LA’s Tech Startup Scene Is Coming of Age
From Re/Code, by Richard Wolpert, September 5, 2014:
After several decades of wondering when the Los Angeles tech scene would interact with the local entertainment business and generate new opportunities, things have finally come of age. Today, dozens of hot LA companies are gaining national and global notoriety, thanks to strong execution, distribution and customer advocacy.
From April through June of this year, 35 Los Angeles County startups raised more than $330 million. Media darlings like Snapchat, Beats (acquired by Apple for $3 billion) and Oculus Rift (acquired by Facebook for $2 billion) have grabbed the headlines, but there are larger trends rising behind the scenes and out of the spotlight. These trends reside at the intersection of two very important LA-specific categories: Technology and entertainment.
Bridging technology and entertainment
Among LA’s unique value propositions is its deep connection with the entertainment industry. The accessibility to production studios and entertainment agencies provides a strategic advantage to entrepreneurs who understand where technology can enhance existing entertainment businesses.
Multi-channel networks, for example, is a category consisting of next-generation cable networks that work with YouTube channels to bolster content promotion, digital rights management, monetization and more. MCNs are the driving force that influences the success of individual YouTube celebrities and entire YouTube networks. The space, driven by LA-based companies, has heated up throughout the past several months with notable exits, including:
- Maker Studios being acquired by Disney for as much as $950 million
- FullScreen being acquired by the Chernin/AT&T effort for $300 million
- AwesomenessTV being acquired by DreamWorks for north of $100 million
Other MCNs are thriving independently of studio control, including Zefr, Defy Media, MiTu, Machinima and new upstarts such as Jukin Media, which recently made the Top 10 of YouTube channels.
Silicon Valley has and continues to recognize MCNs as part of the larger tech movement across Southern California, which has helped stoke successes by funding various content channels. Further, funding has propelled the creation of state-of-the-art production facilities in Playa Vista.
According to research from CB Insights, $4.7 billion was invested in LA tech companies in the past five years, totaling a 163 percent increase since 2009.
The forces driving LA’s technology diversification
The region’s maturation extends far beyond the convergence of technology and media. Throughout the past several years alone, LA-based companies saw very successful IPOs in Cornerstone OnDemand, Demand Media, TrueCar and the Rubicon project. More than ever, we’re seeing $50 million to $100 million acquisitions through deals like DocStoc being acquired by Intuit, Burstly/TestFlight being acquired by Apple, Gravity being acquired by AOL and Engrade being acquired by McGraw Hill.
Is there something in the water?
Let’s outline the important changes in recent years:
- Ubiquitous broadband Internet made the delivery of media over the Internet a breeze.
- High-end universities across Southern California (UCLA, USC, Cal Tech) produce increasingly digitally savvy new talent year over year.
- Viable business culture and lifestyles have attracted successful technologists and venture capitalists to move into the region.
- There has been significant venture capital investment to Southern California-born companies.
- Industry maturation provides incentive for second- or even third-time entrepreneurs (such as those from the Myspace mafia) to set up new businesses across LA.
Above all else, access to and availability of funding has enabled dozens of tech startups to launch in or around LA without feeling obligated to head north. Angel, seed and Series A funding has driven significantly larger funding rounds with greater frequency, creating a new breed of large LA companies. Lynda.com, launched and headquartered in the greater LA area for almost two decades, has raised just more than $100 million. Accel portfolio companies like Invoca, Yapstone, Crowdstrike, Industrial Toys and Dealer.com are all located and/or have offices across Southern California, with funding to support local growth and development.
LA has long been known as the center of the entertainment industry, with most major studios calling Southern California their home. Investors, including Accel, will continue to recognize the region as a very serious contender for innovation, and with healthy returns from LA-based companies will come greater funding for new ideas. Further, these successes will create second- and third-time entrepreneurs, which will lower the risk of some of the newer upstarts. Ongoing startup success will breed a deeper entrepreneurial culture, which will only further stimulate the pace of innovation.
Fueled by recent exits, successful operating companies, the home to most major media companies and an exploding crop of new startups, expect big ideas and big successes in the near future for the burgeoning region in Southern California.
Richard Wolpert is a venture partner with Accel Partners and the co-founder and managing director of Amplify.LA; he is also an advisor to RealNetworks Chairman and CEO Rob Glaser. Reach him @rewolpert.