Understanding the LA startup ecosystem: Is it next in line for the title shot over the Bay?
Los Angeles, the city of Angels. I love this startup ecosystem and for a good reason. We have 8 Technology Transfers, 73 co-working spaces, 32 incubators, 33 accelerators, 107 Universities, and 91 Venture Firms that are currently known. It’s safe to say these numbers and a little bit shy from the actuals. With all this firepower behind Los Angeles, we’re prepping for our title shot, and just like Rocky 2, we’re going to go the distance and come out on top… if we can get our act together.
As a competitive individual, I don’t like to be second place, little lone third or fourth. And that is precisely where LA has found itself. However, our Los Angeles startup ecosystem is growing. We have a few unicorns, local Universities are pumping out techies, new VC’s popping up all the time, and a city full of entrepreneurs in varied verticals, each being very different. It is beautiful and amazing to be a part of it.
With that being said, we have some things we need to work out if we’re going to be taken seriously as contenders, which is possible provided entrepreneurs and investors can play nice.
Angel investing originally got its name from wealthy individuals who provided money for theatrical productions that would otherwise have had to shut down. They provided capital at a time when the productions were on the brink of closing their doors. You see, an angel was supposed to be an individual that provided capital to support businesses and things that they liked, but who couldn’t fully help themselves. Fast forward to 2019, and we have multiple active angel groups like Techcoast Angels, Pasadena Angeles, Maverick Angels, and many more. We also have individual angel contributors like Talmadge O’Neil, Paige Craig, and Esther Dyson. However, overall angel investors aren’t taking the same risks as they used to. Now the Angel groups work as Micro-VC’s, and many of the angels as individuals are requiring more for them to invest. Entrepreneurs hear the same thing over and over again. You’re too early; you need more traction. For Los Angeles to take the throne, we must start at the most initial stage possible. High risk, high reward, and I feel our entrepreneurs are worth it.
With so many early-stage funds in Los Angeles, an entrepreneur would think it would be easier to raise some capital. For LA to compete, Venture Capitalists need to find common ground with entrepreneurs when it comes to valuations. If founders are leaving LA because they receive better terms elsewhere, then we’re losing our best companies.
We also need more leaders in LA! Every time I hear a founder mention that they have investors ready; however, they need to find a lead investor, I cringe. Let’s keep it 100% LA, either you like the deal and founder, or you don’t. Be confident in your choice either way you decide and move forward. Waiting for validation from investors isn’t going to move the needle. Lastly, investors need to provide feedback to founders. If the answer is “no,” do not tell them that they’re too early. Explain why you’re not investing so the founder can learn from your feedback. This will dramatically increase the overall success in the LA startup ecosystem.
Founders need to find common ground with investors as well when it comes to valuations. Just because you might be able to get better terms elsewhere that doesn’t necessarily mean that it would be a better option. Also, founders need to educate themselves on the local startup ecosystem better. What you see on TV isn’t an accurate picture of real life. Know which investors you’re talking to, what types of deals they like to invest in, how much time is remaining on their fund, etc. There are so many books, blogs, podcasts, social media, and you name it out there with immense amounts of knowledge.
When in doubt, ask! Go to the local co-working space and ask the people around you. Find a founder who has raised money and talk to them about their experience.
Be helpful and a resource. The rising tide lifts all ships. The startup ecosystem resembles that of a bicycle tire. The founder is in the middle of that tire, and the service providers act as the spokes. If the founder is going to run the startup gauntlet and be successful, they will need relationships with every talk on that tire. The spokes will be your bank, lawyer, marketing, HR/benefits, insurance, finance, etc. Each provider is an expert in their field, and passing that knowledge by education, mentoring, and making meaningful connections when it makes sense will increase the overall success rate of founders in LA, resulting in benefits to all participants in that economy.
Overall the Los Angeles startup ecosystem is unique in the aspect that people are willing to assist others. We have everything needed and then some to become a powerhouse, and I genuinely believe that we’ll get there. Our ecosystem is a team, and if we choose to work together and each teammate plays to their strengths, then we will be victorious. It’s not a question of if, it’s a question of when will Los Angeles reign supreme. The thoughts above will only accelerate the process.
By: Kory Chapelle, Business Development Manager, Los Angeles