The Challenges (& Opportunities) of Starting a Tech Company in LA
I recently hosted a panel at the Twiistup Conference about LA tech companies. I asked the panelists (David Travers, Brian Norgard, Fouad ElNaggar, & Demian Sellfors) about the specific challenges that we face down here in Los Angeles as opposed to Silicon Valley. I have some pretty specific thoughts on the differences between companies in the two cities, as I wrote about in my previous post A Tale of Two Tech Cities. But I thought I’d take some more time here to expand on what I think are the challenges, and opportunities, of starting a tech company in LA.
Challenge #1 – Tech Companies are Not Typically Started by Technologists.
In the bay area it’s quite common for the entrepreneurs starting a company to be developers or technologists who can build the first versions of their products. That’s typically not the case in Los Angeles. Here it seems that entrepreneurs are coming out of business school, transitioning from corporate life, or hail from the entertainment industry. Whereas in Silicon Valley, you can have a V.1 of a product up and running in a few months weeks getting thousands of users for next to no capital, in Los Angeles many folks will take over a year and spend a million dollars just to get a beta product ready.
A perfect case in point is Mark Hendrickson the founder of Plancast. He worked for me at Docstoc for a brief stint (and did an awesome job) after being a writer at TechCrunch for a few years. When he had the idea for his company, he didn’t write a long business plan or try to raise money to hire an agency to build a website for him. He just pounded out design and code for a few weeks and got Plancast up on the web and users adopting his product right away.
In Los Angeles we are at a disadvantage because the founder(s) often have no experience in building consumer web applications. This makes it infinitely more difficult to bring our ideas to life, to quickly iterate on the inevitable misdirections that happen early and often, and to raise capital to continue building our companies.
Opportunity #1 – Tech Companies are Not Typically Started by Technologists.
Entrepreneurs that start companies in LA are often focused on revenue and business models. If you can create such a virally popular product that it reaches millions of people… yes, you can put off worrying about business models and revenue, but this isn’t the case for most of us. The fact that we’re focused on building great businesses and not just great products, give us our own advantages.
While we often lack the technology and product depth of our counterparts in the Bay, I would argue that entrepreneurs in LA would thrive if you dropped them into any industry. We tend to be better at things like team building, negotiations, sales, and fundraising – which are arguably the most important skills entrepreneurs should posses.
Challenge #2 – There is Not Enough Great Tech, Product and UI/UX Design Talent in LA .
Simply put LA has a lack of GREAT product, UI/UX, and design talent. I know because I’ve spent the last three years trying to hire these folks. Many of the product managers/designers in LA come from the entertainment industry, which doesn’t lay the foundation for how to build an addictive interactive consumer experience. You’ll often find folks that are great at big glossy designs, but who lack the depth and experience to build a seemless user experience that just feels intuitive to the person engaging with the website.
Opportunity #2 – There is Less Poaching of Great Tech, Product and UI/UX Design Talent in LA .
On the other hand, if you are able to build a great product team (like we have at Docstoc) then you are much less susceptible to have these folks poached away from your company. In the bay area you have Facebook stealing employees from Google, Zynga stealing from Facebook, and some new hotshot startup ready next in line to pounce. Loosing talent is a HUGE problem and the reason why Google will give big bonuses and cash to keep their teams in tact.
Challenge #3 – There Needs to Be More Institutional Capital in Los Angeles .
There simply are NOT enough venture capital firms in the Southern California. In the bay area there are dozens of firms that are actively making investments. In LA there has typically been a small handful of firms actively making investments in tech, they include: Rustic Canyon, GRP Parners, Clearstone Venture Partners, Redpoint Ventures, Mission Ventures, Anthem Venture Partners, Greycroft, Crosscut, Palomar Ventures, and Rincon Ventures. It’s a chicken and egg problem. If there were more great companies coming out of LA then it would create more demand for high quality VC firms. But there are also less great companies in LA, BECAUSE there is less access to sophisticated capital.
Opportunity #3 – There is Plenty of Capital for Great Team/Products .
Despite the above, great entrepreneurs, teams, companies in LA can always find capital. They’re the ones that rise to the cream of the crop and get the attention of the folks that are investing in LA, and they often have Bay Area or East Coast suitors who want to invest in their companies. If you’re complaining that its too hard to raise money as the founder of an LA tech company, stop bitching about a lack of funds and focus on being a bigger badass.
Challenge #4 – We are Divided by Our Geography.
LA is really a collection of many different cities, that depending on traffic, can be anywhere from 15 minutes to 2 hours away from each other. There’s Santa Monica, Westside, Hollywood, Downtown LA, the Valley, and Pasadena. This dispersed geography prevents entrepreneurs from easily meeting up for both formal functions and the informal drinks/dinner that so often lead to great ideas and partnerships. In San Francisco, you can walk out of your office and within a 1 mile square radius you probably have 12-24 other tech founders working alongside you.
Opportunity #4 – We are Building our Own New Tech Hub – Silicon Beach
I may be biased, but it really feels like downtown Santa Monica is becoming the tech hub of LA. In fact Paige Craig has coined it Silicon Beach. There’s a fast growing group of tech companies including: Docstoc, Demand Media, BetterWorks, GoodReads, Mahalo, Beachmint, Campus Explorer, DECA, eHarmony, GumGum, Savings, Shoedazzle, Business.com, FamilyFinds, Affordit, Bestcovery, JibJab, CoLoft and many more. I still consistently work very late nights, and one of my favorite parts, is that I can email any number of other founders that are doing the same and walk out of my office and go to dinner/drinks with amazing folks in the tech space right next door to me.
Challenge #5 – There Hasn’t Been Enough of an Organized Tech Community
From what many people have told me, in past years there simply were not many high quality tech events where someone new on the LA tech scene could break in and meet other connected folks. That’s no longer the case….
Opportunity #5 – That’s No Longer the Case…..
LA is now filled with high quality tech events, mixers, meetups, and a thriving community. I’ve been leading the charge here with Mark Suster (read his blog BothSidesofTheTable). In the past 2 years I’ve now hosted 20 Startups Uncensored Events that bring out the best CEOs and VC in LA, and at our last event we had 1000 RSPVs. Some of the past events & videos are linked to below. And Mark Suster has been fostering an environment to help find and grow the best and brightest new LA tech companies with LAunchpad. Plus there are amazing LA tech events put on by DealMaker Media, DigitalLA, Twiistup, and many more. To see a great list of LA tech events check out the event calendar on SocalTech, Nicole Jordan’s Blog, and the newly revamped LaLawag.
Past Startups Uncensored LA Tech Events
http://www.jasonnazar.com/2011/02/15/online-subscription-businesses-startups-uncensored-20/
http://www.jasonnazar.com/2010/09/22/bootstrapping-your-business-startups-uncensored-19/
http://www.jasonnazar.com/2010/06/22/how-to-become-an-entrepreneur-superhero-startups-uncensored-18/
http://www.jasonnazar.com/2010/05/04/how-to-raise-venture-capital-startups-uncensored-17/
http://www.jasonnazar.com/2010/03/02/how-to-persuade-people-startups-uncensored-15/
Great post Jason. I would add Orange County to the extended LA community, as we have a small, yet thriving startup scene here. Lots of game, social, mobile, health and infrastructure related activity, with support from several Meetup groups, one being OC Tech Startup http://www.meetup.com/OC-Tech-Startup/
I think we need better integration with the Universities, and am personally working on two initiatives, one with UCLA and one with UCI. This is a 5-10 year roadmap, but there is good momentum, and people such as yourself serve as great mentors for the journey.
Well said Jason. Very similar ecosystem her ein Nashville.
Well said Jason. A very similar ecosystem here in Nashville.
I’ve said this before and I’ll say it again. What attracted me to Santa Monica was Jason. He’s done more for this town than the town could ever do for him. With an army of Jason’s building in this town, that will be the heart of the transformation.
[...] This article was originally posted here on Jason Nazar’s [...]
Jason,
Nice post. Please add LA CEOs to your list of LA events. Also, one clarification, Paige may call it Silicon Beach, but everyone else calls it the Tech Coast, it is even on the Santa Monica Bus. See you around.
Mark
Great post, Jason.
I completely agree with you about LA’s Tech Scene starting to ramp up. I don’t think it was entirely coincidence, but loads of the people I talked to were from LA, which is nice because we can continue to connect and see each other in person more frequently.
I heard Paige Craig say mention on TWiST that one of the big advantages to doing something in LA, is because we are such a microcosm of the whole world. We’re a melting pot of tech, fashion, film, entertainment, marketing, etc. LA may not be developer rich yet, but there’s definitely a wide range of resources here for them to take advantage of.
Let’s call it “Orange …” instead of Silicon Beach
Nice post. I’d add the Caltech/MIT Enterprise Forum (entforum.caltech.edu) to the list of events.
Regarding the challenges and opportunities, I’d add the role that local universities play in the ecosystem. Research has shown that university-based spinoffs are 108 times more likely to go IPO than those companies without university ties.
The Bay Area has a successful track record of formulating spinoffs from Stanford and Berkeley. There is a wealth of IP potentially to be tapped locally at Caltech, UCLA and USC.
Good post! After having lived in SF for 15years while working at more than seven different startups, I have something to add.
The Bay Area has a 50+ year head start with technology. Companies like HP, Intel, Apple, Xerox Park, Fairfield Semiconductor, Sun Micro, Oracle, Intuit, etc. have all created an ecosystem of engineers, VCs, product managers who are all focused on technology. Shit Xerox Park alone invented the mouse, the GUI, object orient programing, the laser printer, and Ethernet. This laid the foundation for Internet startups down the road and frankly is the reason why the Bay Area is the center of the digital universe.
The Venture Community pulls companies up to the Bay Area. The way VCs work is that they want to have a close relationship with their portfolio companies which means you have to be within 50miles of their offices. Which makes sense since, VCs provide relationships and resources which are necessary and all part of the resources that the Bay Area ecosystem can provide. Unless there is a strong and independent VC community here in LA separate from the Silicon Valley (not extensions of the Valley) you’ll never see a strong startup community here in LA.
All that said; Yes, “Silicon Beach” has a chance and is growing. I for one want to help it grow. The more startups setup in Santa Monica the better and the stronger the scene will be. The convergence of the entertainment industry and the Internet is huge and will provide a lot of fertile ground for new companies. Plus we do have the talent down here; they are just pulled to the north. We have as many universities as the Bay Area. More in fact so there’s no reason why talent shouldn’t and wouldn’t want to stay in SoCal. We simply need more jobs for programmers.
So keep up the good work Jason and looking forward to the next Startups Uncensored event!
Great post!
IF SM really cared about tech though the whole city would have free high speed wi-fi! That’s more important than roads today. To bad they bowed down to the entrenched phone companies…
Thank you for the GREAT article and work Jason.
Great post Jason. As a west LA based tech company, we fully identify with your comments, especially Challenge #2 and #3 although in our experience there is a fair amount of seed money and early stage private investors in and around SoCal.
Thank you Jason! Good thoughts!
[...] Also here Jason’s related blog post on the Challenges and Opportunities of Starting a Tech Company in Los Angeles: http://www.jasonnazar.com/2011/03/22/the-challenges-opportunities-of-starting-a-tech-compan... [...]
Great post! Thanks, Jason! Very insightful…and really sums up the scene well. I think we should continue to dwell on how to really leverage our unique SoCal circumstances into advantages…!
LOL, I’ve to say the on the internet dating or electronic dating has come a very long way from the days of basic chat rooms. More and far more individuals are turning to on the internet dating web sites to screen potential dates.