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A cheaper location for tech companies takes off
Nov 5th 2016
HOLLYWOOD has produced plenty of films about underdogs rising to claim the
limelight. Now Los Angeles is experiencing its own real-life Cinderella story,
as the area s technology scene has been transformed from backwater to boomtown
in just a few years. Hordes of venture capitalists from northern California,
once long dismissive of their southern neighbour, now regularly commute in
search of deals in a less heavily hunted spot than the Bay Area. In 2016 the
city s startups received around $3bn in funding, around six times more than in
2012, according to CB Insights, a research firm.
Evan Spiegel went to Stanford University in the heart of Silicon Valley, but he
wanted to live and work close to the sea. So he based his new company one block
from the Pacific in Venice Beach, which is better known in Los Angeles for its
silicone-enhanced bodies than the silicon chips that gave the Valley its name.
Mr Spiegel s firm, Snap, is best known for its ephemeral Snapchat social-media
messages and is now valued at a whopping $18bn. Other successful technology
firms are thriving nearby, including Dollar Shave Club, an e-commerce firm
recently sold to Unilever for $1bn; Ring, a smart doorbell company, and Riot
Games, maker of League of Legends , a popular online multiplayer contest.
Los Angeles is now the third-most-prominent outpost for startups in America,
after San Francisco and New York. It has several advantages, including good
universities, warm weather, a relaxed culture, proximity to San Francisco and
much lower costs. Michael Schneider, the boss of Service, a customer-relations
startup, reckons he would need to have raised at least 40% more money if based
in San Francisco, just to pay for the same space and people .
Although Los Angeles has fewer experienced engineers, those that are there tend
to be more loyal, not least because there are fewer firms out to poach them.
Startups can convince people to move. Ophir Tanz of GumGum, an advertising
startup, says he has recruited several employees looking for a more balanced
life away from cities like New York and San Francisco.
Los Angeles may at last be getting the attention it deserves. The original
monetisation of the internet was created here, not Silicon Valley, says Mark
Suster, a venture capitalist with Upfront Ventures, referring to pioneers such
as Applied Semantics, bought by Google. But for Los Angeles to establish itself
as an enduring place for startups, it needs Snapchat to continue to thrive and
go public, which could happen as soon as next year.
This article appeared in the Print Edition with the headline: Silicon Beach