Why we’re betting on LA (and you should too)
There’s no turning back: Los Angeles is also a tech town now
By Nick Kim and Brittany Walker
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Note: Realizing we share optimism about LA’s tech scene through our work with the Dorm Room Fund, we decided to explore why LA is having a moment. Nick is a Santa Monica native who moved back after eight years in New York. Brittany is an MBA student who recognized LA’s potential and committed to building in the city long-term. In a way, we’re betting our careers that LA is the tech hub of the future. This explains why you should too.
You can have it all in LA
When you tell your friends and family that you’re moving to Los Angeles, they rarely mention the business opportunity. Palm trees, Hollywood, sunshine, Mexican food and traffic all come to mind before any considerations of the city as a global technology and innovation leader.
Los Angeles is quickly changing that narrative. Founders and operators who previously built technology companies in San Francisco, New York and Boston are choosing LA. Powered by increases in venture capital, a pipeline of diverse engineering talent, and a legacy of expertise in specialized industries, LA is at the center of frontier categories like gaming/esports, transportation, AR/VR and aerospace. It is also the fastest growing startup market in the country.
It’s time to add technology to the list of industries that have irreversible momentum in southern California. Now, whatever problem you’re solving, the best place to start your business is also the sunniest.
Money (and talent) makes the world go ‘round
One defining feature of startup ecosystems is the formation of positive feedback loops that build companies, capital and talent of increasing quality. Promising startups bring on experienced investors and operators, attracting and creating more capital and talent as they grow. As these people and dollars exit and new companies are born in the network, the cycle continues.
This self-propagating pattern can accelerate innovation and produce generations of world-class operators, companies and investors, but all three elements must exist at sufficient scale.
The city of angels…and accelerators, seed funds and growth equity
In Los Angeles, the local venture capital available to founders finally reached critical mass in 2017.
According to Pitchbook, LA VC investors raised 4.5x the capital in 2018 as they did in 2013, and over 60 new funds (including corporate VCs) were created during those six years.
The majority of these funds focus on seeding early-stage companies, but a handful of growth stage investors, like B Capital, Anthos Capital and 3L Capital, provide local founders with money and guidance as they scale. On top of these firms, entrepreneurs can now work with a variety of specialized investors who deliver specific expertise across many industries in LA:
- Real estate: Fifth Wall
- Media and entertainment: Third Wave Digital, Plus Capital, WndrCo, The Chernin Group
- Consumer goods: BAM Ventures, M13
- Health care: Digitalis
- Life sciences: Westlake Village BioPartners
- Aerospace: Techstars Starburst Space Accelerator
Funds headquartered in San Francisco and New York also see the opportunity. Craft Ventures, Founders Fund, Human Ventures, Sequoia, Global Founders Capital and General Catalyst (to name a few) all have investors focused on LA.
LA job seekers already feel the impact of this new funding environment. Los Angeles is now the fastest growing tech talent market in the US according to CBRE, and Orange Country is third. On ZipRecruiter, an online employment marketplace, LA-based software engineering job posts are up 136% from 2017 to 2018. Newly funded startups finally offer enough options for risk-seeking engineering talent to stay in LA.
Southern California graduates are part of the pipeline solution
Fortunately for founders, choosing LA gives them access to one of the most talented and diverse applicant pipelines in the country. The city boasts five universities ranked in the top 50 undergraduate programs nationally by US News & World Report — more than the Bay Area and New York — and southern California universities are second only to New York universities in the number of technology graduates they produce annually (more than 13,000 per year).
Historically, this talent flocked to the Valley. With the infusion of venture capital creating more attractive jobs across the ecosystem, the percentage of Caltech graduates staying in LA increased from just 31% in 2012 to over 54% in 2017. BCG also notes a similar trend at Harvey Mudd and UC Santa Barbara. Better career opportunities are keeping LA’s talent in LA.
Local universities also lay the groundwork for a future with more women and minorities in leadership positions at tech companies. At USC, 69% of students are people of color and 26% are underrepresented minorities. Pomona College is the sixth most diverse university in the country and at Harvey Mudd College women make up the majority of physics and computer science majors. This gives southern California startups better access to diversity than anywhere else in the country.
Of course, more can be done to add diversity to local startups and venture capital firms. Joint efforts like PledgeLA, LA Tech Talent Pipeline and Hire LA’s Youth provide better access and part of the solution. As this talent feeds back into the ecosystem, LA-based startups will outperform their peers.
The Harvard Business Review spells it out: adding diversity to teams results in more objective decision making, a more careful review of the facts, and more innovative thinking. They conclude, “enriching your employee pool with representatives of different genders, races, and nationalities is key for boosting your company’s joint intellectual potential.”
The city’s leadership, investors and startups agree: creating access to high-quality, diverse, technical talent will give LA-based companies an advantage today and in the future. Now that the talented young employees of these newly funded startups are staying and building their careers in LA, the future is even brighter for the next generation of companies.
Where legacy industries meet new business models
Everyone knows Hollywood is the center of the entertainment industry, but fewer people know LA is home to thriving clusters in aerospace, automotive, logistics and manufacturing. These existing industrial centers give startups unique advantages in LA. More and more, innovative founders are tapping into the city’s legacy of specialized expertise to get a head start.
For example, sustainable women’s clothing brand Reformation draws on the manufacturing expertise of American Apparel, hiring many of the company’s former garment workers to support a factory downtown.
SpaceX took over Northrop Grumman’s former factory in Hawthorne and Virgin Galactic moved into McDonnell Douglas Corporation’s aircraft assembly space in Long Beach to literally build on the aerospace foundation.
Shipping and logistics company NextTrucking benefits from both talent and physical space. They recruit from local players C. H. Robinson, Ceva Logistics and J.B. Hunt. Parking their headquarters on miles of highway between LAX and the ports of LA and Long Beach gives them an ideal place to test and innovate that only LA could deliver.
The existing knowledge, suppliers, partners, talent and infrastructure in major industries create advantages worth moving for.
Kristy Caylor, founder of apparel company For Days, relocated her company from New York to LA, saying, “It was about the space and manufacturing capabilities. I couldn’t get the same production facilities and talent elsewhere. Manufacturing being culturally center to our business, I moved my entire team here and opened a factory in Hawthorne. Building the worker community and having such a diverse population to test my products with has been ideal.”
Southern California industries have long benefitted from positive feedback loops, and in sectors that you might not expect. Now, with the critical mass of capital and talent in place to accelerate LA’s virtuous cycle of technology entrepreneurship, the number of industries that can be redefined is limitless.
The next generation of opportunities is LA-native
From the Immortals to influencers, and Oculus to Survios, entrepreneurs in gaming, esports, social media and AR/VR are combining LA’s creative leadership with technology to build entirely new categories.
Southern California companies use technology to address the global climate crisis with cleaner energy (Inspire, TAE Technologies), cleaner manufacturing (Patagonia, Reformation), and even an escape plan (Virgin Galactic, SpaceX).
They’re transforming urban infrastructure, driving advancements in transportation (Faraday Future, Hyperloop, Bird), shipping (Shipsi, Shippabo) and logistics (Cargomatic, Dray Alliance, NextTrucking).
What’s most encouraging is that founders in LA continue to broaden their targets. Since 2010, 225 healthcare startups, 60 fintech firms and over 1,000 companies outside of the city’s historical focus areas have made LA home.
As the creative capital of the world, Los Angeles attracts visionaries in film, television, music, design and every other creative field. They may not be called entrepreneurs, but people have been risking it all and moving to LA to make their dreams come true for generations. Corey McGuire, founder of Winston House in Venice said it best: “More than perhaps anywhere in the world, LA is a destination for creative people who are willing to leave their home, family & friends behind to pursue a passion.”
This is and always has been LA’s culture. Now, that entrepreneurial mindset powers technology innovation that is truly LA-native.
We’re #AllinLA (and #LongLA @Greg Bettinelli)
The next generation of industry-defining companies is growing in LA right now. With the infusion of capital seeding the next wave of startups, the city’s pipeline of diverse and technical talent has a place to stay. The virtuous cycle is spinning and creating opportunities across industries old and new. Now, more than ever before, you can have it all in LA. Join us.
Are you a founder or operator thinking about moving to LA? Think we’re crazy?
Let us know what you think @nickbkim and @walker_vc.
