Southern California has an enterprise SaaS ecosystem (no, really!)

By Michael Carney , written on August 19, 2013

From The News Desk

Southern California has developed a reputation for ecommerce and consumer media startups. The association is often so strong that it overshadows and sometimes even discredits the innovation happening in other categories. While there are certainly a fair number of fashion and YouTube-related companies here, to boil the region down to just these areas sells short many great entrepreneurs.

In the past, we’ve debunked the myth that LA doesn’t build hardcore technology. Another such fallacy is that SoCal lacks a vibrant ecosystem of business-to-business (B2B) cloud companies. A recent discussion to this effect with Emergence Capital venture partner Sean Jacobsohn, following his PandoDaily article “Should you start your next company in SoCal?,” led to a deeper dive into the stats around enterprise cloud entrepreneurship in SoCal.

“We have been focused on enterprise SaaS since 2004, and until recently, nearly all SaaS companies were coming out of Silicon Valley,” Jacobsohn says. “It has been great to watch the SoCal ecosystem flourish over the last few years. The market has become less concentrated than it once was.”

SoCal is a massive region that too often gets boiled down to just LA. With dozens of pockets of entrepreneurial activity between Santa Barbara and San Diego, perhaps it shouldn’t surprise that there would be significant activity in enterprise SaaS. Nevertheless, I was taken back when, after mining our own mental databases, as well as Crunchbase, Angellist, Builtin.LA, and other resources,  Jacobsohn and I arrived at more than 100 such companies in the region – and surely there are others that we missed. While 54 companies are located in West LA, it’s noteworthy that Santa Barbara and Orange County each have nine, and San Diego, the South Bay, and Pasadena each have half a dozen.

These cloud-based companies are tackling diverse sectors. The two largest categories include AdTech/Social Media and IT, with the former including companies like Rubicon Project, Shift, SteelHouse, Adomic, and PageWoo, while the latter includes, ServiceNow, Factual, AppScale, Divshot, and Prevoty, among many others.

We have identified six other major horizontal sectors that are also well represented, with examples below of each:

  • HR: Cornerstone OnDemand, HireRight, and Xyleme

  • Sales: Velocify and Nimble

  • Customer success: Retention Science and MomentFeed

  • Marketing: uSamp, RingRevenue, and Tealium

  • Collaboration: Kaleo, AnyMeeting, and Mavenlink

  • Finance: Kyriba and CapLinked

We have also seen notable success among companies offering vertical and mobile-first solutions, including:

  • ZEFR: Content rights management for YouTube

  • Mindbody: Business management for the health and wellness sector

  • Magento (acquired by eBay): Hosted eCommerce platform

  • Estify: Web-based estimate management for collision repair centers

  • Appfolio: Web-based property management

  • Procore: Web-based construction project management

  • Lettuce: SMB-focused, mobile and Web-based order management platform

  • Mobile Roadie: A self-service mobile app platform

  • NuOrder: Mobile sales platform and marketplace for the fashion industry

“I attribute much of this activity to the resources available, particularly the incubators and venture investors focused on building SaaS companies,” Jacobsohn says.

By our count, LaunchPad LA and Idealab have each incubated nine SaaS companies, Amplify has incubated eight, and MuckerLab has incubated six. Among venture capital firms, Siemer Ventures has invested in 12 SaaS companies, Upfront Ventures (formerly GRP Partners) has invested in nine, Rincon Venture Partners has invested in six, and Rustic Canyon Partners and Greycroft Venture Partners have each invested in four.

Enterprise SaaS may be the business model du jour currently, but SoCal’s representation in the category predates this trend by many years. Several of the companies listed above, including 14-year-old Cornerstone On Demand – a rare $2 billion win for region – and 12-year-old Mindbody predate even the consumer Web boom of the mid 2000’s.

Not unlike Chicago, Southern California – and LA in particular – has always been a region focused heavily on transactional businesses that prioritize revenue and early traction over massive land grabs in the absence of a business model. It is, after all, the region that spawned both Applied Semantics and Overture, which underpin much of today’s paid search market at Google and Yahoo. LA has also been home to Ticketmaster, Pricegrabber, LowerMyBills, CitySearch, GeoCities, and eHarmony.

Historically, this revenue focus has been a consequence of the region’s lack of capital availability, relative to Silicon Valley, Boston, and New York. But more recently, as capital has flowed into the market, it’s beginning to seem more like a matter of philosophy than one of desperation.

SnapChat may be the sexiest company in LA today, given its explosive growth and stratospheric valuation. But despite the region’s MySpace heritage, the unmonetized social phenomenon is more of an exception than the rule.

As Southern California entrepreneurs and investors continue to seek out underserved market opportunities, expect to see many more enterprise-focused solutions with solid and real business fundamentals. They may not always grab the headlines, but these companies will likely play a disproportionate role in the success of SoCal’s entrepreneurial ecosystem.