L.A. tech has clearly hit its growth inflection point, but the City of Angels has yet to get its startup wings. Here’s the good news: In 2014 alone, we raised more than $3 billion, saw more than $5 billion realized capital across over 80 exits and became the fastest growing startup region in the U.S.
We’ve all seen the numbers, press and discussion about the remarkable growth the L.A. tech community has seen, but we have yet to see the discussion around the few critical things that L.A. is still missing. Going one step further and addressing what L.A. is still lacking will take us from good to great, not just in terms of quantity and volume but also maturity, quality and sustainability. In other words, while there’s definitely something going on in L.A., how do we make sure it lasts?
Brad Feld writes in Startup Communities that sustainable entrepreneurial ecosystems must have four things:
- Two types of people: leaders (entrepreneurs) and feeders (investors, service providers, etc.)
- A long-term view and commitment to the ecosystem
- Inclusiveness of newcomers to the tech community
- Substantive events and programs that engage the entire entrepreneurial community
L.A. has all of this. The question isn’t “How do we create an entrepreneurial ecosystem?” because that has clearly been done by the more than 30 active investment funds, thousands of entrepreneurs, multiple co-working spaces and many sources of tech education (both academic and otherwise) here already. The question is: “How do we take what we have and make it even better?”
Later Stage Capital And Mentorship
L.A. may have many active investment funds and angels, but it’s still lacking later-stage capital and expertise in a significant way. Beyond Series A, L.A. entrepreneurs are stuck traveling to Silicon Valley for investment partners, meaning we lack not only their necessary capital, but also a critical mass of their expertise and executive mentorship. While the 56 minute flight to Bay Area VCs is not a deal-breaker, it still creates a barrier between their expertise and LA’s growing startup community.
In recent years, several prominent Silicon Valley funds have established a strong presence here in L.A., but still none have opened offices here. This is because they can fly down on a moment’s notice. But many times, the key challenges to maturing a community approach without notice. Missing these people during our usual events and day-to-day routines means missing their impromptu advice, experiences and relationships. While one solution is to encourage these funds to establish brick and mortar presences here, another is for more of L.A.’s seasoned executives to form larger funds here, adding both later-stage capital and their expertise to the community.
In L.A., many people are well suited to mentor an entrepreneur going from seed to Series A, but finding a mentor or a shoulder to lean on while going from Series C to IPO is much harder to come by. Reid Hoffman’s new class on Blitzscaling is exactly the type of resource we need in L.A.
More Active Tent-Pole Companies
L.A. needs to build more than one tent. I know; easier said than done, but it’s the truth. While L.A. has recently had huge successes like Snapchat, Honest Company, Tinder, ZipRecruiter and more, few of them have had an impact on the ecosystem in the same way an Amazon or a Microsoft impacted Seattle.
The reasons for this problem are twofold. The first reason solves itself in time; the successes in L.A. tech just haven’t grown to the scale where this level of impact is a reasonable expectation. The second reason is more concerning; it seems that not all companies who are on their way to this scale have prioritized a reinvestment into the community.
We should look to Cornerstone OnDemand as a great example of a company who has grown in L.A. and is now helping to grow L.A. through their investments, accelerator and annual conference for the community — not to mention the spinoff of great enterprise talent they’ve distributed into the ecosystem over the last decade. While VCs and other “feeders” can be helpful through our own conferences and initiatives, the impact is nowhere near as great as when it is produced by the entrepreneurial “leaders” of our community.
Season Talent From Within
One of my favorite statistics about L.A. is that we graduate more engineers than any other city in the U.S. However, it still seems like our companies are still struggling for great engineering talent. Perhaps it’s because the Bay Area pays more or engineers are looking to escape the great weather, but L.A. is also lacking opportunities where entry-level engineers can evolve into senior engineers and more. Given our community is still young, many startups can’t take a chance on a junior engineer as a core technical person, but the larger organizations haven’t captured the huge opportunity to establish programs to grow their talent from within.
One of Marissa Mayer’s many accomplishments was starting the Associate Product Manager (APM) program at Google, which has become a key staple of their commitment to entrepreneurial employees. Not only does the two-year program give new graduates somewhere established to work and learn, but it also provides dedicated advice and mentorship to grow them from within. While some leave to start great businesses, others stay at the company; both of which have a positive effect on the ecosystem.
L.A. needs an APM equivalent, not just for product but for engineering, sales and more. A place where new and talented grads can go, knowing they will get a crash course in the hard skills they pursue but also evolve personally. Not only will it season our talent, but it will also keep some of our best and brightest, who may otherwise leave.
Flywheel Effect Of The Entrepreneurial Life Cycle
Start a company, scale a company, exit the company, rinse, repeat. The holy grail of a startup community is when entrepreneurs become repeat entrepreneurs and talent becomes seasoned talent. The PayPal mafia is famous for doing this, resulting in a new batch of several multi-billion dollar companies after the company’s 2002 acquisition.
However, in addition to starting these companies, they reinvested both capital and time into the community through their roles as investors, advisors and mentors to a new batch of entrepreneurs — a pay-it-forward mentality that L.A. still seems to be warming up to.
While the jury is still out on this one, L.A. saw nearly 100 exits in 2014, meaning we can expect a lot of rejuvenation in the community in the coming years — and I hope to see some mafias of our own (the “Maker Mafia” even has nice alliteration).
L.A. is now the third-largest tech ecosystem in the U.S., trailing only Silicon Valley and New York, which allows us a momentary pat on the back. But then we have to ask ourselves these questions: “What are we missing?”, “How do we get even better?” and, finally, “How do we make this last?”