It’s been one hell of a year for the LA Tech ecosystem. Accelerators sprouted like mushrooms. More local and imported capital came to town than we’ve seen in years. Bonafide tech stars like Chris Sacca and David Lee relocated here. 2012 was the year that we proverbially “moved out of our parent’s basement.”
But despite all this progress, it’s still unclear whether this will result in any $1 billion plus exits or the multi-generational ecosystem wealth that they create.
As an Angeleno, I hereby submit to you my wish list for 2013.
1. Continued underdog mentality – High fives were exchanged across town when the Startup Genome ranked LA as the No. 2 tech ecosystem in the US and No. 3 worldwide, behind Silicon Valley and Tel Aviv. The entrepreneurship R&D group compiled a data-driven index based on 50-variables including startup output, entrepreneurial mindset, funding, talent, company performance, support infrastructure, trendsetting tendencies, and ecosystem differentiation.
The nod was a much needed and much deserved validation of what those of us on the ground here see daily and of the millions of man hours required to get here. But guess what? Entrepreneurship is a “what have you done for me lately” game. LA Tech hasn’t arrived. Silicon Valley took decades of booms and busts to become the bullet proof ecosystem it is today, and even older, more established ecosystems like Boston are floundering.
All we’ve done in 2012 is put those outside the city on notice of our intent to deliver. And deliver we must. More than 100 seed stage ventures were funded in LA in the last year alone. It’s imperative that more than a handful of those continue to grow, hire, raise follow-on funding, and carry on the momentum.
2. Great local capital – There were a number of wins on the capital availability front for LA Tech in 2012, but nowhere near enough.
Two Silicon Valley investor heavyweights, Chris Sacca and David Lee, moved their young families to Los Angeles, and with them an infusion of resources and attention. The year also saw the arrival of Chicago’s New World Ventures, increasing activity in the market by Groupon founder-backed Lightbank, and the opening of local med-tech titan Gary Karlin Michelson’s Karlin Ventures. Each of these arrivals were huge wins for the seed stage ecosystem, an area of the funding market where LA is proportionately well served.
Where the ecosystem remains light is in the Series A and later stage arena. Rustic Canyon, GRP Partners, and Greycroft are the lone local big boys and none exhibits the level of activity necessary to sustain the torrid seed stage growth. I’m well aware that the global ecosystem is in the midst of a very real “Series A Crunch,” but there will always be capital available for those premier companies that are outperforming expectations.
It’s just a shame that in LA, most of them will have to look up north for checkbooks large enough to foot the bill. In the meantime, founders would be wise to get busy raising well ahead of needing the money, or alternatively buddy up with Science Media partner and resident “bridge to Silicon Valley” Peter Pham.
3. Local champions – For better or for worse, LA has earned a reputation in Silicon Valley for building companies that grow rapidly – in profile and hype, as much as in size – but fizzle out. We’ve had a few dozen nine-figure exits, including MySpace, ShopZilla, and Hautlook, and even saw Overture join the billion dollar club (although that was a decade ago). What we don’t have is a thriving billion dollar tentpole company, that attracts talent and capital to the ecosystem.
LA desperately needs a company that doesn’t sell to an out of town giant, but instead exits by IPO and continues to build locally. Tesla did this and SpaceX seems likely to follow suit (thanks Uncle Elon), but neither are typical of the LA scene. Demand Media is already public as well and is looking to flex its muscle in the coming year.
There are but a few candidates among the more traditional Web startup set to assume this mantle, although it takes a special mix of timing, luck, and incredible execution. My short list would be Rubicon Project, Intelligent Beauty (Sensa, Dermstore, and JustFab), and Factual. On the periphery looking to join the “next big thing” club are companies like Machinima, Maker Studios, and ZEFR. The ascension of one or several of these companies to the ecosystem-making status of Google, Facebook, and Amazon will mean LA is more than just one of a dozen “tech hotbeds” like Austin or Boulder.
4. Increased tech media presence – I’m extremely proud of the role PandoDaily played in putting the LA Tech ecosystem on the national map in 2012 – joining existing voices like the LA Times, Forbes, LA Business Journal, SoCalTech, and TechZulu. I continue to be impressed at the foresight that Sarah Lacy showed in dedicating the resources to have a full time reporter on the ground in this up-and-coming market. But what all of us are doing is not enough.
I’m hoping that likes of TechCrunch, AllThingsD, The Verge, VentureBeat, TheNextWeb, and GigaOM will join PandoDaily in deploying troops to the LA Tech front lines. More competition? Bring it on. It will make all of us stronger.
Technology press is one of the pillars of a healthy startup ecosystem. And as much as the occasional phone interview or drive-by week of meetings from these publications is a welcome treat for LA startups, the market deserves and needs more. So consider this my invitation. I’ll be the first one to invite a new reporter in town to grab coffee. But after that, it’s on.
5. A positive ending for the subscription commerce wars – A year ago, had you asked someone on the street in Silicon Valley to name the hottest LA tech companies, celebrity-backed subscription commerce brethren ShoeDazzle and Beachmint would have been the default answer. Each raised massive rounds of financing at eye-popping valuations, and were quick to generate eight-figure revenues. A near endless list of copycats followed suit, including Brian Lee’s Honest, and a baker’s dozen out of Science Media.
As we approach 2013, the future prospects of the entire category is decidedly less certain. We’ve covered ShoeDazzle’s struggles ad nauseum, including the failed “professional CEO” experiment, the hopeful return of the founder Brian Lee, and even the company’s recent return to cashflow positive. BeachMint never reached such monumental heights, but has traveled its own bumpy road with the bulk of its six subsidiary product verticals failing to find consumer traction.
If these category posterboys are floundering, despite being backed tens of millions of VC cash and after having built enormous consumer brand awareness, what are the chances the rest pull it off? Like it or not, the current wave of LA Tech has hitched a large portion of its reputation to the subscription ecommerce wagon. To that end, the verdict on whether we’ve succeeded or failed as an ecosystem will be directly tied to the outcome of this class of startups. We would all be well served to root for and support their ongoing success.
6. More focus on connecting online video with commerce – When we look back a decade from now, 2012 may be remember as the year online video became more than a hobby. YouTube injected serious steroids into the content creator ecosystem with its $250 million worth of original content production grants. Similarly, 2012 was the year that Machinima, Maker Studios, and BigFrame established themselves as next-generation Hollywood studios and a viable path for individual creatives to building online stardom.
But the vast majority of these businesses are still limited by the slow transition of advertising dollars from TV to online video. For fuck’s sake, Machinima and Maker generate more than 3 billion monthly video views combined and neither is profitable.
It’s imperative that 2013 be the year that commerce tools finally catch up with content platforms. Content creators need tools for selling pay-per-view and subscriptions. There’s also no reason that while watching a trailer for a blockbuster film, consumers can’t buy tickets, DVDs, and memorabilia without ever leaving the consumption experience. The same goes for buying the fashion items worn by trendsetting online video stars. Chill and HaulerDeals are dabbling in these areas, but each could use some company. YouTube is said to have already built many of these tools for its platform, but as long as they sit on the shelf unreleased, they’re not doing anyone much good.
Whether it comes from the top, or from the bottom up via enterprising startups, hopefully 2013 brings a rich toolbox of commerce tools to further bolster online video monetization.
7. More advertising- and media-focused enterprise companies – Yeah, enterprise is sexy again. And LA could use more startups focused on selling to businesses. But as Sarah Lacy bluntly told me this morning, the odds of the next Salesforce coming out of LA are about zero. It’s just not in our DNA. But fostering the next Buddy Media or Doubleclick is a far more realistic and worthy target.
LA needs to play to its media strengths while expanding beyond consumer-focused startups. In that way, LA is much like New York. Despite the sexiness of Foursquare, Tumblr, and even Gilt, the vast majority of NYC’s notable exits have been business-to-business media companies. With Rubicon Project, OpenX, Adconion, Steelhouse, GumGum, GraphEffect, and others, LA has a serious stable of ad-tech heavyweights. YieldMetrics and Gradient X are following suit, but more next generation founders should look to these later-stage companies as examples of business that generate real revenue, scale to serve massive audiences, and generate massive valuations.
8. Exits, exits, exits – To put it bluntly, exits are the scoreboard by which any tech ecosystem is judged. Like nearly every other “tech hotbed” not named Silicon Valley, this metric is the Achilles’ heel of an otherwise promising LA market. Building large, sustainable businesses takes time, and this latest crop of startups is just reaching the level of maturity when it’s time put up or shut up. If the next two years produce a few big wins, then investor sentiment around LA could finish its transition from “wait and see” to “can’t ignore.” Exits also produce new angel investors and second-generation (and beyond) entrepreneurs, which are the lifeblood of healthy ecosystems.
[Image via surfermag]