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Top LA investors discuss the city’s post-COVID-19 prospects

Spoiler alert: Los Angeles should continue its moment in the tech spotlight

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When it comes to venture capital, Los Angeles is a city on the rise.

In the past year, it’s seen one of the most profitable venture-backed exits of any tech ecosystem (with the $4 billion sale of Honey to PayPal) and investors are minting billion-dollar companies in the region at a torrid pace. It’s also the city where investors are spending the most money outside of venture capital’s big major hubs: San Francisco, Boston and New York.

While Los Angeles has a lot going for it, that also means it potentially has a lot to lose in the current economic downturn. California continues to be hard-hit by COVID-19, despite local and state officials working to reopen businesses.

TechCrunch surveyed some of the city’s leading investors in sectors like property technology and cannabis to get their take on how the city may survive — and potentially thrive — in a new era ushered in by the response to the pandemic.

From larger fund investors like Mark Suster and Kara Nortman at Upfront Ventures to Dana Settle at Greycroft Partners; to early-stage investors like Will Hsu at Mucker Capital; TX Zhuo at Fika Ventures, the responses were generally upbeat about the future opportunities for Los Angeles startups.

Even specialist fund investors like Karan Wadhera of the cannabis-focused investment firm Casa Verde Capital and Brendan Wallace at the real estate-focused firm Fifth Wall believe that Los Angeles will thrive in the post-COVID world.

As Mucker Capital co-founder Hsu writes, “There are far more great companies than there are venture dollars here in LA. Investors in other cities should continue to see LA as an underserved ecosystem with huge opportunities.”

  • Mark Suster, managing partner, Upfront Ventures
  • Kara Nortman, partner, Upfront Ventures
  • Will Hsu, Mucker Capital
  • Dana Settle, Greycroft
  • Karan Wadhera, Casa Verde Capital
  • Brendan Wallace, Fifth Wall
  • TX Zhuo, Fika Ventures
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Image Credits: Getty Images/ROBYN BECK/AFP

Mark Suster, managing partner, Upfront Ventures

How much is Upfront focused on investing in the local LA ecosystem versus less geographically focused? 

Upfront invests about 40% of its investment dollars in the great LA market and invests about 40% split between the Bay Area and NYC. Upfront has always invested nationally and internationally with the final 20% and we have produced significant exits in Chicago, Baltimore, Paris, London and Las Vegas to name a few.

Where we do invest outside of LA of course we bring all of our contacts and relationships to bear, which makes us a logical choice for any startup raising capital where having access to the biggest influencers, media companies, academic institutions and medical professionals can help propel the company’s success.

How do you think COVID-19 will change entrepreneurial activity in Los Angeles?

It’s true that some startup businesses have been impacted by this pandemic but as we’re learning a few short months in, there has been much more acceleration of the trends leading toward technology growth that were already in place.

Specifically addressing some LA-based companies we can share with you the trends we see directly with demand data:

We already knew that telemedicine made sense for doctors and patients and now this trend has accelerated, regulations being lessened and cultural barriers overcome. We see a huge growth in food production and preservation (Apeel Sciences, for example) and food distribution (such as ChowNow). The need to reduce people in warehouses has propelled demand for robotics/automation for companies like inVia Robotics and the need for remote monitoring has helped LA-based DroneBase.

Remote education and training are growing as are collaborative working solutions. We know that the SAT/ACT will be lessened (UC System weaning out by 2025) and LA-based Imbellus has been working on this for the past five years. Interestingly the pandemic has brought a surge for e-commerce players and we’ve seen it directly at LA-based companies like Parachute Home, GOAT and FabFitFun — all have demand surges.

Perhaps no company seems more poised to be propelled, though, than Bird. Across the world cities are reducing bus and public transportation capacity to improve social distancing and they are pushing micromobility solutions. We see this in Milan, Paris, London and even in Santa Monica. We think the next 18 months will be big for micromobility.

One category that has been hit pretty hard is advertising and this has hit digital media companies harder and faster than anticipated so there are some tough spots alongside travel, hospitality and many forms of transportation.

Do you expect to see a surge in more founders coming from geographies outside major cities?

Major cities are still attractive to young talent because they provide access to a lifestyle that is appealing to young, professional, highly educated workers and we don’t expect that to change. The same factors that make cities successful economically — the knowledge-sharing and experience that comes from common business practices — will continue.

That said, there is clearly a move to support distributed teams so we expect continued growth and innovation in many great talent hubs across the country.

Which Los Angeles industries seem well-positioned to thrive as restrictions start to lift?

Greater Los Angeles graduates more engineers than anywhere in the country so we expect it will continue to be a hub of science, engineering, robotics, medicine, space, transportation and all of the industries that already thrive due to the diverse talent pool that comes from being the second-largest city in America.

There are a few industries that we believe are well-positioned to thrive in this environment including:

  • Food distribution and supply, including everything from food delivery and cloud kitchens to restaurant delivery to agtech.
  • Commerce-enabled and enabling businesses: everything from DTC lifestyle companies like Parachute Home to warehouse automation like inVia Robotics.
  • Health care, especially telemedicine and biotech innovation.

Which segments look weaker or more exposed to potential shifts in consumer and business behavior after COVID-19? 

Obviously anything in transportation, whether air, car or otherwise, is challenged by the ability and desire for large groups to move around and convene. We believe that will come back, but slowly. Similarly, any business that is primarily physical in nature like co-working or events is going to be more exposed as they transition to a digital-first experience.

How should investors in other cities think about the current investment climate and opportunities in Los Angeles? 

The trends that have driven the success of the LA tech ecosystem and the business community at large are still present here and the fact that technology is accelerating innovation makes it a very attractive market in which to continue to invest. We suspect that’s why so many VCs make LA their second home and why so much funding is now in search of great entrepreneurs locally — even post-COVID-19.

Kara Nortman, partner, Upfront Ventures

How does the firm view LA-based founders versus those coming from other geographies? Why take that view?

Our goal is to invest in the most talented founders who have outsized advantages in disrupting or building big businesses. Both for practical and hometown pride reasons, it’s a bonus if these founders are in LA, but it’s not the first criteria for us.

Given our roots in the community, it’s natural that we would have deeper, longer-term relationships with LA-based founders, especially those with a long history in the startup community. Ideally we like to meet LA founders even before they are spinning out of existing companies and get to know each other as companies are forming. So this could give us an advantage when it comes to deciding whether to invest in a founder and vice versa, but it’s only one of many data points we consider.

Will Los Angeles remain a tech hub post-COVID-19?

I’ve actually had a number of founders reach out to me about moving their HQ to LA. So while the way we work has no doubt changed permanently and it’s hard to know where the patterns will land, in the COVID and post-COVID eras we believe there will still be a desire for in-person community and collaboration. Given that, Los Angeles has a few advantages including:

  • Diversity of industries, including deep roots in categories who will be poised to grow due to COVID like innovative mobility, commerce, securityhealth care and life sciences and digitally native consumer brands.
  • An established startup and tech community with homegrown founders and diversity of senior talent including experienced front-end devs, machine learning experts, experienced product and marketing leaders, and of course storytelling.
  • A comparatively more affordable and more desirable lifestyle, which will be key as people have more flexibility to work remotely. People will have to want to work in your city, not to default to it.

Will there be the same kinds of geographically clustered investment and innovation hubs in a post-COVID-19 world? 

There will be more geographic distribution of founders, operators and investors, and more flexibility around board meetings and synchronous travel — and that’s a good thing! But in the COVID and post-COVID eras we believe there will still be a desire for in-person community and collaboration. So those communities like Los Angeles that offer an attractive lifestyle — including year-round outdoor meeting space — as well as professional opportunities will be poised to succeed.

Moreover, while there may be more hybrid working models, geographic proximity may become even more important at different stages of company building. If you can regularly drive, Bird or walk to see someone to build rapport, it may influence with whom early-stage founders would choose to build companies. More and more teams will build out fully remote and remote-first cultures, but the DNA of starting something still requires a deep, authentic connection to the domain and the early additions to the teams that may come from shared physical space.

What advice would you give to an entrepreneur to consider in the post-pandemic world?

Founders should use this hard moment to make the changes necessary in their business to focus on building a business that will scale. Focus on the fundamentals of turning $1 into $4, and be very specific about the milestones that prove demand and repeatability for your business. Those are the businesses that will thrive now.

Change is hard, but if you control what you can control and surround yourself with values-aligned partners, this is when the best companies can be built. I have never been more excited to have the opportunity to be a board member or make new investments in teams building for the next decade.

GettyImages 979844616
Image Credits: Getty Images / Feng Yu

Will Hsu, Mucker Capital

How much is Mucker focused on investing in the local LA ecosystem versus less geographically focused?

In the last 12 months, roughly 60% of the deals we’ve completed are located in Southern California, the remaining 40% across the U.S. and Canada. We don’t have specific allocations for each geography — it really depends on the quality of the companies we see. However, given we are headquartered in LA and our network of entrepreneurs/founders are historically here in LA — I expect Southern California startups to continue to be the majority (50%-70%) of our portfolio for any given calendar year.

How does the firm view LA-based founders versus those coming from other geographies? Why take that view? 

Venture capital, the venture industry, and really Silicon Valley as a whole, were all birthed in the Bay Area as executives left Fairchild Semiconductor to start their own ventures in the late 1960s and early ’70s. By any estimate, the Bay Area has at least a 30-year head start as an entrepreneurial ecosystem, versus those found in LA and the rest of the United States. Bay Area entrepreneurs are “venture-natives.” They’ve only known a world where entrepreneurship is not only a part of the business culture but part of popular culture. Growing up in the Bay Area, I knew of Jobs, Dell, Gates and Moore before I learned how to speak proper English. In that lens, there is the Bay Area/Silicon Valley … and there is everywhere else. LA and other geographies are “everywhere else.”

Maturity of an ecosystem often correlates with the implied “sophistication” of its founders and likeness to the Bay Area. However, I do not correlate “sophistication” with likelihood of success, pedigree and track record — far from it. Erik and I learned this firsthand moving from the Bay Area to LA in the mid-2000s. We’ve found that Silicon Valley jargon, while it may streamline communication and coordination for Bay Area founders, is not everything; rather, with coaching, exposure and practice, LA entrepreneurs are every bit as good as their Bay Area counterparts. We have invested in over 200 entrepreneurs since launching Mucker in 2011, and our fund returns prove that LA entrepreneurs are just as “good.” This learning curve is not a black box much less impossible. Today, we are similarly seeing our entrepreneurs outside of Los Angeles making this climb as we invest more and more outside of Los Angeles.

How do you think COVID-19 will change entrepreneurial activity in Los Angeles?

I do think there will be a short-term impact. With less company formation and a higher failure rate (as capital becomes harder to raise), we may witness a pullback in the entrepreneurial and funding activity here in Los Angeles. However, I do believe that the LA ecosystem runs broader and deeper than ever before and will not be decimated as we witnessed during the dot-com crash.

The technology industry regularly goes through business cycles dating back to the 1970s due to the upgrade cycles of semiconductors — both on the chip side and manufacturing process side — the more contemporary downturns of 2001, 2008, and now in 2020 are really just a part of cycling that the industry has grown to expect, adjust to and eventually thrive under. Innovation and change doesn’t stop. The tech industry as a whole will be fine. This time, I believe, Los Angeles will have the resilience to come back stronger than ever for the first time. The dot-com-era boom in Los Angeles looked like an outlier, while since 2008 the LA venture ecosystem 2.0 has been building steadily and hitting highs consistently from 2015 to 2019. These numbers show persistence and broad-based, long-turn change versus the dot-com boom.

Do you expect to see a surge in more founders coming from geographies outside major cities?

We are already seeing it. The internet has flattened the world. It has made mileage and physical distance significantly less important on the product consumption side as well as the product creation side. (Case in point — the current COVID-driven remote work boom.) If consumers, end users and customers from every industry can be anywhere in the world, there should be no logical reason that entrepreneurs cannot do the same.

Will there be the same kinds of geographically clustered investment and innovation hubs in a post-COVID-19 world? 

I think that there will always be clusters — the same reason cities exist, that human population is not evenly distributed — but the histogram will continue to get flatter and flatter over the long haul. We are social beings by default. Company formations will always need some critical mass of serendipity and clusters increase randomness and velocity.  I do believe that Silicon Valley will continue to serve as the center of the technology industry for another 100 years. But its monopoly is already over and its influence will continue to be dispersed to secondary cities/clusters like Los Angeles, New York, Nashville, Austin, Seattle and more.

Which Los Angeles industries seem well-positioned to thrive as restrictions start to lift?

We will continue to lean into consumer-driven health and wellness innovation. The controversy and politicization of COVID has created a world where everyone has an opinion on viral coefficient, double blind randomized studies and ACE2 receptors. Whichever side of the table you are on, consumers are ready to take their health into their own hands rather than blindly following previously taken-for-granted authorities. We believe this trend will continue.

We also believe the adoption of technology by small and medium-sized companies will accelerate. We’ve already seen how small and mid-sized businesses wholesale abandoned traditional advertising channels for the internet in the 2008 downturn. (I worked at AT&T’s local advertising business and saw that firsthand.)  I believe it is now the turn of the back office and front office operations to be heavily disrupted. Every business that survived will have to figure out how to be more efficient (back office) and service their partners and customers digitally (front office). When 5-years-olds AND 75-year-olds have learned to use Zoom — there is really no longer any excuse for SMBs to not adopt technology for every part of their business processes. We are betting on this trend by continuing to double down on vertical SaaS, B2B marketplaces and horizontal SaaS companies focused on serving employees outside of the executive suite. We believe SaaS adoption will be wide, pervasive and specialized.

Which segments look weaker or more exposed to potential shifts in consumer and business behavior after COVID?

The only sector I would be cautious of is commercial real estate (but certainly not technologies for commercial real estate given when there is a crisis there is always room for improvement). Retail is already moving online. Delivery is constituting a higher and higher percentage of restaurant sales. Now, workers will work more and more from home. I certainly would not want to be a big holder of commercial real estate assets given the coming dislocation.

How should investors in other cities think about the current investment climate and opportunities in Los Angeles? 

I think Bay Area VCs, especially blue chip early-stage ones, have already woken up to the opportunities in LA. That is not going to change as long as our companies continue to grow revenue and nurture happy customers. The fundamentals are too strong for the Bay Area VCs to ignore and pull back, regardless of COVID. Our companies are more capital efficient and have better unit economics — the perfect types of companies to invest in when systematic risk is high.

I’ve also seen a lot of seed stage VCs from outside of the Bay Area establish a local presence here in LA. We all know that LP investment into funds, from geography to sector, lags new venture formation by at least five years. (Mucker’s first institutional fund took three years to close, and that fund went on to invest in Honey, Service Titan, Emailage, The Black Tux, Trunk Club, Kong and LeaseLock.) As a result, it is sometimes more efficient for established VCs to enter a new geography than an emerging VC. There are far more great companies than there are venture dollars here in LA. Investors in other cities should continue to see LA as an underserved ecosystem with huge opportunities.

What advice would you give to an entrepreneur to consider in the post-pandemic world? 

The entrepreneurial journey takes at least 10 years, and often 15 years. In technology, there has never been a downturn that lasted more than five years. If you are passionate about the problem you want to solve, and have confidence in your team’s unique abilities and insights to solve that problem, don’t let a virus stop you. At some point, you will be on the other side of this pandemic. If you start now, you will be more ready than the timid masses to contribute to the eventual boom.

Image Credits: Getty Images/David Wall Photos

Dana Settle, co-founder, Greycroft

How much of your investing is focused on investing in the local LA ecosystem versus less geographically focused?

Greycroft is a global firm with investments headquartered in over a dozen countries around the world. In the United States alone, our companies are headquartered in over 20 states. We founded Greycroft with dual headquarters in LA and NYC fourteen years ago with a core principle that diversity matters and geo-diversity is one important facet of that. Having a presence in both of these markets has given us unique access to incredible entrepreneurs across the country. Investing in the fast-growing LA startup ecosystem has always been a strategic priority from day one for Greycroft and for me personally. After living in Silicon Valley for years, I saw the potential that LA had to bring together a unique mix of creatives, technologists, developers and designers to form incredible companies. We currently have dozens of active investments in the LA area including Scopely, Thrive Market, Acorns, Goop, Bird and Tapcart.

How does the firm view LA-based founders versus those coming from other geographies? Why take that view?

Great founders thrive in big and small markets around the world. We support and advise entrepreneurs, empowering them to build best-in-class businesses and execute on their vision no matter the market they operate from. LA has an incredible group of entrepreneurs and founders across numerous sectors driven by the region’s unique culture, innovation, diverse business climate and top tier academic institutions. LA has a deep bench of founder talent who have become market leaders across multiple categories including consumer brands, ecommerce, content, gaming and media, enterprise software, fintech and health tech.

How do you think COVID will change entrepreneurial activity in Los Angeles?

There are early signs that more people are starting companies now than before COVID — it’s been a brutal time for everyone. We’ve seen from other similar times in history that great innovation can be born from crisis. I expect our entrepreneurial community in LA to continue to innovate, respond to the changes in consumer behavior, and build new valuable products and services that we didn’t see coming just a few months ago. A few sectors we believe may see new innovation and an influx of entrepreneurial activity are wellness and distributed workforce management and collaboration. COVID has likely accelerated the ongoing shift to e-commerce and delivery, and we expect to see an increase in entrepreneurial activity around these trends.

Do you expect to see a surge in more founders from geographies outside major cities?

Our world is flatter than ever, and the founder community is now both local and global so the path to success is more evenly distributed — not just tied to the tech hubs. COVID has brought remote work and digital collaboration to the forefront, likely advancing these emerging trends by many years.

As remote work becomes more ubiquitous we predict that entrepreneurship will grow beyond the typical tech hubs. A key aspect of fueling startups is the composition of engineering students. There is an increase in engineering students across the country, not just in traditional tech hubs, a phenomenon that is redistributing the talent pool. As a result, I predict there will be a major influx of founders starting their companies outside of LA, SF and NY. Before COVID we where already observing this trend in markets such as Austin, Chicago, Denver and Seattle and believe this has now been accelerated.

Will Los Angeles remain a tech hub post-COVID-19?

Very much so. In a world where you can live anywhere and start a company, LA is certainly a very desirable option! There are many LA startups that have had successful exits and an increasing number of large tech companies are making LA their second major hub (Amazon, YouTube, Netflix, TikTok). The talent pool from those companies will likely create the next generation of successful companies. LA produces more graduating engineers per year than any other region. The broader SoCal region is incredibly diverse with 20 million people and is the 13th largest economy in the world.

Will there be the same kinds of geographically clustered investment and innovation hubs in a post-COVID-19 world?

The opportunity to democratize entrepreneurship is here, and it will be exciting to see new cities embrace this opportunity and create incentives that help startups thrive. We’re likely to see more cities outside existing tech hubs start to improve tax incentives for SMEs. Those, combined with affordability and quality of life dynamics will likely attract more founders. Existing tech hubs will remain strong, but we will observe a migration as talent begins to follow the best career opportunities and work in these cities becomes less scrutinized. With the rise of distributed teams, new microhubs will form.

Which Los Angeles industries seem well-positioned to thrive as restrictions start to lift?

Companies need to be agile, ready to innovate and respond to the inevitable changes in their buyer’s mindset and behavior. We’re already observing how companies can pivot and take advantage of new opportunities due to COVID. Look at sectors like media, e-commerce, grocery tech and home fitness as examples. People are eager to engage in life the way they did before COVID, but many consumer behaviors are likely changed for good. This phenomenon will create a highly dynamic business environment focused on innovation. We see Greycroft-backed companies like Scopely, Anine Bing, Thrive Market, Tapcart, Wondery, Acorns, Goop, Prima, Mercato (San Diego) and others being well-positioned.

Which segments look weaker or more exposed to potential shifts in consumer and business behavior after COVID-19?

Clearly, travel, tourism, restaurants, commercial real estate and directly related businesses will be initially slower to rebound. We believe cautious consumers will still cut back in these areas even after sheltering restrictions are lifted. Business spending has been impacted of course, but companies are getting focused on investing in their team, tech and tools. There’s obviously huge pent-up demand to get back to normal life, but it will not be a linear path to get there.

How should investors in other cities think about the current investment climate and opportunities in Los Angeles?

Invest in talent, not geography, but Los Angeles is a pretty great place to live!

What advice would you give to an entrepreneur to consider in the post-pandemic world?

COVID has created an unprecedented opportunity to view the world through an entirely new lens. New consumer behaviors, new commerce channels and new expectations for how the world will work and move. Entrepreneurs who study consumer preferences and shifting behavior and quickly meet new market demands by developing products and services to meet this demand will win.

Image Credits: Shutterstock/Yuriy Y. Ivanov

Karan Wadhera, Casa Verde Capital

How much is Casa Verde focused on investing in the local LA ecosystem versus less geographically focused?

Our focus at Casa Verde is working with the best companies regardless of geographical location. A global presence is necessary as the cannabis industry is developing at a rapid pace internationally.

That being said, LA has a significant amount of history with cannabis and presents certain opportunities as a large part of the consumer market is here, so it is a natural place to launch or invest in a business. We believe having a strong presence in LA is critical and we continue to monitor and track companies being built here.

How does the firm view LA-based founders versus those coming from other geographies? Why take that view? 

We believe great founders can come from any area of the world and we want to be a partner for them, regardless of where the business is located. We’ve taken this view because we’ve invested in and watched businesses grow and become successful across the world.

In terms of LA founders; we’re big fans and continue to see a transfer of talent into the city and into cannabis. While we look for founders in any geography, LA has been fertile ground for successful businesses in our industry.

How do you think COVID-19 will change entrepreneurial activity in Los Angeles?

COVID is changing all major cities in the U.S. and LA is no exception. We expect entrepreneurs to develop more adaptable business practices and invent new ways of working in a more distanced environment. New businesses will undoubtedly be launched with a COVID framework in mind, but COVID will not stop the entrepreneurial spirit that has continued to build in LA.

Do you expect to see a surge in more founders coming from geographies outside major cities?

What COVID has taught us is that businesses can be run in more remote settings. This will allow companies to build outside major geographies and hire talent all over the world. Cost of living has been a big concern for a lot of the businesses we’ve talked to, so having workers outside a major city may be a competitive advantage for a business moving forward. You will continue to see a concentration of companies in major cities, but the ability to work outside those cities will be more pronounced.

Will Los Angeles remain a tech hub post-COVID-19? 

We believe LA will be a great place for tech businesses to launch and grow in a post-COVID world. While we may see more businesses sprout up outside LA, the community here presents several advantages and that will continue to attract entrepreneurs.

Will there be the same kinds of geographically clustered investment and innovation hubs in a post-COVID-19 world? 

Post-COVID, geographical clusters will continue to be advantageous to founders. The advantages of being in or near a certain geography can present better access to resources, capital and talent. Networks in these geographies help drive business growth and that is difficult to replicate if a business is launched in a more remote area.

Which Los Angeles industries seem well-positioned to thrive as restrictions start to lift?

We continue to see delivery and other virtual businesses (e.g., telehealth) thrive as restrictions are being lifted. Our data shows us there is continued growth in these industries and we anticipate that will be a larger part of the ecosystem moving forward.

Which segments look weaker or more exposed to potential shifts in consumer and business behavior after COVID? 

Brick-and-mortar retail has been on a decline over the last five-plus years and Amazon is the most obvious case study for this. Consumer preferences are shifting from in-person purchases to delivery-based purchases (direct to consumer) and COVID has accelerated the inevitable. The pie continues to shift toward delivery, but traditional brick-and-mortar businesses have options. Companies like dutchie (a Casa Verde portfolio company) present an opportunity for dispensary owners to quickly become digital without a significant amount of investment.

How should investors in other cities think about the current investment climate and opportunities in Los Angeles? 

LA has become one of the most attractive markets to start a company, and with the realization of LA-based unicorns, investors have taken notice. LA boasts a supportive startup culture, a global hub for shipping and logistics, the center of the entertainment industry and some of the most creative and driven founders in the world. The opportunity to earn significant returns with LA-based businesses is here to stay.

What advice would you give to an entrepreneur to consider in the post-pandemic world? 

It’s the same advice we always give: Build creative solutions in large and growing markets. If you can execute on those dynamics, your chance of success increases dramatically.

Image Credits: Boqiang Liao

Brendan Wallace, Fifth Wall

How do you think COVID-19 will change entrepreneurial activity in Los Angeles?

Volatility can yield great cycles of creativity. We believe this period will present an opportunity for certain tech-laggard industries, such as real estate, to be reimagined without the constraint of challenges that stem from incumbency or established ways of operating. While there is apprehension about what awaits in the coming months and quarters, crises can unearth fertile ground for innovation and pave the way for entrepreneurs to build solutions that reconceptualize age-old processes. Los Angeles has always been an entrepreneurial city, and we expect the COVID-19 crisis to accelerate these trends.

Do you expect to see a surge in more founders coming from geographies outside of major cities?

The concentration of startup and entrepreneurial activity occurring in San Francisco has been on the decline for some time. Innovation is becoming ubiquitous geographically, meaning it’s occurring everywhere, including cities like Los Angeles that previously didn’t have much of a technology ecosystem, with smaller metro areas throughout the U.S. becoming beneficiaries of this as well. We expect the COVID-19 crisis to further accelerate this dispersion of the entrepreneurs and startups, as the pandemic sheds light on the benefits of remote work and spurs many to reconsider life in high-density areas. Historic tech hubs like San Francisco will always remain, but what will emerge is a welcomed decentralization of startups and innovation.

What piece of advice would you give to an entrepreneur to consider in the post-pandemic world?

Under more predictable market conditions of the past several years, entrepreneurs became accustomed to the historic amounts of cash flooding the marketplace, thanks in large part to a broadening class of investors playing in the high-risk, high-return venture ecosystem. With this sizable amount of deployable capital came growth cycles of hard-to-sustain fundraising frequency, cash burn and unit economics. In a post-pandemic world, sustainable growth and supply chain resiliency will be key. Gone are the days of a “growth at all costs” mentality, as growth absent of strategic direction leads to poor outcomes. Exhibiting strong unit economics and business quality has always been important and will continue to be; therefore, companies that exhibit moderate growth and high margins will emerge as most attractive.

TX Zhuo, Fika Ventures

How much is Fika focused on investing in the local LA ecosystem versus less geographically focused?

We haven’t changed our geographical mix so 50% of our deals from a sourcing standpoint still are in the local LA ecosystem.  Having said that, our first four deals in Fund 2 are all non-LA companies.

How does the firm view LA-based founders versus those coming from other geographies? Why take that view?

Historically for B2B companies, we’ve seen more LA-based founders come from an industry where they have experienced the problem firsthand in their prior jobs compared to founders from the Bay Area who might have worked at one of the well-known tech companies. For LA founders, we trust that they can identify the right pain point and be able to sell because of their Rolodex but what we try to validate through the diligence process is their technical/product chops and the reverse is true for Bay Area founders.

How do you think COVID-19 will change entrepreneurial activity in Los Angeles?

I think it will be net neutral. There will be people who will be afraid of leaving stable jobs in this uncertain environment but at the same time, it will make a certain group of people evaluate what they really want to do with their lives and that might spur more entrepreneurial activity.

Do you expect to see a surge in more founders coming from geographies outside major cities?

Yes, this pandemic has shown us that it is possible to run remote teams effectively and there will definitely be founders that will now be more comfortable moving out of tech hubs for lifestyle reasons.

Will Los Angeles remain a tech hub post-COVID-19?

LA will always remain a tech hub that will continue to grow. LA produces the most number of engineering grads every year, is home to many of the largest industries, including logistics, aerospace and media. It has the natural intersection between talent and opportunity, which is the key ingredient for a burgeoning tech hub.

Will there be the same kinds of geographically clustered investment and innovation hubs in a post-COVID-19 world?

We already started to see the migration away from geographically clustered investment and innovation hubs especially in LA where companies were moving away from West LA/Santa Monica. We think this trend will continue as clustering around innovation hubs becomes less important in a post-COVID world.

Which Los Angeles industries seem well-positioned to thrive as restrictions start to lift?

  • Supply chain and logistics as it becomes even more important to improve efficiencies (last-mile deliveries, food supply chain).
  • Online commerce and content (which extends to online therapy, training classes, etc.) as consumers will still be hesitant to visit physical establishments.
  • Robotics in manufacturing and warehousing as working environments incorporate more social distancing norms.

Which segments look weaker or more exposed to potential shifts in consumer and business behavior after COVID?

  • Hospitality and commercial real estate as consumer demand is likely to wane.
  • Micromobility startups with more people spending more time at home and engaging in less social activities.

How should investors in other cities think about the current investment climate and opportunities in Los Angeles?

LA is still a great place to start a company with the combination of a great living environment, availability of talent and a diverse set of consumers and companies that can serve as a great beachhead market.

What advice would you give to an entrepreneur to consider in the post-pandemic world?
Think of how you can sell or promote your product effectively without needing in-person interactions with the end customer.

Set your business up to be as agile as possible — don’t hold excess inventory, avoid having a large physical footprint, invest in infrastructure to facilitate remote work.

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When Jeffrey Wang posted to X asking if anyone wanted to go in on an order of fancy-but-affordable office nap pods, he didn’t expect the post to go viral.

With AI startups booming, nap pods and Silicon Valley hustle culture are back

OpenAI’s Superalignment team, responsible for developing ways to govern and steer “superintelligent” AI systems, was promised 20% of the company’s compute resources, according to a person from that team. But…

OpenAI created a team to control ‘superintelligent’ AI — then let it wither, source says

A new crop of early-stage startups — along with some recent VC investments — illustrates a niche emerging in the autonomous vehicle technology sector. Unlike the companies bringing robotaxis to…

VCs and the military are fueling self-driving startups that don’t need roads

When the founders of Sagetap, Sahil Khanna and Kevin Hughes, started working at early-stage enterprise software startups, they were surprised to find that the companies they worked at were trying…

Deal Dive: Sagetap looks to bring enterprise software sales into the 21st century

Keeping up with an industry as fast-moving as AI is a tall order. So until an AI can do it for you, here’s a handy roundup of recent stories in the world…

This Week in AI: OpenAI moves away from safety

After Apple loosened its App Store guidelines to permit game emulators, the retro game emulator Delta — an app 10 years in the making — hit the top of the…

Adobe comes after indie game emulator Delta for copying its logo

Meta is once again taking on its competitors by developing a feature that borrows concepts from others — in this case, BeReal and Snapchat. The company is developing a feature…

Meta’s latest experiment borrows from BeReal’s and Snapchat’s core ideas

Welcome to Startups Weekly! We’ve been drowning in AI news this week, with Google’s I/O setting the pace. And Elon Musk rages against the machine.

Startups Weekly: It’s the dawning of the age of AI — plus,  Musk is raging against the machine

IndieBio’s Bay Area incubator is about to debut its 15th cohort of biotech startups. We took special note of a few, which were making some major, bordering on ludicrous, claims…

IndieBio’s SF incubator lineup is making some wild biotech promises

YouTube TV has announced that its multiview feature for watching four streams at once is now available on Android phones and tablets. The Android launch comes two months after YouTube…

YouTube TV’s ‘multiview’ feature is now available on Android phones and tablets

Featured Article

Two Santa Cruz students uncover security bug that could let millions do their laundry for free

CSC ServiceWorks provides laundry machines to thousands of residential homes and universities, but the company ignored requests to fix a security bug.

1 day ago
Two Santa Cruz students uncover security bug that could let millions do their laundry for free

TechCrunch Disrupt 2024 is just around the corner, and the buzz is palpable. But what if we told you there’s a chance for you to not just attend, but also…

Harness the TechCrunch Effect: Host a Side Event at Disrupt 2024

Decks are all about telling a compelling story and Goodcarbon does a good job on that front. But there’s important information missing too.

Pitch Deck Teardown: Goodcarbon’s $5.5M seed deck

Slack is making it difficult for its customers if they want the company to stop using its data for model training.

Slack under attack over sneaky AI training policy

A Texas-based company that provides health insurance and benefit plans disclosed a data breach affecting almost 2.5 million people, some of whom had their Social Security number stolen. WebTPA said…

Healthcare company WebTPA discloses breach affecting 2.5 million people

Featured Article

Microsoft dodges UK antitrust scrutiny over its Mistral AI stake

Microsoft won’t be facing antitrust scrutiny in the U.K. over its recent investment into French AI startup Mistral AI.

2 days ago
Microsoft dodges UK antitrust scrutiny over its Mistral AI stake

Ember has partnered with HSBC in the U.K. so that the bank’s business customers can access Ember’s services from their online accounts.

Embedded finance is still trendy as accounting automation startup Ember partners with HSBC UK

Kudos uses AI to figure out consumer spending habits so it can then provide more personalized financial advice, like maximizing rewards and utilizing credit effectively.

Kudos lands $10M for an AI smart wallet that picks the best credit card for purchases

The EU’s warning comes after Microsoft failed to respond to a legally binding request for information that focused on its generative AI tools.

EU warns Microsoft it could be fined billions over missing GenAI risk info

The prospects for troubled banking-as-a-service startup Synapse have gone from bad to worse this week after a United States Trustee filed an emergency motion on Wednesday.  The trustee is asking…

A US Trustee wants troubled fintech Synapse to be liquidated via Chapter 7 bankruptcy, cites ‘gross mismanagement’

U.K.-based Seraphim Space is spinning up its 13th accelerator program, with nine participating companies working on a range of tech from propulsion to in-space manufacturing and space situational awareness. The…

Seraphim’s latest space accelerator welcomes nine companies

OpenAI has reached a deal with Reddit to use the social news site’s data for training AI models. In a blog post on OpenAI’s press relations site, the company said…

OpenAI inks deal to train AI on Reddit data

X users will now be able to discover posts from new Communities that are trending directly from an Explore tab within the section.

X pushes more users to Communities

For Mark Zuckerberg’s 40th birthday, his wife got him a photoshoot. Zuckerberg gives the camera a sly smile as he sits amid a carefully crafted re-creation of his childhood bedroom.…

Mark Zuckerberg’s makeover: Midlife crisis or carefully crafted rebrand?

Strava announced a slew of features, including AI to weed out leaderboard cheats, a new ‘family’ subscription plan, dark mode and more.

Strava taps AI to weed out leaderboard cheats, unveils ‘family’ plan, dark mode and more

We all fall down sometimes. Astronauts are no exception. You need to be in peak physical condition for space travel, but bulky space suits and lower gravity levels can be…

Astronauts fall over. Robotic limbs can help them back up.

Microsoft will launch its custom Cobalt 100 chips to customers as a public preview at its Build conference next week, TechCrunch has learned. In an analyst briefing ahead of Build,…

Microsoft’s custom Cobalt chips will come to Azure next week

What a wild week for transportation news! It was a smorgasbord of news that seemed to touch every sector and theme in transportation.

Tesla keeps cutting jobs and the feds probe Waymo