Mayer announced that the fund would reach $1 billion over the next three years.

TikTok’s charm offensive may stave off the assaults, but the company will need to address concerns around user data. It’s the most pressing threat to the company and the one it’s least equipped to deal with.

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China Roundup: A blow to US-listed Chinese firms and TikTok’s new global face

Hello and welcome back to TechCrunch’s China Roundup, a digest of recent events shaping the Chinese tech landscape and what they mean to people in the rest of the world. It’s been a tumultuous week for Chinese tech firms abroad: Huawei’s mounting pressure from the U.S., a big blow to U.S.-listed Chinese firms, and TikTok’s high-profile new boss.

China tech abroad

Further decoupling

Over the years, American investors have been pumping billions of dollars into Chinese firms listed in the U.S., from giants like Alibaba and Baidu to emerging players like Pinduoduo and Bilibili. That could change soon with the Holding Foreign Companies Accountable Act, a new bill passed this week with bipartisan support to tighten accounting standards on foreign companies, with the obvious target being China.

“For too long, Chinese companies have disregarded U.S. reporting standards, misleading our investors. Publicly listed companies should all be held to the same standards, and this bill makes commonsense changes to level the playing field and give investors the transparency they need to make informed decisions,” said Senator Chris Van Hollen who introduced the legislation.

Here’s what the legislation is about:

1) Foreign companies that are out of compliance with the Public Company Accounting Oversight Board for three years in a row will be delisted from U.S. stock exchanges.

PCAOB, which was set up in 2002 as a private-sector nonprofit corporation overseen by the SEC, is meant to inspect audits of foreign firms listed in the U.S. to prevent fraud and wrongdoing.

The rule has not sat well with foreign accounting firms and their local regulators, so over time PCAOB has negotiated multiple agreements with foreign counterparts that allowed it to perform audit inspections. China is one of the few countries that has not been cooperating with the PCAOB.

2) The bill will also require public companies in the U.S. to disclose whether they are owned or controlled by a foreign government, including China’s communist government.

The question now is whether we will see Chinese companies give in to the new rules or relocate to bourses outside the U.S.

The Chinese firms still have a three-year window to figure things out, but they are getting more scrutiny already. Most recently, Nasdaq announced to delist Luckin, the Chinese coffee challenger that admitted to fabricating $310 million in sales.

Those that do choose to leave the U.S. will probably find a warmer welcome in Hong Kong, attracting investors closer to home who are more acquainted with their businesses. Alibaba, for instance, already completed a secondary listing in Hong Kong last year as the city began letting investors buy dual-class shares, a condition that initially prompted many Chinese internet firms to go public in the U.S.

TikTok gets a talent boost 

The long-awaited announcement is here: TikTok has picked its new chief executive, and taking the helm is Disney’s former head of video streaming, Kevin Mayer.

It’s understandable that TikTok would want a global face for its fast-growing global app, which has come under scrutiny from foreign governments over concerns of its data practices and Beijing’s possible influence.

Curiously, Mayer will also take on the role of the chief operating officer of parent company ByteDance . A closer look at the company announcement reveals nuances in the appointment: Kelly Zhang and Lidong Zhang will continue to lead ByteDance China as its chief executive officer and chairman respectively, reporting directly to ByteDance’s founder and global CEO Yiming Zhang, as industry analyst Matthew Brennan acutely pointed out. That means ByteDance’s China businesses Douyin and Today’s Headlines, the cash cows of the firm, will remain within the purview of the two Chinese executives, not Mayer.

Huawei in limbo following more chip curbs

Huawei is in limbo after the U.S. slapped more curbs on the Chinese telecoms equipment giant, restricting its ability to procure chips from foreign foundries that use American technologies. The company called the rule “arbitrary and pernicious,” while it admitted that the attack would impact its business.

Vodafone to help Oppo expand in Europe 

As Huawei faces pressure abroad due to the Android ban, other Chinese phone makers have been steadily making headway across the world. One of them is Oppo, which just announced a partnership with Vodafone to bring its smartphones to the mobile carrier’s European markets.

All of China’s top AI firms now on U.S. entity list 

The U.S. has extended sanctions to more Chinese tech firms to include CloudWalk, which focuses on developing facial recognition technology. This means all of the “four dragons of computer vision” in China, as the local tech circle collectively calls CloudWalk, SenseTime, Megvii and Yitu, have landed on the U.S. entity list.

China tech back home

China’s new trillion-dollar plan to seize the tech crown (Bloomberg)

China has a new master plan to invest $1.4 trillion in everything from AI to 5G in what it dubs the “new infrastructure” initiative.

Fitbit rival Amazfit works on a reusable mask

The smartwatch maker is eyeing a transparent, self-disinfecting mask, becoming the latest Chinese tech firm to jump on the bandwagon to develop virus-fighting tech.

ByteDance moves into venture capital investment

The TikTok parent bankrolled financial AI startup Lingxi with $6.2 million, marking one of its first investments for purely monetary returns rather than for an immediate strategic purpose.

Bilibili is the new Youtube of China

The once-obscure video site for anime fans is now in the mainstream with a whopping 172 million monthly user base.

Xiaomi’s investment powerhouse reaches 300 companies 

It’s part of the smartphone giant’s plan to conquer the world of smart home devices and wearables.

Alibaba pumps $1.4 billion into content and services for IoT

Like Amazon, Alibaba has a big ambition in the internet of things.

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Daily Crunch: Disney’s streaming chief departs for TikTok

TikTok enlists a big name from Disney as its new CEO, Walmart is shuttering its Jet e-commerce brand and EasyJet admits to a major data breach.

Here’s your Daily Crunch for May 19, 2020.

1. Disney streaming exec Kevin Mayer becomes TikTok’s new CEO

Mayer’s role involved overseeing Disney’s streaming strategy, including the launch of Disney+ last fall, which has already grown to more than 50 million subscribers. He was also seen as a potential successor to Disney CEO Bob Iger; instead, Disney Parks, Experiences and Products Chairman Bob Chapek was named CEO in a sudden announcement in February.

Mayer was likely an attractive choice to lead TikTok not just because of his streaming success, but also because hiring a high-profile American executive could help address politicians’ security concerns about the app’s Chinese ownership.

2. Walmart says it will discontinue Jet, which it acquired for $3B in 2016

Walmart tried to put a positive spin on the news, saying, “Due to continued strength of the Walmart.com brand, the company will discontinue Jet.com. The acquisition of Jet.com nearly four years ago was critical to accelerating our omni strategy.”

3. EasyJet says 9 million travel records taken in data breach

EasyJet, the U.K.’s largest airline, said hackers have accessed the travel details of 9 million customers. The budget airline said 2,200 customers also had their credit card details accessed in the data breach, but passport records were not accessed.

4. Where these 6 top VCs are investing in cannabis

The results paint a stunning picture of an industry on the verge of breaking away from a market correction. Our six respondents described numerous opportunities for startups and investors, but cautioned that this atmosphere will not last long. (Extra Crunch membership required.)

5. Brex brings on $150M in new cash in case of an ‘extended recession’

Where upstart companies aren’t cutting staff, they are often reducing spend — which is bad news for Brex, since it makes money on purchases made through its startup-tailored corporate card. But co-founder Henrique Dubugras seems largely unbothered on how the pandemic impacts Brex’s future.

6. Popping the hood on Vroom’s IPO filing

Yesterday afternoon, Vroom, an online car buying service, filed to go public. What does a private, car-focused e-commerce company worth $1.5 billion look like under the hood? (Extra Crunch membership required.)

7. Experience marketplace Pollen lays off 69 North America staff, furloughs 34 in UK

Founded in 2014 and previously called Verve, Pollen operates in the influencer or “word-of-mouth” marketing space. The marketplace lets friends or “members” discover and book travel, events and other experiences — and in turn helps promoters use word-of-mouth recommendations to sell tickets.

The Daily Crunch is TechCrunch’s roundup of our biggest and most important stories. If you’d like to get this delivered to your inbox every day at around 9am Pacific, you can subscribe here.

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Disney streaming exec Kevin Mayer becomes TikTok’s new CEO

Kevin Mayer, head of The Walt Disney Company’s direct-to-consumer and international business, is departing to become CEO of TikTok, as well as COO of the popular video app’s parent company ByteDance.

Founder Yiming Zhang will continue to serve as ByteDance CEO, while TikTok President Alex Zhu (formerly the co-founder of the predecessor app Musical.ly) becomes ByteDance’s vice president of product and strategy.

“I’m thrilled to have the opportunity to join the amazing team at ByteDance,” Mayer said in a statement. “Like everyone else, I’ve been impressed watching the company build something incredibly rare in TikTok – a creative, positive online global community – and I’m excited to help lead the next phase of ByteDance’s journey as the company continues to expand its breadth of products across every region of the world.”

The news was first reported by The New York Times and subsequently confirmed in announcements from ByteDance and Disney.

Mayer’s role involved overseeing Disney’s streaming strategy, including the launch of Disney+ last fall, which has already grown to more than 50 million subscribers. He was also seen as a potential successor to Disney CEO Bob Iger; instead, Disney Parks, Experiences and Products Chairman Bob Chapek was named CEO in a sudden announcement in February.

Mayer was likely an attractive choice to lead TikTok not just because of his streaming success, but also because hiring a high-profile American executive could help address politicians’ security concerns about the app’s Chinese ownership.

Over at Disney, Rebecca Campbell (most recently president of Disneyland Resort, who also worked on the Disney+ launch as the company’s president for Europe, Middle East and Africa) is taking over Mayer’s role, while Josh D’Amaro is taking on Chapek’s old job as chairman of Disney parks, experiences and products.

In a statement, Chapek said:

As we look to grow our direct-to-consumer business and continue to expand into new markets, I can think of no one better suited to lead this effort than Rebecca. She is an exceptionally talented and dedicated leader with a wealth of experience in media, operations and international businesses. She played a critical role in the launch of Disney+ globally while overseeing the EMEA region, and her strong business acumen and creative vision will be invaluable in taking our successful and well-established streaming services into the future.

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