LA startup scene builds on culture of entrepreneurship

The 'I've got a dream' mindset is there, now the growth money needs to follow

I have been fascinated with culture and tech since 1999, when I first moved to San Francisco to cover the burgeoning tech scene, as one of the few reporters who cared about Silicon Valley. Today, the zeal for anything startup is widespread, infectious and dare I say - mainstream! But doubtless, the manifestation of most startup ecosystems is unique to the socioeconomics of the location.

With our newly-launched focus on emerging tech hubs, our Splash events are produced with an additional question in mind: How is the tech startup scene changing the local culture and economy? In Splash Oakland, Mitch Kapor helped shape the discussion, which, in part, addressed gentrification and displacement concerns, that would also resonate in places like Brooklyn and Detroit. In Las Vegas, where Tony Hsieh is building a startup ecosystem from scratch, the question about tech, culture and the local economy is how to create it out of nothing. 

In Los Angeles, where we will be holding our 4th annual Splash LA event in Santa Monica on Oct. 2 (Don't forget to register early!), there's no pronounced concern about anyone being left out or pushed out by tech venture and angel investments coming in. It's probably because LA is sprawling, and displacement isn't exactly a pervasive concern, though it may be in certain areas like Venice Beach, where tech clusters are causing rents to rise.

It could also be that unlike San Francisco and Oakland, where startup-induced price inflation is in everyone's face, LA still accounts for under 3% of all venture investments, similar to the percent of investments it saw 10 years ago. Compare that to SF, where it accounted for a small piece of venture investments 10 years ago, and now accounts for 30%, in the latest quarter, according to Dow Jones VentureSource. 

It may also be the case that there's wealth and confidence that permeates, and importantly a mentality that anyone can dream big and make it big, especially in the movies. A disposition of storytelling, sourcing, finding and developing talent, or being talent is already firmly in place. 

"LA has always been an entrepreneurial community," said Cody Simms, Managing Director at TechStars, and heading up the Disney Accelerator. [Simms will be moderating our 'From scripts to business plans' panel at the event, featuring speakers from CAA Ventures, UTA and more.] "First screenwriters had to find a line producer, then get a pilot off the ground and then get distribution. LA has always been a town where at 2 pm, the coffee shops would be full of people working for themselves and working on different stuff." 

The app is the new script

Indeed, the perception of LA for decades is it's a place where people are working one job, to really land another. How many actors are waiting tables?

"The app is the new script," said Adam Lilling, an entrepreneur-turned-VC who's lived in LA for more than 25 years and now runs a fund whose LPs (limited partners) consist of major celebrities and talent agents.

"Everyone has one in Hollywood." So the idea of turning an idea into something isn't foreign to people living in LA. "Startups are so natural in LA," he added. "It's a town of transient people with a dream. People with a day job and night job. It's a town of entrepreneurs."

In other words, the mentality of making it big, or telling a story (your story or a script you're trying to sell) is already in place. It's just a different product people are peddling.

Now the question for LA broadly is how to shape it, and convince its own kind, to embrace it and reinvest in the startup ecosystem. After all, LA is a pretty wealthy city. 

"Out of all LA's portfolio of companies, there's very few from LA throwing money in LA tech or LA venture. It would be better for LA, if some of that money came from LA and not just Silicon Valley," said Mike Jones, Founder and Partner at Science, a studio approach to producing and investing in startups. 

Whisper raised $60 million from a number of non-LA based VCs, such as Lightspeed, Shasta Ventures and Sequoia Capital. Snapchat raised more than $150 million from a host of Silicon Valley investors, such as Lightspeed, Benchmark, and IVP. The Honest Company has raised $52 million, a majority of that coming from Lightspeed Ventures, General Catalyst, and IVP.  

Indeed, much like other tech hubs, there seems to be more seed-stage accelerators fueling ideas, vs Series A fueling growth. In the last four years, accelerators have blossomed from Mucker Lab, Amplify, Start Engine, and Launchpad. Moreover, talent agencies and movie studios are starting to evaluate startup business decks, like they were screenplays, from Warner Bros. Media Camp, United Talent Agencies and CAA Ventures.

To be sure, there's a lot more activity in the growth-stages of startups from lesser-known LA-based financiers in the startup world. LA-based CAA Ventures also invested in Whisper in several rounds, and LA-based Pritzker Group Capital invested in The Honest Company. Javelin Venture Partners, which is based in San Francisco, has one partner in LA. They add to the active investor roster that includes Greycroft, Rustic Canyon, Upfront Ventures, Anthem Venture Partners, and Wavemaker Partners (formerly Siemer Ventures - lised a top 10 active VC in LA, according to CB Insights), to name a few.

With later-stage financing fueling startups to get bigger, that also means these well-funded startups can be potential buyers in the future, which means there's a greater chance that money and talent stays in LA.

"For any region to create a really healthy tech ecosystem, you need to have companies that are acquirers," Jones added. "LA is typically the acquired," he said, point to Silicon Valley-based Facebook buying LA-based Oculus. "What I'm excited about is if Rubicon (which recently IPO'd) became the local acquirer." Jones will be joining us at Splash LA on Oct. 2. 

At this point, the "end node" centers in Silicon Valley, he said. "The next phase for LA is to get big LA companies buying other tech companies."

But that may be a matter of time.

"LA is a decade behind SF," said Scott Painter, Founder & CEO of TrueCar. "If you look at what was going on in Silicon Valley 15 years ago, you had the Ron Conways and individuals from Juniper Networks [not to mention PayPal, Google] that helped shape Silicon Valley's ecosystem."   

It's starting to happen in LA today, with angel investors from Sky Dayton to Matt Coffin, Jason Calacanis, Clark Landry, Paige Craig and Brian Lee, also the founder of The Honest Company. Former entrepreneur-angels are also starting their own funds, such as Eva Ho, who founded Susa Ventures, and Ryan Swagar, who founded Venture51 with Brandon Zeuner, another entrepreneur/angel.    

And that success begets more success. 

"What's happening now is that there is an ecosystem of successful entrepreneurs," said Painter, adding that coupled with LA's attractive weather and beaches make it a draw for more talent. "The conventional wisdom is that engineers like dark, quiet places. Turns out, they love an ocean-front view." 

Already LA is seeing the fruits of investments made in the last 10 years. 

This year, LA has seen some significant razzle dazzle in the startup world. In 2014, Facebook bought Oculus for $2 billion, Disney bought Maker Studios for $950 million, TrueCar went public and now sports a valuation of $1 billion and employs 420 people. In the last five years, there's also been some high-profile exits and emerging investors. Cornerstone OnDemand went public in 2011, and now has a valuation of $2 billion. And there is SpaceX, started by Elon Musk, which is based in Hawthorne, Calif. 

That said, will LA ever be like San Francisco or Silicon Valley?

"It's very different," said Brian Lee, Founder & CEO of The Honest Company. "I don't think LA will ever be like Silicon Valley or the Bay area. It's going to take a long time for us to catch up to what's happening up north. That's a matter of legacy. We never had HP or Google here. Of course, since we haven't had that, we haven't had the capital. We haven't had the massive $100 billion valued company."

Brian Lee and Jessica Alba pictured below. Lee and Alba will join us at our 4th Annual Splash LA event on Oct. 2. Register here.

That doesn't mean, however, that the dollars won't start flowing in. 

"I think anything entertainment-related would work better here. E-commerce works because of the ports," said Lee. "And [frankly] with the cost of technology coming down so dramatically in the last 10 years, you can start anything from anywhere."

"The LA tech culture has logically grown up around industries that are native to LA," said Dana Settle, Partner at Greycroft Ventures. "All of nline video, studioes, tools, online video, the expertise is here. We have the application layer, such as SnapChat, Whisper and Tinder vs more of the plumbing and enterprise focus in Silicon Valley." 

(Editor's note: Join Dana Settle, Mike Jones, Scott Painter, Brian Lee, Jessica Alba as well as Coby Simms and Adam Liller, to name a few at our upcoming Splash LA event on Oct. 2 at Shutters on the Beach in Santa Monica. Register early before tickets jump up. vatorsplashla.com)