Los Angeles is the capital of small business in the United States, according to Los Angeles Mayor Antonio Ramon Villaraigosa, at a reception earlier this month for Ernst & Young Entrepreneur of the Year Finalists.  L.A., dubbed "Silicon Beach," has become a breeding ground for successful Internet and advertising companies.  I have a theory about why.

I moved to L.A. (from Chicago) 13 years ago, in the midst of the dot-com boom, to build an online advertising company, L90/adMonitor. In addition to warm weather and beautiful beaches, I found a very creative, innovative talent pool of agile thinkers.  I think it was behavior bred from Hollywood, an industry that's highly competitive and constantly innovating. We had a great ride with the company.  And we didn't raise venture capital money until our IPO.

A huge contributor to the company's success was the wealth of creative and innovative talent in L.A.  While during the dot-com boom there was a lot of competition for talent and people tended to job hop, I didn't find that to be the case in L.A. The loyalty and consistency of the team created a culture that was hard to beat. 

For my next start-up, I tried Northern California. I started StrongMail Systems, an enterprise software company with very different engineering, sales, and marketing talent needs.  Enterprise software requires longer-cycle, hard-core engineering rather than dot-com development, which is more creative, and has quicker cycles.  After raising money from Sequoia Capital, I decided to move the company to Silicon Valley, to be closer to the resources and partners we needed.  But I found a very different, and less conducive culture in Silicon Valley.  One that was filled with a lot of talent, but also was highly-competitive, less loyal, and focused almost exclusively on technology.  Everywhere I'd go, restaurants, bars, coffee shops, I heard people talking about starting new companies or technologies.  It was quite the bubble. 

For my fifth start-up, I chose L.A. After hiring a management team and CEO to run StrongMail, I moved back to L.A. to start the Rubicon Project, an advertising technology company.   My vision was a perfect mix of Silicon Valley technology and Silicon Beach creative advertising thinking.  Why'd I pick L.A.?  First, I learned that because of Hollywood, Madison Avenue has spoken the same language as those in L.A. for many years. The industry, by contrast, doesn't speak C++, Java, or SOA. 

In addition, it turns out, venture capitalists are more active in L.A. than ever before. Venture capitalists often tell me they spend one-third of their time in L.A.  As a result, the area (also including Orange County) is the fourth largest recipient of venture capital in the U.S. after Silicon Valley, New England, and New York; it had nearly $2 billion invested in 2011, according to PricewaterhouseCoopers and the National Venture Capital Association.

No wonder.  There have been a lot of hugely-successful exits in L.A.:  Overture's $1.7billion sale to Yahoo!; MySpace for $580 million to News Corporation; Business.com to R.H. Donnelly for $345 million; Shopzilla to E.W. Scripps for $525 million; and LowerMyBills.com to Experian for $330 million. Now, IPO rumors surround eHarmony. These companies created an entrepreneurial ecosystem of talent and capital. 

And many of these companies survived the dot-com bust.  I believe it's because, like Chicago, my hometown, there wasn't initially easy access to venture capital in L.A. and entrepreneurs had no choice but to build profitable business models from the start.  That discipline is still ingrained in L.A.'s entrepreneurial culture.  It's about businesses that work, not businesses that venture capitalists will buy into.  

Last, but not least, are the people in L.A., the ones I noticed when I first got here.   I'm a strong believer that team and culture are what make the difference between a good company and a great one.  The talent pool in L.A. is deep, creative, agile, well-balanced, and loyal.  Oh, and I am writing this at the beach in January…