Ask investors, company heads, and other influentials what makes our tech sector special and they’ll sum it up this way: creativity
Watch what’ll happen, though: The more businesses that originate in L.A., the safer the bet to stay in L.A. as their growing numbers make fertile ground for more businesses to form, and so on. It’s predicted to become a self-reinforcing system fed not just by the city’s engineers but by film schools at USC and UCLA that pump out a generation of filmmakers and producers who grew up on the Web (really, on the mobile Web) and who mint the new coin of the realm: video clips, the value of which is entirely determined by their shareability.
By most accounts L.A.’s tech sector will remain much smaller than the north’s. In a February 2016 CityLab report, urban studies theorist Richard Florida ranked the L.A.-Long Beach-Santa Ana area fifth in terms of venture capital investment, at nearly $1.7 billion. San Francisco (which Florida distinguishes from Silicon Valley) tops the list with almost $8.5 billion, followed by Silicon Valley’s $4.9 billion. Taken together, the Up There sphere commands 40 percent of the venture capital in the United States; Los Angeles has 5 percent of the pie. It may be no less comforting to read that while New York, D.C., Seattle, Boston, Chicago, Raleigh-Durham, and Austin tend to show up on the various lists ranking America’s top tech cities, L.A. appears only some of the time.
The relative lack of funding in L.A. tech does have an upside. “I think companies here have to be much wiser,” Idealab’s Bill Gross says. “When you start out with a little bit less capital, you’re scrappier, you’re more inventive, and you’re forced to respond to your audience better…because you have to pay attention to them.” Fewer resources restrict the profligate spending that has made Up There worthy of both admiration and parody.
Anton Reut, chief operating officer of El Segundo e-commerce site Onestop Internet, puts it another way: “L.A. is about revenue. That’s what the entrepreneurs drive to. That’s what they think about. In San Francisco it’s the opposite.… Revenue comes later.” Twelve years old—ancient by tech standards—Onestop was a small dot-com that found a niche handling online sales for clothing lines too busy to deal with the internet. You have Onestop to thank in part for the spread of high-end denim and the Von Dutch brand (think trucker hats and Ashton Kutcher).
It was among the first to connect L.A. trendsetting to a consumer audience. “The DNA of this market was ad-tech and e-commerce,” says Brian Garrett of Crosscut Ventures. Garrett points to things like “pre-bubble highfliers” (big spenders who imagined Web 1.0 would last forever) and “click arbitrage” (middlemen for online ad sales) as a way of explaining L.A.’s fiscal conservatism. “We’ve bred a culture here that’s avoided raising capital just to raise capital.”
Jim Andelman of Rincon Venture Partners says that after the dot-com crash, the cloud made it easier for new businesses to get off the ground. Companies like Twilio and Amazon Web Services take care of IT infrastructure so you don’t have to worry about where to put servers and an army of programmers. “It has to a large degree democratized start-ups. Back when I started 15 years ago, it was a scarce skill set,” he says. Now “the value shifts to satisfying customer needs…”
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