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There’s something brewing in Los Angeles.Suddenly, Hollywood has becoming a startup hotbed.
Incubators and accelerators are popping up everywhere. Venture capitalists are becoming frequent fliers at LAX. Celebrities are stamping their names on new companies. And TV industry executives are quitting their jobs to become entrepreneurs.
In many ways, Los Angeles looks like New York City did three years ago. One early-stage investor, Gary Vaynerchuk, thinks LA will eventually trump both New York and San Francisco as the ultimate location for startups.
Although it doesn’t have a crop of billion-dollar startups like Silicon Valley has in recent years, it’s a thriving environment that shows a lot of promise.
We spoke with entrepreneurs and investors who are deeply embedded in the Los Angeles tech scene to find out what’s going on in southern California.
Recycled capital and repeat entrepreneurs are fueling the fire
Why did Silicon Valley take off?
Because successful entrepreneurs didn’t walk away or retire with their millions—they stuck around and started new companies or became investors.
In the same way, LA entrepreneurs from the early 2000s are creating and funding startups today.
Bill Gross, for example, created Overture. It was a search-ad company that presaged Google’s ad business, and was bought by Yahoo for $1.63 billion. It came out of his Idealab incubator, which has founded more than 100 companies.
Applied Semantics, a Santa Monica-based company, was acquired by Google for $106 million in 2003. Its founder, Gil Elbaz, has created one of LA’s most promising new startups, Factual.
CitySearch, an early predecessor to Yelp, was formed in southern California. Myspace may not be doing well today, but it produced entrepreneurs like Richard Rosenblatt, who’s now running Demand Media in LA.
Douglas Merrill, a Princeton PhD and the former CIO of Google, relocated to Los Angeles and raised $73 million for his startup, ZestCash.
All of these winners from the first dotcom boom are putting their money into the new LA startup ecosystem.
Now there are more resources for LA startups
Incubators like Science and Idealab are creating companies. Accelerators like Mucker Labs, Amplified, and Sam Teller’s Launchpad are helping new founders get off the ground.
Venture capitalists are flying to Los Angeles regularly hunting for innovative ideas at valuations that are a steal compared to Silicon Valley or New York. More early-stage investors like Lady Gaga’s manager, Troy Carter, and Ashton Kutcher are emerging as legitimate startup backers. And corporate venture arms are emerging in Los Angeles: Universal now has an investing arm, and Disney’s Steamboat Ventures has been around for a while.
Tech talent is staying in Los Angeles
UCLA, USC, and Cal Tech are in Southern California. Now instead of graduating and leaving, those engineering minds are getting reasons to stay.
And the employee networks at companies like Myspace are now sticking around and forming new companies together.
For example, Sean Percival, a former Myspace vice president, now runs Wittlebee, a subscription-commerce startup for kids’ clothes. He’s backed by Science, the incubator run by former Myspace executive Mike Jones.
And others are joining them.
“I’ve seen more and more founders coming from outside LA and moving here; there’s a bigger talent pool now,” angel investor Paige Craig says. “I was really impressed at LA Startup Weekend [where Zaarly launched]. I hadn’t met half the founders before. And the schools are finally getting their kids to stay.”
Hollywood is ripe for disruption
The film industry, and TV in particular, is ripe for disruption.
“Hollywood has peaked,” Y Combinator’s Paul Graham has said.
Some of the most innovative new solutions are arising in Los Angeles. Maker Studios, for example, is trying to bring the quality of big-screen videos to YouTube. Nielsen numbers indicate it’s the fourth most popular YouTube partner.
Hulu is also a Los Angeles-based company.
“With the massive growth of YouTube and Hulu and startups providing alternative solutions, the TV industry is really changing and it creates opportunity,” Greycroft partner Dana Settle tells us. “I think that’s what happened in New York with the meltdown of the financial services industry in 2008.”
“LA has always had a ton of creative business people but tech has always been trumped by Hollywood,” says Craig. “Now Hollywood is realising it needs to be smarter in tech. Hollywood is finally crossing over and it’s really going to charge LA to be the next tech centre. We’re at the very tip of the iceberg.”
Celebrities are helping brand startups
The most obvious way tech and Hollywood are merging is in startups’ big-name endorsers. Ryan Seacrest, Ellen DeGeneres, Christina Applegate, Justin Bieber, and Justin Timberlake are just a few A-listers who have lent their names to support entrepreneurs.
Celebrities used to endorse skincare products. Now they endorse mobile apps.
Some, like Kim Kardashian, are actually taking ownership stakes in startups, particularly in the e-commerce space, in exchange for their names.
Jessica Alba is one of few celebrities who is actually in the startup trenches. She’s running the Honest Company as a full-time job.
E-commerce is a specialty, but the LA tech scene is diverse
Online-retailing startups like Intelligent Beauty’s JustFab, Brian Lee’s ShoeDazzle, and Beachmint have raised eye-popping amounts of money. They use big-name celebrities and trendsetters to get buzz for the companies, and they’re creating “fast fashion” cycles, suggesting a template for Los Angeles tech startups.
“It’s sort of natural that a lot of these celebrity-driven fashion companies are starting in LA, which has given rise to faster fashion cycles,” says Settle, the venture capitalist. “Instead of having major fashion seasons it’s more like months. And since a lot of that fast fashion has been native to LA, a lot of manufacturing to support that has grown up in LA too.”
Settle cites Nasty Gal’s founder, Sophia Amoroso, who began her company in San Francisco but moved it to Los Angeles to be closer to manufacturers. She just took a big financing round to expand Nasty Gal’s operations.
But e-commerce startups aren’t the only tech companies LA is producing. Oblong, for example, is working on Minority Report-style smart screens for collaborative, interactive meetings. Santa Monica-based Cornerstone OnDemand is cloud-based talent management software solutions that’s used by corporations such as Turner Broadcasting and Neiman Marcus. Factual is working on a big-data play.
This didn’t happen overnight
“The LA tech scene isn’t coming to a head right now; it’s been building,” says LA-based venture capitalist Mark Suster. “We have amazing engineers and really smart people here. This is not all about the beach.”
Five years ago, Frank Addante, the founder of ad-tech startup The Rubicon Project, felt like he had to puncture those stereotypes in a satirical video explaining why he was starting a company in Los Angeles.
Now, with Rubicon successfully challenging Google in one online-advertising niche, he doesn’t have to explain LA. It’s become legitimate through the grit and hard work of entrepreneurs like him.
Don’t miss: The 23 Hot LA Startups You Have To Watch >
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