While the Bay Area is, and probably always will be, the biggest tech hub in the world, plenty of other cities have made a name for themselves as well, including Los Angeles. With our upcoming Vator Splash LA event in October, we've decided to take a closer look at the tech scene in Los Angeles, some of the big trends and how it is shaping up.
In just the last decade or so, the Los Angeles tech scene has seen something of a renaissance. The city has a ton of momentum, as hundreds of startups are sprouting up throughout the region (something that is, of course, happening in spades in cities around the world).
As David Siemer, co-founder and Managing Partner of Wavemaker Partners and founder of Siemer & Associates Investment Bank, told me, five years ago, there would have been 30 startups being funded out of Los Angeles. Now there are closer to 300, with 600 new companies getting started in the region each year. There are also a slew of accelerators and incubators pop up in the city in that time as well, including Amplify, Launchpad, Muckerlab and Science. In Vator's database alone, there are more than 750 startups in the LA area.
Note: You'll see MuckerLab, Amplify and Science at Splash LA (vatorsplashla.com) on Oct. 2, along with some of the hottest startups (The Honest Company, Whisper, TrueCar, DogVacay and more) and investors. Register before mid-August to get 50% off the ticket price. It's a bargain. Register here.
So what facilitated this change? Basically, the tech scene caught up to L.A., not the other way around, according to Mark Terbeek, partner with Greycroft Partners. Los Angeles was always good at certain things, including fashion, commerce and video, and now those things are becoming increasingly important in the tech world as well.
"The first wave of the Internet was largely about building infrastructure, and making speed and efficientcy better," he said. "It was, 'how this thing was going to help us do commerce, and connect more easily?'"
With the Internet 2.0, which emerged in the middle of the 2000s, the Internet became more about creating a fabric for connecting people. And that, he said, is where Los Angeles was able to thrive.
"Once that happened the strengths of the Southern California market, with video production and design work, became more important than in the first wave," he said. "It's not surprising to me that Los Angeles is having an increasingly important contribution."
On top of that was the proliferation of the cloud, which made it easier, and quicker, for companies to get off the ground. That was especially important for video developers, he aid.
"Amazing companies that wouldn’t have gotten off the ground before could now go out, shoot some video, post it, and see if fans connected," said Terbeek. "YouTube essentially became for video developers what Amazon was for software developers."
One major result of that shift has been a wave of angel investors popping up in the L.A. ecosystem in recent years, and who are now there to help finance these new companies and help them get off the ground. All of this has helped the city become a better place to start a company, even those that may not seem like typical L.A. startups.
"We have definitely seen dramatic uptick in L.A. in the last five to eight years. There used to be a big focus on fashion, e-commerce and media, but that is not the case anymore," Pravin Vazirani, Managing Director at Menlo Ventures, told me. "Now with companies like Edgecast and Cornerstone, it's not just about media and e-commerce; there is more hardcore technology like what is coming out of the Valley."
And now that a whole group of companies have emerged, it had bred a group of second generation start-ups, he said.
The city is still evolving, though, and has a long way to go before it can be the next Silicon Valley, especially when it comes to venture capital dollars. According to numbers provided by Dow Jones VentureSource, LA was 2.7% of all VC dollars invested in 2004, and now is still 2.5% of all VC dollars. Meanwhile, San Franciso was 5% of all VC dollars in 2004, and now it's 56%.
The reason is that L.A. simply has not seen the same uptick in later stage VC firms, with all three people I spoke to agreeing that LA-based companies still have to go up to the Bat Area for that money.
"Companies all want Nor-Cal or New York money. It's like a badge of honor," Siemer said. "LA is a smaller pond, and there is just more available up north. We are not viewed with quite the same halo."
To Terbeek, though, later stage VCs are just the next step in the evolution. In fact, Greycroft is already doing just that, and is taking advantage of the opportunity that is being left by that hole.
"We saw it as opportunity to support entrprenuers," he told me. "It was silly not only not investing in those rounds, because there are terrific companies that had to look out of market as next option."
Of course, with more companies being started, and funded, leading to a more robust ecosystem, it has resulted more and bigger exits. Here are some of the biggest exits to have come out of Los Angeles in the past five years. Here they are, in order of lowest to highest valuations at the time of aquisition, as detailed by CBInsights:
10. M86 Security
- Internet threat protection company
- Valuation at time of exit: $120 million
- Money raised before exit: $38 million
- Investors: Kelso Place Asset Management, Updata Partners, Vora Ventures
9. Green Dot Corp.
- Issuer of prepaid MasterCard and Visa cards
- Went public in 2010, raised $164 million
- Valuation at time of exit: $243.6 million
- Money raised before exit: $33 million
- Investors: Sequoia Capital, Tech Coast Angels
- Provider of limited time online shopping events for consumers
- Valuation at time of exit: $270 million
- Money raised before exit: $41 million
- Investors: Matt Coffin, Insight Venture Partners
- Enterprise cloud platform
- Valuation at time of exit: $330 million
- Money raised before exit: $15 million
- Investors: Brad Jones, Kortschak Investments, Ignition Partners, Swisscom Ventures
- Content delivery network\
- Valuation before exit: $350 million
- Money raised at time of exit: $74 million
- Investors: Mark Amin, Jon Feltheimer, Steamboat Ventures, Performance Equity Management, Menlo Ventures
5. Riot Games
- Video game publisher
- Valuation at time of exit: $472 million
- Money raised before exit: $20 million
- Investors: FirstMark Capital, Benchmark, Tencent,
4. Cornerstone OnDemand
- Talent management software solution
- Valuation at time of exit: $606.3 million
- Money raised before exit: $44.7 million
- Investors: Meritech Capital Partners, Bay Partners, Bessemer Venture Partners,
3. Maker Studios
- Multi-channel network
- Valuation at time of exit: between $500 million and $950 million
- Money raised before exit: $66 million
- Investors: Canal+ Group, Astro Overseas Limited SingTel Innov8, Lakestar, Northgate Capital, Upfront Ventures, Greycroft Partner, GRP Partners, Downey Ventures, Elisabeth Murdoch; FUEL: M+C, Daher Capital, Jon Landau
2. Demand Media
- Content and social media company
- Valuation before exit: $1.5 billion
- Money raised before exit: $355 million
- Investors: Goldman Sachs, 3i Group, Generation Partners, Oak Investment Partners, Spectrum Equity Investors
1. Oculus VR
- Creator of a virtual reality headset
- Valuation at time of exit: $2 billion
- Money raised before exit: $93.4 million
- Investors: BIG Ventures, Formation 8, Founders Fund, Spark Capital, Matrix Partners, Andreessen Horowitz
(Image source: aaroads.com)