As the second largest city in the United States and home to many of its finest universities, as well as the entertainment industry, many would argue that Los Angeles has long been an underachiever in the arena of technology and startups. If the events of the last twelve months are any indication, this trend is poised to change for the better.
Over this short period, at least ten flavors of incubator or accelerator have sprouted in the Los Angeles area, founded by leading investors and entrepreneurs such as former MySpace CEO Mike Jones, currently of Science, Inc., and notable two-time entrepreneur turned VC and prominent blogger, Mark Suster, currently of LaunchPad LA.
Mike, Mark and their colleagues are all seeking to harness, organize and mentor the entrepreneurial and technical talent which has always existed here in LA, but too infrequently has succeeded in navigating the path toward startup success. For their part, entrepreneurs are as active as ever, launching new ventures daily, rubbing elbows in co-working spaces such as Santa Monica’s CoLoft and attending events such as meet-ups and “hackathons” by the hundreds.
And yet this begs the question, why now? What has changed and what does it mean for the local tech ecosystem?
Broadly speaking, new efficiencies in the market have dramatically reduced the overall cost and obstacles associated with launching a successful tech startup or product. What may have previously taken several million dollars to develop and achieve traction, may now take only $50,000 to launch and less than a million dollars to reach profitability. This fact is true around the world and is a big win for the ecosystem as a whole.
In LA specifically, we have seen a cultural shift in ideology among potential founders. Regularly talking with young entrepreneurs and even “wantrepreneurs,” or those not yet brave enough to take the leap, it is clear to me that the abundance of successful startup examples seeming to appear daily has empowered many of LA’s finest who formerly would have gone on to careers in aerospace, medicine, law, consulting, or finance to now embrace the risk and excitement of an alternative entrepreneurial path.
Many in LA are hoping that this shift in attitude will address one of the region’s greatest shortcomings and similarly the largest misconception made by outsiders looking in. All too often, we in LA hear that a lack of tech talent has been the reason for our thus far immature startup scene.
With CalTech, UCLA, USC, UCI, and Harvey Mudd, LA has one of the highest concentrations of premier technical institutions in the world producing an extremely diverse talent pool. What we previously lacked was a significant portion of this talent demonstrating interest in entrepreneurship and then the requisite support infrastructure to nurture that spark. The raw materials are here, but until recently they have been disorganized or deployed elsewhere.
Silicon Valley’s entrepreneurial tech community, as well as to a lesser extent those in Boston and more recently New York, have been sustained by the availability of capital, mentorship and cultural approval. Some may characterize this as a chicken and egg problem. No capital and infrastructure, no entrepreneurs. No entrepreneurs, no capital or infrastructure.
Fortunately, with the growth of the incubator and accelerator community in LA and increasing levels of angel investment money in the market as well as a willingness of many larger VC’s to invest at earlier stages than ever before, more entrepreneurs are starting up in LA, feeding the cycle.
Nate Redmond of Santa Monica’s Rustic Canyon Partners was recently quoted as saying, “We’ve been investing in this area since 1999, and we’ve never seen a level of activity higher than it is today.”
Adding these critical ingredients to LA’s entrepreneurial brew allows its other flavors to pop. The allure of the beach lifestyle, with its famous laid-back atmosphere, brilliant weather, abundance of outdoor activities, restaurants, and cultural offerings are an enormous a selling point. This quality of life has finally drawn much of the LA tech community to one general area, “the Westside,” which includes Venice, Santa Monica, West LA and Westwood and Brentwood neighborhooods.
Most of the above-mentioned incubators and a large number of startups and VC’s are now in this relatively cohesive community which is growing by the day. I have even heard it compared on multiple occasions to the early days of Palo Alto, and more recently to San Francisco, where just walking into a local restaurant or coffee shop makes it extremely likely to run into some you know.
With its ties to Hollywood, LA and greater Southern California offer a unique appeal to companies creating consumer content as well as those seeking to channel celebrity influence. Unlike in the past when stars merely endorsed products and companies for a paycheck, many including Ashton Kucher, Lady Gaga, Kim Kardashian, Jessica Alba, and Justin Timberlake have recently started investing in them. For entrepreneurs involved in entertainment, music, and media distribution, and even ecommerce, there’s no question that LA is the place to be.
Today, however, with a growing community of incubators, VCs, and entrepreneurial tech talent, opportunities are not limited to these knee-jerk LA verticals. The city even has its own thriving big data company, Gravity, founded by MySpace alum Amit Kapur, Jim Benedetto, and Steve Pearman to provide “high precision interest graphs to the largest, most well-known brands on the Internet.”
This is an exciting time to be an entrepreneur in LA. The tech scene has matured, with many entrepreneurs now on their second, third or fourth ventures and now contributing crucial experience and expertise to the greater ecosystem. There are a number of mid-size or early stage companies fighting to become the 300 pound gorilla in the marketplace.
LA has had its successful exits in the past, including Overture’s sale to Yahoo! for $1.7 billion, MySpace’s sale to News Corp. for $580 million, Shopzilla’s sale to E.W. Scripps for $525 million and the recent sale of HauteLook to Nordstrom for $270 million.
What it doesn’t have currently is a tech company with a multi-billion dollar valuation acting as the tent-pole to prop up the entire market. The Valley has Google, Facebook, Twitter and many others. Seattle has Microsoft and Amazon. Chicago now has Groupon and New York has Tumblr and Foursquare. In LA, emerging success stories, such as ecommerce juggernaut BeachMint and likely IPO-candidate eHarmony, are seeking to fill this role in the short term while Mark Suster, Mike Jones, and their incubator brethren seek to unleash the next generation of founders to nip at their heels.
For once, the region’s nicer weather and reasonable cost of living relative to San Francisco or New York have succeeded in relocating more than the aspiring actor, as illustrated by the arguably over-optimistic Forbes article, “Why Los Angeles Will Outpace Silicon Valley as the Tech Startup Capital,” written by Bay Area transplant Tara Tiger Brow.
The goal isn’t to be the next Silicon Valley, it’s to be the NEW and IMPROVED LA tech scene. “It’s not a zero-sum game,” points out Jason Nazar, CEO and co-founder of Docstoc.com, which at a 5-years-old is one of LA’s most mature tech companies. Nonetheless, the future and the sunshine are bright in LA.
LA’s 10 Hottest Tech Incubators and Accelerators
While any list of this type is likely to be incomplete, in the purest sense of the word, the following are those which have best succeeded in announcing themselves and capturing the attention local entrepreneurs.
- Launchpad LA – founded by Mark Suster, with Sam Teller-
20 Startups per year @ $50,000; Cost: 5-10% Equity Stake; Length: 3-4 months; Focus: Technology Startups
- Start Engine – founded by Howard Marks, Paul Kessler
120 Startups @ $20,000, Cost: 8-11% Equity Stake plus potential warrants, Length: 90 days, Focus: Technology Startups
- Originate – founded by Rob Meadows and Jeff Scheinrock
10-15 Startups @ $100k-$1.5MM in technology resources (not Cash); Cost: Equity proportionate to resources contributed; Focus: Products and Technologies in the Web and Mobile Space
- Amplify – founded by Paul Bricault, Richard Wolpert, & Jeff Solomon
20 Startups @ $50,000; Cost: 5-10% equity; Focus: Media and entertainment technology
- Muckerlab – founded by Erik Rannala, William Hsu, Greg Bettinelli, Yan David Erlich
20 Startups per year @ $21,000; Cost: 6% Equity Stake; Length: 12 weeksl; Focus: Internet software, services and media entrepreneurs.
- upStart.LA – founded by Dan Dato and Bruce Brown
5-10 Startups per classes (1-2 classes/year) @ $18,000; Cost: 6% Equity Stake; Length: 12 weeks; Focus: Tech entrepreneurs
- K5 Launch – founded by Amir Banafatemi, Ray Chan, David Cheng, and Kai Tao
10-50 Startups @ 25K-$200k ea.; Cost: 3-8% Equity Stake; Length: 3 months; Focus: Technology Startups
- Idealab – founded by Bill Gross and Allen Morgan
4-6 Startups per year @ $50k – $500K; Cost: variable; Focus: Disruptive ideas
- Science-Inc – founded by Mike Jones, Tom Dare, Mike Macadaan, Ryan Sit and Peter Pham
Funding: Variable; Science describes itself not as an accelerator, but as a technology studio; Focus: Internet businesses.
- Founder Institute – founded by Ken Rutkowski
Funding: None; Cost: $900 + 3.5% Equity Stake + $4,000 at first capital raise over $100,000; Length: 4 months
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