‘A hotbed for talent’: Venturing into LA’s flourishing startup scene
(Sid Francis/Daily Bruin)
By Alicia Park
Sept. 21, 2024 6:17 p.m.
Last month, venture capital firm Andreessen Horowitz – famous for its early investments in companies such as Instagram, Airbnb, Pinterest and Roblox – officially opened a new office in Santa Monica.
While venture capital, a form of investment in early-stage companies known as startups, is typically focused around Northern California’s Silicon Valley, the new establishment of Andreessen Horowitz, otherwise known as a16z, in Los Angeles sheds light on Southern California’s entrepreneurial landscape.
Joshua Lu, who invests in games-related startups at a16z, said the newfound focus is a testament to the quality of talent and companies in LA.
“We are being intentional about investing in Los Angeles because we see lots of great companies coming from here,” Lu said. “We think it’s a hotbed for talent. There’s lots of really great engineers here, a lot of great creative minds as well.”
According to Forbes, because venture capitalists make the first and consequently riskiest investment in a business – sometimes before it even generates revenue – they often make bets on those most likely to grow exponentially. Thus, they gravitate toward technology companies over non-technology ones, which may grow linearly from spending more on expenses such as labor, raw materials and rent as the business grows.
Thus, an attractive geography for venture capital investors is Silicon Valley, where technology talent and resources are abundant.
Silicon Valley traces its roots back to the mid-20th century, when prominent Bay Area research institutions such as Stanford University and UC Berkeley, as well as manufacturing companies like Lockheed Martin, received high levels of government funding to develop military technology, according to JSTOR Daily. This helped the area develop a relatively advanced technology environment early on.
Olav Sorenson, a professor at the UCLA Anderson School of Management, said venture capital began to burgeon in the 1980s as a result of the Bayh-Dole Act and Prudent Person Rule, which democratized the ownership of federally funded inventions and allowed institutional investors to make riskier investments, respectively. With individuals and companies now being allowed to profit off of federally funded research, investors flocked to Silicon Valley, where they provided further financial support for innovation in the area.
Since its beginnings in Silicon Valley, venture capital in the U.S. has grown to a $170 billion industry – an industry that LA is still fairly new to.
“I wouldn’t say there was much of a startup scene in 1999 or 2000 in LA,” Sorenson said. “Now, this is, I think, one of the most vibrant entrepreneurial ecosystems in the U.S.”
A location’s entrepreneurial ecosystem is highly dependent on the talent that an area’s academic institutions and companies attract, Sorenson said. He added that certain factors such as layoffs, which give industry-specialized employees sufficient time to start their own business, further foster entrepreneurship.
Furthermore, the dominant resources and services in a location can help create a unique entrepreneurial environment, Sorenson said. For example, LA, which is home to the nation’s biggest entertainment industry, has attracted investors like a16z that see potential in entrepreneurs coming from that industry, he added. Aside from traditional entertainment behemoths such as Disney and Universal Pictures, newer gaming companies like “League of Legends” creator Riot Games and “Call of Duty” creator Activision Blizzard now thrive in LA.
“There’s been a lot of huge games companies based in LA, and because of that, there’s a lot of interesting games talent in LA,” Lu said. “Our view is that games is one of the fastest-growing forms of entertainment.”
In conjunction with the new office opening, a16z hosted the third cohort of its biannual 12-week gaming accelerator program, Speedrun, in LA to allow participants to engage with local resources, Lu added. The program was previously hosted in San Francisco.
Eric Berman, a UCLA alumnus, joined Spreedrun’s second cohort in January, through which he and his co-founder developed Lil Snack, a short-form games app. With the help of Lu and other program advisors, Berman said Lil Snack went from a game played among friends and family to an app distributed across online platforms like Buzzfeed and Amazon Prime. The company has received over $3 million in venture capital funding since completing the program, according to VentureBeat.
But entertainment isn’t all LA has to offer. Third-year cognitive science and economics student William Li is a partner at student-led venture capital firm Crater Ventures, which invests in Southern California-based startups founded by students. Since joining the organization in November, Li said startups in the space industry such as Basalt Tech have caught his eye.
Founded by former UCLA aerospace engineering student Maximillian Bhatti and MIT graduate Alex Choi, satellite technology startup Basalt traces its roots to the founders’ work experiences at Caltech and SpaceX, two major institutions headquartered in LA that foster aerospace innovation.
Additionally, Li said social media-related startups are common, following the legacy of popular LA-based apps such as Snapchat and Tinder. Sorenson added that he has noticed entrepreneurial activity in the consumer products space – especially celebrity brands – as well as the health care field in Southern California.
Despite growing activity in cities outside of Silicon Valley like LA, venture capital investments over the years have continued to become increasingly concentrated in Silicon Valley, especially with the recent rise of artificial intelligence, Sorenson said. Furthermore, LA has deterred tech giants like Google and Facebook – both of which had plans to open offices in the city – and seen declines in promising tech companies like social media platform Snapchat and e-scooter company Bird Rides Inc., according to the LA Times.
However, Berman said being in LA in 2024 is as timely as ever. With the current downturn of the tech industry indicated by major layoffs, the decline in traditional media and the end of the streaming wars between platforms like Netflix and Disney+, Berman said there is room for breakthroughs and innovation in LA’s dominant industries.
“Between the combination of media having a difficult time right now, AI hitting the market and the creator economy continuing to show that it’s stronger and more important than any other marketing channel out there, all of that is happening right here in Los Angeles,” he said.
With Bruins attending college in LA, Berman added that students should take advantage of their time in the city and its resources before the economy circles back to a trough.
“Especially right now, when a big company job isn’t safer than a startup, it makes more sense than ever to go give it a shot,” Berman said. “It is really timely to go build right now before that cycle is frothy and you’re too late.”