When asked what is the biggest difference between Los Angeles and Silicon Valley accelerators, five from LA told me they’re more focused on startups that don’t take years to start monetizing. Leaders from Amplify, Launchpad LA, MuckerLab, Start Engine, and Originate Labs convened at this weekend’s Silicon Beach Festival in Venice, California. They explained that since there’s less capital down South, they’re less concentrated on long-term plays, even ones that could return bigger multiples down the line.
So Bay Area startups in ecommerce, media, advertising, and fashion looking to raise money or enter an accelerator might consider a drive down the Pacific Coast Highway.
“LA will never be Silicon Valley and we don’t want it to be” said David Carter, co-founder of Amplify. In Los Angeles, “You don’t raise money on an idea, you raise money on traction and revenue” MuckerLab‘s co-founder William Hsu told me. “If you tell me you’re going to build apps for homeless bums I’m gonna say ‘hrrrmmm’” in a sigh of disapproval. Bold, unproven models that need lots of employees and long periods of time in stealth remain Silicon Valley’s expertise said Howard Marks, co-founder of StartEngine.
Hsu says LA accelerators are looking for a “slightly faster road to monetization because funding rounds are a little smaller”. They just don’t have the cash to give startups an endless runway. “But on the other hand, for companies that have more tangible monetization strategies — I think LA is great for that” Marks tells me.
The Start Engine leader continues, “In LA, you see deals similar to deals in Silicon Valley but priced at like half, so for venture capitalists looking for good return, LA is perfect. But if they’re only looking for billion-plus returns, they should stay in SF.”
In the end, the preference for early monetization could limit LA’s ability to produce truly world-changing technologies. It might produce fewer big failures, but fewer massively disruptive startups too.
LA can also be a good home for startups that have been around the block but are still looking for an accelerator program. Amplify’s Carter says “If you think you’re too far down the road for an accelerator, I’d urge you to take another look.” Launchpad LA’s director Adam Lilling explains that for startups that already have a little momentum, “there’s this gas on a fire when an accelerator does their job really well.”
While optimistic, they agreed LA’s tech scene still needs to mature. “What’s holding LA back is community. We don’t have a strong enough community to inspire entrepreneurs that are working at companies, or graduates, to start businesses here” Marks confessed. He cited the exiting talent of the PayPal mafia and Facebook mafia as catalysts for great startups in Silicon Valley. Amplify’s Carter concurs, concluding “We need more capital, and we need we need some more recent success stories — more billion dollar companies that spawn other companies.”