Debunking the myth that LA doesn't build hardcore technology

By Michael Carney , written on June 7, 2013

From The News Desk

The last few years have been good to the Los Angeles tech scene, with more money, more talent, and more recognition coming to the community. Many outside observers have sought to handicap the market and its place in the broader startup ecosystem. I’ve had dozens upon dozens of conversations along these lines, with most visiting investors and entrepreneurs alike asking variations of the question, “Is it real this time?” (My answer: Unequivocally, yes.)

After explaining why the essential infrastructure elements and culture of entrepreneurship have reached a critical mass that has never been the case before, the response tends to be one of qualification: “But LA doesn’t build real technology.”

I believe this comes partially from the basic human need to categorize and explain things as simply as possible. In LA, that can be difficult, because the market is as diverse as any in the world. Not only is it the center of the entertainment universe, it’s also a hotbed of aerospace and defense innovation, leads the country in fashion design and production, and has been the birthplace of much of the advertising technology on which the consumer Internet was built.

It's a myth that LA doesn’t build hardcore technology, but to set the record straight, below are seven venture-backed LA companies of various sizes and stages with talented engineering teams building “deep tech”:

  • Factual: Founded by former Applied Semantics co-founder Gil Elbaz, Factual has hardcore engineering in its DNA. The six-year-old company based in Century City (but moving to Culver City in 2014) is one of the original “big data” startups with the mission of structuring the world’s data around places, products, and other categories. Factual relies on its team of more than 70 employees, the bulk of which are engineers and data scientists, to ingest massive amounts of unstructured data and make sense of it for use by clients like Foursquare, Yelp, LivingSocial, SimpleGeo, and Trulia, as well as reportedly but not confirmed, Facebook and Google.

  • Oblong Industries: Put bluntly, Oblong is the Minority Report company. Co-founder and chief scientist John Underkoffler was a special technology consultant to the crew behind the futuristic movie and based the virtual and augmented reality computer interfaces featured prominently in the film on technology he was already building. Today, seven years later, the downtown LA company has built bleeding edge gestural interface technologies that are used by clients from the Department of Defense to Fortune 100 corporations. The company has approximately 75 employees across disciplines including software, mechanical, and industrial engineers, data science, and others.

  • ZestFinance: Tucked away above a head shop on Hollywood Blvd., ZestFinance is using massive amounts of big data to disrupt the subprime lending industry. Founded by former Google CIO Douglas Merrill, the company has recruited heavily from nearby CalTech and has what many well informed Angelinos consider to be the best data science team in town. ZestFinance utilizes thousands of data points per prospective borrower, going far beyond anything being done by credit reporting agencies or social lending platforms, to assess risk and set lending terms. The company’s default rates are far below industry average and Merrill fields regular inquiries from traditional financial institutions looking to license the company’s technology.

  • OpenX: Pasadena-based OpenX is carrying on LA’s tradition of adtech innovation and offers a SaaS platform that combines ad server, an ad exchange, a Supply Side Platform (SSP), and content valuation technology. The five-year-old company employs nearly 300 people and processed more than $4 trillion worth of transactions in 2012 and is operating profitably with nine figure revenue. Anyone who's tried to build any technology at this level of scale can attest to the serious level of talent and innovation required.

  • Gravity: Gravity is a four-year-old big data startup located in Santa Monica’s Main St. corridor with applications in the personalization of online content. Led by co-founder and CTO Jim Benedetto, who was formerly the SVP of Technology at MySpace, the company has assembled a 27 person team heavily weighted toward engineering and data science. Gravity uses semantic analysis and machine learning to build personalized interest graphs for users across its network of premium publishers, ecommerce retailers, and other consumer facing properties. The technology is used to optimize the delivery of both content and advertising to drive user engagement and user retention.

  • Cornerstone OnDemand: LA’s hidden giant, Cornerstone is a 14-year-old publicly traded SaaS-based enterprise learning and talent management company with a $2 billion market cap. The company has received little recognition relative to the scale of its operation, but Cornerstone employs more than 300 engineers in its Santa Monica headquarters alone (of 600 local employees and 800 total globally) and has built technology used by Turner Broadcasting, Neiman Marcus, Pearson, Virgin Media, the American Hospital Association, and numerous others.

  • SpaceX: While NASA is no longer investing in Space exploration, Elon Musk’s SpaceX has picked up the baton. Last summer, the then 10-year-old Hawthorne, CA company successfully launched its first private unmanned spaceship, its Falcon 9 shuttle and Dragon capsule, which brought cargo to the International Space Station – it has since repeated this feat two times. The company’s next-generation Merlin 1D rocket was also recently cleared for takeoff. For Musk, who speaks openly about his desire to colonize Mars and to travel from Los Angeles to San Francisco in 20 minutes, this is his fourth $1 billion plus enterprise.

Given the above, there should be no arguing that LA builds real technology. More importantly, it builds it across hardware and software, for consumer and enterprise markets, and in wide variety of industries. Moreover, there are numerous other companies who deserve mention in the same breadth as those listed above, including Rubicon Project, ZEFR, Retention Science, Applied Minds, and SteelHouse, among others, but any list as subjective as this one is bound to be incomplete.

It’s likely that most, if not all, of these companies have been described at one point in their history as “valley companies,” or asked why they don’t relocate to the Bay Area. Instead, they choose to build companies in a city that graduates more engineers each year than any other in the country.

During our PandoMonthly fireside chat with Andreessen Horowitz partner Chris Dixon, the former angel investor described New York and Los Angeles as application towns, while calling Silicon Valley an infrastructure town. This may be a better way to characterize it, but even this feels like painting with too broad of a brush. As a relatively young startup ecosystem, LA is still maturing and finding its identity.

Los Angeles will always build content companies, as it should given its proximity to Hollywood. It’s equally likely that the market will be well represented in the ecommerce category – with some of these companies even being celebrity-backed and utilizing subscription / box-of-the-month models. But these less technical applications have no bearing on LA’s ability to develop hardcore technology companies. Several of the above-mentioned companies are worth hundreds of millions if not billions of dollars, while others are still in their infancy. The technology ecosystem in LA is healthy, as much for its diversity as for anything else.

[Disclaimer: Cornerstone OnDemand sponsored a PandoDaily content series focusing on the LA tech scene. Several of the companies mentioned above are backed by firms and individuals who have also invested in PandoDaily. Factual is backed by Andreessen Horowitz, whose partners Marc Andreessen, Jeff Jordan, and Chris Dixon are individual investors in PandoDaily and by SV Angel. Gravity is backed by Redpoint Ventures. OpenX is backed by First Round Capital and Accel Partners.]