Being a start-up on the other side of California, away from the madness of Silicon Valley, comes with its own unique set of problems and opportunities. However as we find out there’s never been a better city for entertainers, or indeed entrepreneurs, to chase their dreams in than Los Angeles...
If there’s one thing that a Los Angeles resident can be assured of, other than endless traffic jams, is a good quality of life. As one of the world’s most vibrant and diverse cities, blessed with stunning scenery, an inviting climate and a reputation for being the home of the entertainment industry – there’s no doubt LA has a lot going for it.
Yet historically it has somehow faltered in its ability to produce businesses and entrepreneurs, outside of its primary industry, that match up to those of New York and San Francisco. However there seems to be a change taking place, with a host of national success stories (Dollar Shave Club, TrueCar, Ring) and international game-changers (Tinder, Snapchat, Headspace, Sonos) significantly beefing up the city’s start-up credentials as of late.
So what does life for start-ups look like in LA and what does the future hold? We spoke to local entrepreneurs, investors and wider members of the business community to check the pulse of the city’s start-up ecosystem.
"The great thing about LA" explained WeWork co-founder, Miguel McKelvey, to a packed room of local entrepreneurs, "is that people come here to follow their dreams. It’s a really special place and you get a certain energy from it." While McKelvey’s own billion dollar business was started from New York, it has experienced great success in the city with hundreds of LA’s most exciting start-ups basing themselves out of various WeWork locations.
Joining McKelvey on stage at Virgin Atlantic’s Business is an adventure event was local favourite and Tinder founder Sean Rad, who had his own views on why now is a great time to start a business in the city.
"What’s special about LA is the diversity you have here. When you walk out of the Tinder office and down the street you see people from different backgrounds, different professions – it makes you feel a lot closer to who you’re building these products for," noted Rad.
"For any consumer tech company, or any company for that matter, the better you understand your customers the better decisions you’re going to make. In LA the people in the businesses and the people you socialise with all help to give you a very diverse perspective."
What’s interesting about Rad’s assertion is not that he believes LA is a good place to do business, but that it is the place to do business as a tech company. Given Silicon Valley’s widely publicised problems with almost every major diversity issue going, you can see why his point should be taken seriously.
The opinion of a local entrepreneur currently riding the crest of a wave is one thing, but how do those steeped in experience view the city’s progress? Mark Suster is a serial entrepreneur, prolific blogger and Managing Partner of LA’s oldest venture capital firm, Upfront Ventures, he too seemed buoyant about the city’s evolution as start-up stronghold.
"Necessity is the mother of invention. If you’re in Silicon Valley and you’re raising money there are 80 funds which are hundreds of millions of dollars each, they’ll give you 10 million dollars on the basis that you’re going to try and innovate and create something cool – that doesn’t exist in LA.
"We’re the fastest growing market in the country for start-ups of any city, LA graduates more engineers each year than anywhere is the country and we have more top 25 universities than anywhere else, but there has always been a shortage of capital - so people raise a little less money and investors want a little more proof."
And it’s not just when looking forward that Suster believes LA has a lot to be excited about, there have been many past success which may have been overlooked.
"In terms of history in the tech start-up sector LA has always led the way in innovating monetisation… Google AdSense and so many others have come from LA, Google just purchased them. Then you look at social networking, the first big one was MySpace, that’s an LA business," proudly notes Suster from inside his Santa Monica office.
"This just goes to show the level of innovation going on in this town. The big challenge is if we can build that one big tent-pole company worth 10 or 20 billion dollars. You look around for opportunities and the first thing to note is that LA is the content capital of the world, that’s not just in entertainment – it crosses so many industries."
What Suster touches on here is, alongside the traffic, another reoccurring theme of so many of the conversations being had by LA entrepreneurs and investors. The ability to create great content and tell a story is something that runs through the veins of every LA resident, something which the city’s new wave of start-ups is taking full advantage of.
If you’ve ever spent time procrastinating, flicking through videos on YouTube, then the chances are you will have seen the iconic Dollar Shave Club advert that went viral a few years back. Catapulting LA start-up Dollar Shave Club onto the global stage and reshaping the media strategy of thousands brands. The video’s star and Dollar Shave Club CEO, Michael Dublin, is one entrepreneur who’s long been invested in the idea of content creation being a strong play for LA start-ups.
"I always knew the story I wanted to tell with the brand and to do that I knew it had to be engaging. That means a strong content offering, digital experience and advertising. The content offering is something of an X factor for brands, it’s hard to get right but we’re very invested in it," explains Dublin.
"You need to have someone in your team who is a good brand thinker and a great storyteller, it’s crucial."
Despite LA start-ups being more than equipped to tell their story and get people to emotionally invest in their brand, there is still a slight reluctance to embrace a key component of any great tale – risk. Reverting to Mark Suster’s point on fundraising might give us the answer as to why this is, yet some still see it as an issue which is stunting development.
Silicon Valley comparisons are never far from the lips of the LA business community and this is another issue where the two tussle. While the Valley has long made a point of embracing failure, the same cannot always be said of its neighbour.
"One of the biggest cons to starting a business in LA is the culture around failing," notes Paul Spiller, President of investment app Acorns. "It's somewhat celebrated in the Bay Area so there's a persistent support network whereas failing in LA is just flat out failing."
Despite any conceivable weaknesses it’s clear that LA is still one of the fastest growing and most innovative start-up sectors in not just the US, but the whole world. The city’s aerospace and virtual reality industries are two which people should keep a very close eye on, as well as the collection of 'for-purpose' businesses such as TOMS and LSTN who are redefining the role of business in modern society. All of which we’ll be exploring in greater detail throughout this series.