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Case Study: The L.A. Start-Up Scene

At the L.A. Tech Summit, some of the city's high-profile entrepreneurs and VCs sat down to discuss what's working--and what's not.

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At the LA Tech Summit in Santa Monica Thursday, two threads dominated most of the conversation about the city's start-up ecosystem: Look how far it has come, and… man, there's still a long way to go. 

Most of the entrepreneurs and VCs that took the stage throughout the day agreed that Los Angeles is finally a city on the verge. 

Talent Pool and Mentorship

For one thing, the talent is here, thanks in part to the proximity of several major universities. "We in L.A. are at a point where entrepreneurs are no longer afraid to come to L.A.," said Mark Suster, general partner of Upfront Ventures. "We graduate more engineers in Southern California than any other region." 

The mentorship and support network for entrepreneurs are coming along, too. Four years ago, you would have had a tough time finding an accelerator or incubator program. Now, L.A. boasts Launchpad L.A., Mucker Labs, Amplify, Start Engine, and among many others. There are engineering meet-ups on a regular basis and an increasingly full schedule of start-up conferences in the area.  

Plus, L.A. has had some big start-up successes that it would do well to tout more.

One is Cornerstone on Demand, a Santa Monica-based company that makes HR software as a service. The firm, which the conference advertised as L.A.'s largest public exit in history, went public in March 2011 and has a current market cap of $2.5 billion. Founder and CEO Adam Miller mentioned in his keynote Thursday that he wants to do his part in encouraging the start-up community. (To that end, he announced his company has launched a business services-focused incubator and innovation fund.) More big guns like these to both offer mentorship to start-ups and acquisition opportunities will be key. 

No Money, Big Problems

But at bottom, nearly everyone acknowledged the city's biggest weakness--the lack of freely flowing venture capital.  

"Is there enough capital in L.A.? No," said Erik Rannala, co-founder of Mucker Labs, in a session on the state of accelerators and incubators in the city. "New York has roughly twice the venture dollars flowing into it." 

That creates a bit of a chicken-and-egg problem, especially for the founders who decide to take their idea to an accelerator. There isn't enough money at the moment to go around to fund all the good ideas that come out of these programs. Rannala and others pointed out--and rightly so--that this isn't always a bad thing. The very best will always catch the eye of investors; the mediocre companies may not live on, which is largely how the system is designed to work. 

Mayor Eric Garcetti weighed in on the money problem, suggesting that L.A. needed to do more to promote itself as the big financial center that it is. "We need the big VC firms to have offices here," said Garcetti, who won election in May.  

That's certainly one solution, though making it high on the priority list of firms who are already swimming in start-ups in the Silicon Valley may be difficult. 

How to Move Forward

Suster said he has a bigger idea for Garcetti (who the VC has dubbed the city's "first tech mayor") and one he harps on every chance he gets with the mayor. According to Suster, years ago L.A. used to have seven or eight large VC funds that went out of business and haven't been replaced. If Garcetti wants to encourage more big funds--we're talking $400 million and larger--he'd lobby for the city's commissioners to invest the public pension funds in local VC firms. Suster said currently those funds are invested New York, Boston, Silicon Valley, and other locations.  

Suster wasn't the only one to bring up the idea. An attendee from the crowd asked the same question of the mayor earlier in the day.  

Garcetti admitted he'd like to see more local investment as well--but once they're appointed, the commissioners are independent. In other words, they won't take orders from him.

Suster didn't seem to buy it, telling the crowd it's up to them to lobby the mayor. "I think it's eric @ garcetti dot com," he joked. 

 

Last updated: Nov 14, 2013

LINDSAY BLAKELY is a senior editor at Inc., based in Los Angeles.
@lindsayblakely




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