Lost Angeles

Image: Lonely Planet

2 years ago I walked into a smoke filled apartment in downtown LA. As I peeked across the kitchen I saw an unfamiliar person lying face-down, expressionless, on a couch, with a cigarette dangling between her fingers. She was old, she was intoxicated, and why the f*ck was she in my apartment.

When I sat down and said hello, one would expect a ‘Hi, nice to meet you,’ or a ‘Hey, my name is ____.’ Instead, she said, “Nice suit, can you get me a job?” Cautiously I asked, “Who are you?” She then looked me straight in the eye and proudly exclaimed, “I’m your new roommate”. Nara had moved here from Seattle and had nothing but a suitcase and a few dollars. She was about 35 years old and left behind a job in sales and marketing. She, like many people around the world, came to LA in search of fame and fortune.

Cities like Los Angeles have always been giant magnets for the hungry and passionate. If you’ve seen La La Land recently, then you’ll also understand the flip side to the glamour; the hustle and struggle that many Angelenos proudly endure just to flirt around a little with Hollywood. Auditions by day, bartending by night. It’s not a bad gig per say, in fact, I’ve always admired the courage and naivety that tens of thousands of dreamers have brought to this town.

Courtesy of InnoMag

Recently I caught up with my friend Jon of Purple Squirrel, a startup aimed at breaking down relationship barriers and connecting people with like interests. We were sitting in an overcrowded restaurant on Abbot Kinney when I asked Jon why he moved Purple Squirrel from San Francisco down to Venice Beach. As we slowly sipped (downed actually) our stone cold pilsners, he answered, “Because I can actually have a normal conversation with people, that’s NOT related to tech.” LA is a city with over 8M inhabitants. It’s a melting pot of sorts and although entertainment will always hold the crown jewel, startups in many ways can take advantage of not being in the spotlight. You see, “having a normal conversation” is one of the most integral parts of starting any company. When you go out and speak to your clients or customers, in LA you can expect to hear real voices and real opinions from a diverse group of people unaffected by Silicon Valley hype. As a founder, you essentially can get a better sense of what people (customers) at scale may truly use. That’s the whole thing about good companies right, they create products or services that we not only desire, but need. Craigslist isn’t the sexiest platform (far from it) — but you know what, it works, and we use it — and yet every year, someone tries to overthrow it, and fails.

Illustration: Carlos Monteiro via Adweek

This philosophy of building things that people need tends to reverberate in the fabric of business making in Los Angeles. Just before Jon and I stumbled out of Gjelina, we discussed how businesses in LA tend to be rooted more in the ground. Built on fundamentals rather than valuations. This sentiment was also echoed recently in a conversation I had with Chris Vaughn of Saucey. Without talking specifics, Saucey (like many other venture-backed LA startups) plans to hit more rigorous milestones, financial metrics, and other KPIs before raising large sums of capital.

It’s almost like in LA, you’re taught to build a business first before scaling up, while in Silicon Valley, the startup culture seems to champion rapid growth first. But why does this make sense? LA is supposed to be the land of dreamers while SV is supposed to be realistic right?

Investors want big hits. VCs fundamentally realize that fund economics favor huge exits over small runs. For example, many VCs understand that the majority of companies in their portfolio will fail. In fact, the Wall Street Journal actually claims that 3 out of 4 startups go bust (but to be honest, no one truly knows). Regardless of the actual percentage, it is clear that VCs must learn to operate under high risk and uncertainty. Suppose you are an investor and you have a weight scale representing your portfolio. The left side represents loss, and the right side represents profit. What do you do if you have a lot of sinking ships? Simple, have some huge “wins.”

Thanks Rona!

The goal is to achieve the highest exit multiple possible in order to carry the entire fund because hey, they can estimate what % of capital will be lost, but can’t predict if or what the exit multiple may look like, all they can do is influence it. The idea goes something like this… if we can force our startups to scale quickly, out perform competitors, and grow the user base at an exponential rate (paying or not depending on business model) on paper we can make the assumption that they are highly “valuable” because of the “rapid sustainable growth” and “huge impact” it may have. Thus balancing the VC score card. On some level, this philosophy has worked. Airbnb, Uber, Palantir, SpaceX and others have all grown to $1B valuations in under 7 years. In fact, there are 154 such unicorns (defined as a private company valued at >$1B) in existence, 91 of these creatures are located in the US, more than half are based in the San Francisco Bay-Area, and only 5 (3.2%) are in Los Angeles.

The question then becomes… Is LAs business culture preventing the ecosystem from breaking boundaries?

In other words…

“How are you going to be revolutionary if you’re such a traditionalist?”

Although this quote was famed in a movie about LA, I think the statement itself is quite comedy (as someone I know would say). Why? Because there is nothing traditionalist about what people are building here. Conservative? Foundational? Perhaps. Ironically, at the same time, take a look at Hyperloop One based in DTLA. They are revolutionizing high-speed transportation, competing and leading the fight to win the California High Speed Rail bid connecting Los Angeles and the Bay Area in under 2 hours all for the price of a bus ticket. What about Faraday Future, based in South LA, revolutionizing electric car transportation. Or, imagine walking into a Starbucks or your local library never having to plug your computer into an outlet and worrying about whether your phone will die. At uBeam, a Santa Monica startup, their goal is to build exactly that (wireless electricity, think Wi-Fi for electricity). What was once a Lucasfilm-like story, or a Pixarian’ style animated feature is now closer to reality than ever. Conventional? More like quixotic.

Wall-E

This is the great mystery that is Los Angeles. Silicon beach is an enigma, constantly dissolving and evolving itself. From the bohemians in Echo Park, to the desperate screen writers in West Hollywood, to the creatives in Arts District, and the techies in Venice, it’s crazy how synchronized this chaotic city really is. I happen to find it exceptionally funny how Hollywood isn’t even located in Hollywood (it’s in the valley) how nuts is that?

Despite the comedy that is the chaos, the city today is beating faster than the bashing drums in Damien Chazelle’s Whiplash and yet gracefully waltzing to Dave Brubeck’s Take Five, or take 10, or take 100 for all I care, because just like all the auditions my roommate endured, the number of singles my buddy DJ Meowza produced, the enormous Dynasty’s that are being built and the Dopamine that is intoxicating our blood, there are thousands of star spangle-eyed dreamers fantasizing about their moment to seize the spotlight in this so called romantic city of ours. Rustically they vow to never give up, not until they make it. Not now, not ever.

What is LA?

Nara eventually found a job as a waitress and started looking around for an agent. She was able to finagle her way into a few auditions… but didn’t have much luck. After all, she didn’t really have a plan. One time I asked her, “What have you done in the past?” Or “Are you interested in TV, why not start in commercials?” She stared at me blankly and said, “I have absolutely no clue.” She didn’t even have a headshot. Yet, at the same time, she had the same gleam in her eye that I was mentioning before. The, “Not now, not ever” look.

About 5 weeks later, she packed her only bag and left.

Perhaps this is the illusion that is LA, that not all that glistens is gold. Marilyn Monroe says it simply, “Hollywood is the place where they will pay you a thousand dollars for a kiss and fifty cents for your soul.”

She was right. After all, that’s LA — they worship everything and they value nothing.

We call it the city of stars.

And you know what? I fucking love it.

Nihar grew up in sunny San Diego and is a proud USC Trojan. Sarcasm is his favorite cup of tea and he would rather be a hippie than a hipster.

For more, follow him on Twitter & LinkedIn