La Startup Industry Report 2013

Transcript

SEMI-ANNUAL L.A. STARTUP INDUSTRY REPORT 2013 Los Angeles Startups In Focus An In-Depth Look at the LA Startup Ecosystem Brought to you by BeGreat.co Executive Summary While the definition of a “startup” varies from source to source, even among the startups themselves, one thing is for sure: Los Angeles is becoming a force to be reckoned with in the country’s startup ecosystem. In fact, the city's startup ecosystem is making waves on a global scale and ranks only two behind Silicon Valley, according to a recent report from Startup Genome. Based on levels of funding, startup numbers, company performance, entrepreneur demographics and more, the report ranked Los Angeles third among 20 international startup ecosystems. Silicon Valley obviously came in first; Tel Aviv was No. 2. Greater Los Angeles’ startup ecosystem, which spans from Ventura to Pasadena to San Clemente, is increasingly stealing the spotlight from Hollywood’s historical dominance. Experts and participants in the space attribute this growth to a confluence of events: • • • High unemployment during and following the recession A greater offering of university entrepreneurship programs Second- and third-generation LA entrepreneurs staying active, and most importantly, staying put According to startup community website Built in LA, 94 new startups launched from January to June, with LA startups as a whole raising about $500 million in funding. Nine companies were acquired during that time, collectively earning more than $153 million from exits. Among the greater ecosystem’s hot sectors in 2013 are digital media, software and IT, and consumer products and services, which is consistent with 2012. On a regional level, though, some sectors are more popular than others. While Downtown LA is known for apparel and cleantech, for example, Orange County excels in the life sciences, including biotech and medical devices. Although Silicon Beach and Orange County remain the LA startup ecosystem’s overall leaders, other lesserknown regions have been budding with activity over the past year and particularly in the first half of 2013. Pasadena launched the Innovate Pasadena initiative to increase awareness about and encourage collaboration among its strong startup community that had long operated in a vacuum. Meanwhile, Downtown LA is currently building its massive La Kretz Innovation Campus to house the two-year-old LA Cleantech Incubator. Despite the strong startup ecosystems in Silicon Valley and in New York City on the East Coast, an estimated 800 startups make their home in Los Angeles because the city offers them something other ecosystems don’t. There are key financial advantages as well as a number of economic and cultural trends linking startups with educators, investors, entrepreneurs and more. “But people’s awareness is what’s really growing,” says entrepreneur Matthew Goldman. “Los Angeles may be 30 years behind Silicon Valley, but it’s going to catch up over time.” In the past few years in particular, startup activity in Los Angeles gained increasing momentum thanks to an influx of technical talent, capital, accelerators and incubators. At least 36.1 percent of LA accelerators and incubators operating today opened in 2011 and 2012 alone. In the first half of 2013, opening of new accelerators, incubators and co-working spaces has slowed, but overall startup activity across all key sectors remains high. # 3 36.1 % 94 new startups launched from January to June 2013 $ 500 Los Angeles ranked No. 3 top global startup ecosystem of LA startup accelerators and incubators opened in 2011 and 2012 alone million raised in funding in 2013, collective $153 million in exits L.A. Startup Ecosystem by the Numbers South Bay Other Culver City West LA Downtown LA Pasadena Startups* 797 VCs & Angels 50 Accelerators & Incubators 47 Co-Working Spaces 36 *Source: Represent.la Where Are The Startups In Los Angeles? Pasadena Share of Total LA Startups Key Sectors Notable Startups Orange County Silicon Beach Focus Share* (%) Where LA Invests Life Sciences 13.6% IT 25.0 Digital Media/Multimedia 29.5 Software 25.0 Internet 20.5 Saas & Cloud Technology 9.1 Consumer Products & Services 22.7 E-commerce 9.1 Technology 20.5 Mobile/Wireless 20.5 Energy 15.9 Communications/Telecomm 15.9 Clean/Green Tech 9.1 Semiconductors 6.8 Hardware 6.8 Sustainability 6.8 Water 4.5 Media & Entertainment 18.2 Life Sciences 13.6 Medical Devices 13.6 Biotech 13.6 Healthcare 9.1 Optics 4.5 Business Products & Services 6.8 Financial Services 18.2 Advertising & Marketing 11.2 OC Share of Total LA Startups Key Sectors Notable Startups Silicon Beach Share of Total LA Startups Key Sectors Information Technology 25% Media & Entertainment 18.2% Notable Startups Downtown Share of Total LA Startups Key Sectors Technology 20.5% Notable Startups Consumer Products & Services 22.7% West LA Culver City South Bay Share of Total LA Startups Notable Startups Share of Total LA Startups Notable Startups Share of Total LA Startups Notable Startups 3.2% Business Products & Services, Research, Sciences, Engineering OpenX, Wallaby Financial, Uber Media 9.4% Biotech, Medical Devices, Pharmaceuticals, Gaming, Business Products & Services Specific Media, AnyMeeting, Local.com 35.9% IT, Software, Mobile, Internet, Digital Media, Consumer Products & Services Lettuce, ShoeDazzle, Riot Games, Demand Media, Surf Air, SnapChat 5.1% Fashion/Apparel, Green & Clean Tech Milk & Honey, Make.tv, MySocialCloud.com, 20Jeans 9.4% Pagewoo, Engplug, SocialTagg 3.5% Maker Studios, Steelhouse, Wittlebee 8.7% JustFab, Echograph, Sometrics *Total surpasses 100 because most firms focus on multiple sectors Outside of the key markets studied, the remaining share of startups is dispersed throughout the greater Los Angeles area, from Ventura in the northwest to Pomona in the northeast to San Clemente in the south. LA’s Local Universities Supply Startup Talent Schools Art Center College of Design Cal Poly Pomona California Institute of Technology California Lutheran University California State University - Dominguez Hills California State University - Long Beach Chapman University Claremont McKenna College El Camino College Harvey Mudd College Loyola Marymount University Marymount California University Occidental College Pepperdine Pomona College University of California - Los Angeles Entrepreneurship Program/Division The Design Accelerator Poly Founders Jet Propulsion Laboratory Center for Entrepreneurship and Growth Institute for Entrepreneurship, Small Business Development & Global Logistics Society for Innovation and Entrepreneurship eVillage, Leatherby Center Student Incubator, K5 Launch Center for Innovation and Entrepreneurship Youth Entrepreneurial Program HMC Entrepreneurial Network LMU CBA Business Incubator, Fred Kiesner Center for Entrepreneurship Enactus Oxypreneurship Graziadio School of Business & Management Pomona Ventures Harold & Pauline Price Center for Entrepreneurial Studies, UCLA California NanoSystems Institute, Startup UCLA Viterbi Innovation Institute, Annenberg Innovation Lab, Lloyd Greif Center for Entrepreneurial Studies University of Southern California Pasadena 3.2% Fast-growing community home to one of the region’s first startup accelerators. Known for: Idealab, OpenX, Uber Media Los Angeles Startups on the Map Downtown LA 5.1% Silicon Beach 35.9% A new hotbed for growth with the potential to overtake Silicon Beach in startup development. Known for: CleanTech Corridor, Nasty Gal, 350Green A 3 mile stretch from Santa Monica to Playa Vista. Known for: SnapChat, ShoeDazzle, Lettuce, Google, Yahoo Orange County 9.4% Often overlooked, the OC is home to the second highest share of LA area startups. Known for: Biotech, Specific Media, Local.com Startup Activity in Greater Los Angeles Although startup activity is spread throughout greater Los Angeles, activity has traditionaly centered in these four hotspots. These four areas contain roughly 53.6% of startup activity with the following breakdown. Silicon Beach Orange County Downtown LA Pasadena 35.9% 9.4% 5.1% 3.2% N Sources: http://represent.la/ www.squeezedinorangecounty.com/ Los Angeles is seeing rapid growth and will very likely have a different makeup by the end of 2013. Silicon Beach SPOTLIGHT Nearly 40 Percent of Startups Call this Tech-Centric Beach Community Home Startup: Mogreet Launched: January 2006 Founder: Norm Schifman, James Citron Sector: Advertising, marketing M&A Activity: April 2013 by Payvia Before texting was even a thing, James Citron knew it was going to be the communication platform of the future. In 2004, travels through China and Europe, where texting was the only form of digital communication, opened his eyes to the potential for mobile messaging. Combined with the power of advertising, “Companies could really harness the power of the medium,” he explained. So he and his business partner Norm Schifman set forth in 2006 to help companies do just that, launching Mogreet to connect the texting masses with advertisers looking to reach those consumers. Fast-forward to today, when more than threequarters of American cell phone owners use text messaging, and the founders’ leap of faith has proven to pay off. “Two-thirds of MMS video goes through Mogreet,” Citron says, “And we’re now the largest mobile company in Los Angeles.” In April, the Santa Monica-based startup announced an acquisition by leading mobile payments company Payvia, which is also headquartered in Silicon Beach. “It’s very exciting for our team,” he says, “But it’s also great for Southern California. It’s a stamp of credibility that creates a ripple effect to other companies in the greater ecosystem.” Like any humble entrepreneur, Citron deflects any congratulations, attributing the company’s success to his “incredibly talented team” and a strong startup community. The fact that the three-mile stretch from Santa Monica to Playa Vista is being referred to as “Silicon Beach” speaks volumes to the region’s influence in Los Angeles’ greater startup ecosystem. The buzzing beachside startup community houses more than 35 percent of greater Los Angeles’ startups, with a majority operating in the tech space, particularly software and mobile technologies. In addition to the significant share of new players, the region that’s being touted as Southern California’s Silicon Valley is home to a number of big names in the tech space, too. Yahoo, Google, eHarmony and Hulu all have offices in the area, and slightly smaller Riot Games (League of Legends creator) and Demand Media (parent of eHow) are based in Santa Monica. On an even smaller scale, Silicon Beach is home to popular new startups Snapchat, Surf Air, Instacan.vas and Lettuce. The region also has the majority of greater Los Angeles’ co-working spaces and incubator/accelerators, with at least one-quarter of each. Well-known MuckerLab, Science Inc., LaunchPad and NextSpace are all based in either Santa Monica or Venice Beach. Mobile messaging company Mogreet is also based in Santa Monica, but co-founder and CEO James Citron didn’t have the myriad incubator programs available to him when he got started in 2006 (most launched in 2011 and 2012). At that time, Silicon Beach was barely a blip on the startup radar: “The number of startups was much smaller, and you could probably count on two hands the ones that were really going to make an impact,” Citron says. But to him and co-founder Norm Schifman, locating here was a no-brainer; they knew they’d be better off among the region’s community of talented content creators than up north in Silicon Valley. “Our technology-qualified workforce, creative workspaces and leading broadband infrastructure will keep our economy wellpositioned for future growth.” –Santa Monica Mayor Richard Bloom QUICK STATS Share of total LA startups: 35.9% Key Sectors: IT, Software, Mobile, Internet, Digital Media, Consumer Products & Services Notable Startups: ShoeDazzle, Riot Games, Demand Media, Surf Air, SnapChat, Lettuce Orange County Strong Education and Networking Infrastructure Connect this Key Market SPOTLIGHT Startup: Predixion Software Launched: October 2009 Founder: Simon Arkell, Steve DeSantis Sector: Financial services Investors: Accenture, GE Ventures, DJF Frontier, EMC, Miramar Venture Partners, Palomar Ventures, Frost Venture Partners Simon Arkell was actually in the private equity space when he decided to launch his San Juan Capistrano-based predictive analytics solutions company, Predixion Software. Although witnessing his friend grow and then sell a company to Microsoft for $300 million acted as a bit of a catalyst, Arkell was primarily inspired to revolutionize the data analytics space with an innovative, end-to-end analytics solution for the average person. It’s safe to say he and his team have been successful, with 2013 being a particularly momentous year. Predixion Software grew its team from 30 employees in January to 50 in June and brought in 30 percent more revenue in the first quarter of 2013 alone than in the entire year of 2012. And the company closed the first half of the year with $20 million in Series C financing, a portion of which is from two new strategic partners, Accenture and GE Ventures. Arkell believes VC funding in the region has withered away in the traditional sense in the past few years as investors finished the life cycles of their funds and ceased investing. So it’s “exciting to be growing a venturebacked company in Orange County,” he says. “I would love to see more of this type of model, creating an ecosystem of venturebacked companies.” Despite Orange County being home to the secondhighest share of startups, many entrepreneurs and startups based there will agree that Orange County’s role in the greater Los Angeles startup ecosystem is often overlooked. More specifically, startups that aren’t part of the region’s biotech and medical devices sectors are even “harder to find,” points out Robert Botch, managing partner at Tidepool Partners in Newport Beach. “You just have to know which rock to turn over.” He points to the lesser-known gaming startup community, as well as the lean toward enterprise products and services instead of the more consumer-centric products that come out of Los Angeles proper, particularly Silicon Beach. Orange County’s share of co-working spaces – at nearly 20 percent – is relatively comparable to Silicon Beach and Downtown LA, but where Orange County leads the pack is in its share of funding. Of the greater Los Angeles area, Orange County is home to nearly 30 percent of seed and early stage investors, with offices of big names like Tech Coast Angels and Shea Ventures. Silicon Beach has about 18 percent. Most Los Angeles investment firms – about 25 percent – are actually in the subsector of West Los Angeles that includes Beverly Hills, Century City, Westwood and Brentwood (the latter two cities also house a decent number of startups). Orange County also has a great education and networking infrastructure in place for its startups, says Jeff Brannon, managing director at Metrix Capital Group in Anaheim Hills. In addition to regular panels and VC pitch events across the greater county, Chapman University in Orange fosters entrepreneurship in various programs through its eVillage, Leatherby Center Student Incubator and a partnership with local accelerator K5Launch. “The beauty of building startups is that they proliferate and then attract more talent to the local area.” –Simon Arkell, CEO & co-founder, Predixion Software QUICK STATS Share of total LA startups: 9.4% Key Sectors: Biotech, Medical Devices, Pharmaceuticals, Gaming, Enterprise Products & Services Notable Startups: Specific Media, AnyMeeting, Local.com Downtown LA An Up-and-Coming Market Determined to Bring Cleantech to the Masses SPOTLIGHT Startup: Milk & Honey Launched: January 2011 Founder: Ilissa & Dori Howard Sector: Fashion/apparel, e-commerce Celebrity Partnerships: Molly Sims, Malin Akerman, Kathy Lee Gifford, Kate Mara Although neither Ilissa nor Dori Howard had experience in e-commerce – or in launching a business for that matter – they were inspired by the massive growth they were seeing in the space. So in 2011, they founded Milk & Honey, a women’s online shoe store that lets the shopper design her own pumps, flats, boots and more. After graduating from Launchpad LA’s accelerator program (based in Santa Monica), the creative energy from the art, garment and fashion districts brought the sisters and their venture to Downtown Los Angeles. “The excitement of the fashion district – watching dress racks being pulled down the streets and women in heels carrying bolts of fabric – all plays into the weird and inspiring energy that is downtown LA,” says Dori. They also couldn’t “argue with rent at $1 per square foot compared to Santa Monica prices at $3 to $4 and New York City prices at $30.” Milk & Honey is one of several newer fashion/apparel e-commerce companies in the downtown area, including startups Nasty Gal, The Daily Look and 20Jeans. “We are slowly turning into a real force,” Dori says, “One that will grow with time as more apparel entrepreneurs learn of the urban area’s potential.” Although the successful brand could potentially afford Santa Monica rent prices today – since launching, sales have more than doubled and the business is profitable – Dori says, “We’re staying put!” Long in a state of development, downtown Los Angeles is finally making a name for itself in the greater startup ecosystem, albeit with a still-small 5.1 percent share of startups. The urban community’s fashion and garment districts play host to a number of apparel brands and websites, offering them easy access to supply and expertise. In more recent years, downtown has also become known for its focus on green and clean technologies; the city’s aptly named Cleantech Corridor is a fourmile strip between the Los Angeles River and Alameda Street located in the popular arts district. In 2011, the city of Los Angeles launched the LA Cleantech Incubator as one of many components of then-Mayor Villaraigosa’s Green LA Plan. Since then, LACI has built a portfolio of 15 companies focused on boosting sustainability in Los Angeles. Although the program and its participation haven’t grown to the level originally forecast, according to Nate Redmond, managing partner at Rustic Canyon Partners, 2013 has been particularly noteworthy. First, LACI celebrated its first portfolio company exit. In May, electric vehicle charging station operator 350Green, which was the first startup to join the incubator, announced that it had been acquired by Miami-based Car Charging Group for $5.2 million. Second, construction commenced in June on LACI’s La Kretz Innovation Campus, which will include a new 30,000-square-foot facility for the incubator, a full-scale Cleantech Manufacturing Center and various other facilities. In addition to influence from the fashion and cleantech sectors, downtown’s startup scene has support from nearby USC, particularly the Marshall School of Business’ Lloyd Greif Center for Entrepreneurial Studies. “USC is trying really hard to put something in place that can support entrepreneurial activity within reach of its students,” Redmond says. “So as more young creative people locate down there and the area’s schools get more involved, you’re going to see more happening.” “Downtown LA is seeing a resurgence, so as it becomes a great place to live, people will want to build companies there, too.” –Nate Redmond, managing partner, Rustic Canyon Partners QUICK STATS Share of total LA startups: 5.1% Key Sectors: Fashion/Apparel, Green & Cleantech Notable Startups: Nasty Gal, 20Jeans, 350Green, tCalifornia Lithium Battery Pasadena SPOTLIGHT Distance from Silicon Beach Acts as Catalyst for Budding Startup Community Company: Wallaby Financial Launched: January 2012 Founder: Matthew Goldman, Todd Zino Sector: Financial services Investors: Founders Fund, WI Harper Group, Karlin Ventures, MuckerLab, Quotidian Ventures, Lion Wells Capital, SLP Ventures The inspiration for Wallaby Financial came every time co-founder and CEO Matthew Goldman pulled out his wallet. Each time it came to pay, whether buying groceries or settling a hotel bill on a work trip, he had to closely evaluate which credit card to use and the associated rewards memberships. “There’s always the best way to pay out of all of your choices,” Goldman explains, “But you really need to have a helpful hand guiding your choice.” So Goldman teamed up with would-be CTO and launched Wallaby Financial to be that guiding hand for consumers. Its offering of personal finance and purchasing tools – smartphone and web apps and The Wallaby Card – helps people optimize their credit card use based on credit limit, statement due dates, linked bonuses, rewards programs and other offers. Although Wallaby Financial has only been around since January 2012, Goldman has been in tech his entire life, so he’s seen firsthand the expansion occurring in Los Angeles. “If you started a tech company here a couple years ago, people would give you a look,” he says. “But now the conversations happening are why a person should be in Los Angeles if they’re launching a startup.” Like most veterans in the city’s startup scene, he attributes a lot of the change to recent growth in its accelerator and seed funding infrastructure. In fact, Wallaby was in the first graduating class (April 2012) at Santa Monica’s Muckerlab accelerlator. Far from the buzz of Silicon Beach is the relatively newer startup community of Pasadena. Although one of LA’s first accelerators, Idealab, is headquartered in Pasadena – serial entrepreneur Bill Gross founded it way back in 1996 – the city’s startup community is still in its infancy. This year more than ever, though, it is becoming a key player in the greater LA startup ecosystem due in large part to efforts by Gross and several other local entrepreneurs, experts and investors as part of Innovate Pasadena. “It wasn’t until I launched my own company that the need for support and a greater startup community in Pasadena became more apparent,” says VC turned entrepreneur Andy Wilson. He was spending at least three hours a day on the road several days a week trying to attend as many events and presentations in Santa Monica as possible. But that got old really fast. “Spending that much time on the road and at events while you’re trying to start a company just doesn’t work,” Wilson says. “Pasadena has a lot of players, but we were all kind of working in a vacuum. I realized if I dedicated all the time I did on the road to connecting those players, I could effectively instigate something. So the distance from Santa Monica became a catalyst to create our own community.” Pasadena only houses about 3.2% of greater Los Angeles’ startups and doesn’t have the representation from co-working spaces that Silicon Beach and other startup regions do, but its movers and shakers are determined to change all that. Innovate Pasadena’s launch event at the end of June received 700 RSVPs – 200 more than it could actually host – which was a true testament to the city’s potential. Although only a handful of seed and early stage VCs are based in Pasadena, that number is also anticipated to grow in the coming years as startup numbers climb. “Capital shows up where the opportunities are,” assures Wilson, “So that will come.” “We’re sitting on a treasure trove of geeky, techy people that just aren’t yet connected.” –Andy Wilson, cochair Innovate Pasadena, founder Rexter QUICK STATS Share of total LA startups: 3.2% Key Sectors: Business Products & Services, Research, Sciences, Engineering Notable Startups: OpenX, Idealab, Central Desktop, Uber Media LA’s Investors Digital Media, Software and Mobile Tech Secure Most Investor Dollars Investors, startups and industry experts alike will agree that one of the main reasons Los Angeles’ startup scene lingers in the shadows of big sister Silicon Valley is the lack of local early stages investors – at all stages, really. Los Angeles needs “additional funding and infrastructure at the very earliest stages of venture formation,” reports Santa Monica-based accelerator MuckerLab. “It only has about one-tenth of the venture capital investment as compared to Silicon Valley.” With the startup movement gaining traction, though, VCs have been paying closer attention. In the two years since he launched his successful brand of co-working spaces Real Office Centers, serial entrepreneur Ron McElroy has noticed an increase in venture capital firms, family funds, private investors and accelerators that are focusing on Los Angeles for investment opportunities. Investments in ROC-based companies are estimated at $50,000 to $200,000 in 2013, an impressive increase from $25,000 to $50,000 in 2012. On the whole, the average investment into a startup for an LA-area venture capital or angel firm is about $4.07 million, ranging from $25,000 to $30 million. In total, startup online community Built in LA estimates that Los Angeles startups have already raised $500 million in the first half of 2013, well on their way to surpass the estimated $871 million raised in 2012. Of the about 50 angel and VC firms in greater Los Angeles, the majority are actually located in Orange County at nearly 30 percent, followed by West Los Angeles (which excludes Santa Monica) at 25 percent. Tech continues to be the area where most funding Los Angeles at a Glance $4.07 million $1.32 billion Average Investment Average Value “For all the press that New York City gets, Los Angeles is actually returning at a higher level.” goes, but in particular, Los Angeles firms are investing highly in digital media, software and mobile technologies. Fashion (within the greater consumer products category), media and entertainment, which rank high by nature, also see a fair share of investment dollars. The tech focus dominates Silicon Beach and West LA too, but across other regions, there is much more diversification: Orange County is known for its focus on biotech and medical devices, albeit with a sprinkling of gaming startups; Downtown LA houses both fashion and green technologies; and Pasadena is a –Nate Redmond, managing partner, Rustic Canyon Partners hub for B2B and professional services and research. Each startup hotspot has its own flavor, explains Andy Wilson, a VC turned entrepreneur based out of Pasadena. “It’s like a mosaic, with each tile having its own detail. But when you put it all together as greater LA, you have to integrate the tiles into a bigger mosaic.” Orange County Share* Focus (%) IT 25.0 Digital Media/Multimedia 29.5 Software 25.0 Internet 20.5 Saas & Cloud Technology 9.1 Consumer Products & Services 22.7 E-commerce 9.1 Technology 20.5 Mobile/Wireless 20.5 Energy 15.9 Communications/Telecomm 15.9 Clean/Green Tech 9.1 Semiconductors 6.8 Hardware 6.8 Sustainability 6.8 Water 4.5 Media & Entertainment 18.2 Life Sciences 13.6 Medical Devices 13.6 Biotech 13.6 Healthcare 9.1 Optics 4.5 Business Products & Services 6.8 Financial Services 18.2 Advertising & Marketing 11.2 Where the Money Is Region Orange County West LA* Silicon Beach Pasadena Share (%) 29.5 25.0 18.2 9.1 West LA* *Includes Beverly Hills, Century City, Westwood, Brentwood Other Santa Monica Pasadena SPOTLIGHT Company: Tech Coast Angels LA Locations: Los Angeles, Orange County Notable Startups: MindBody Software, H2O Audio, SodaHead, Vokle With offices stretching from San Diego up to the Central Coast and east through the Inland Empire, Tech Coast Angels has a significant presence in Los Angeles’ startup ecosystem. What’s more, the investment firm has invested more than $120 million in more than 200 companies since its inception in 1997, including noteworthy Green Dot Corporation. TCA members make average investments of about $250,000 to $300,000 across a variety of sectors, including hardware, digital media and biotech, in startups that are beyond the “idea on a napkin” stage, says Michael Green, president of TCA’s Los Angeles network. During his time in the investment space and particularly with TCA, Green has seen *Total surpasses 100 because most firms focus on multiple sectors firsthand the rapid expansion in the LA startup ecosystem. Recognizing that growth and the need for early stage funding, TCA launched Screening2Deal in February of this year, a program that would speed up the application process to help a startup get funded in 30 days. The program was also part of the company’s move to help debunk the myth that angel investors are “old and slow.” With all the movement and excitement, any player in LA’s startup ecosystem could easily get left behind if they don’t adapt. “The past two years have been tremendous with all these accelerators and events and entrepreneurs,” Green says. “It’s been a confluence of events – quite the renaissance for startups.” LA’s Accelerators & Incubators Another point that players in LA’s startup scene agree on is the region’s exemplary accelerator and incubator infrastructure, a more recent trend that has kickstarted much of Los Angeles’ recent startup activity. Although Pasadena-based Idealab and the Business Technology Center of Los Angeles County have both been around since 1996 and 1998, respectively, the majority of accelerators and incubators in greater Los Angeles are all relatively new. Matthew Goldman remembers around the time he launched his consumer financial services company in January of last year, one of his colleagues was going to start an accelerator. “Then within six weeks there were several more,” he says. “It was an idea whose time had come.” At least 21.3 percent of today’s 47 accelerators and incubators were already in existence before 2012, but then at least 19.1 percent opened in 2011, alone; 17.0 percent launched in 2012. Facilitators by Region Region Share (%) Launching Companies, Launching the Entire Ecosystem Although expansion has slowed further in 2013, primarily due to saturation in key startup markets, a few opened their doors in the first half of the year, including the Ventura BioCenter and the South Bay Entrepreneurial Center. These two are also examples of organizations catering to less saturated markets. Mirroring the breakdown of investors, accelerators and incubators are concentrated in Orange County, Silicon Beach, West LA and Pasadena. Despite the high concentrations in these key markets, activity and tenancies remain high as entrepreneurs and startups increasingly seek out the educational, collaborative and supportive environments that these organizations offer. Ron McElroy, who founded a brand of similar collaborative startup environments, confirms this sentiment: “The natural collisions between community members foster an exchange of ideas or better ways to solve problems, be it writing code, developing creative solutions or merging job opportunities or companies.” Orange County 17.0 Silicon Beach 14.9 West LA* 10.6 Pasadena 10.6 Downtown LA 4.3 South Bay 4.3 Other 38.6 *Includes Beverly Hills, Century City, Westwood, Brentwood “More than 75 percent of incubated businesses are still in business after five years versus less than 20 percent without incubation.” –South Bay Entrepreneurial Center SPOTLIGHT Company: Idealab Founder: Bill Gross Headquartered: Pasadena Truly the first of them all, Idealab launched in 1996 under founder Bill Gross’ vision to help create pioneering technology companies. In addition to funding, Idealab offers its participating startups office space, mentorship, marketing and branding services, financial and HR advice and more. To date, it’s helped build about 100 companies and has seen 30 exits. Many of the ideas and startups that have cycled through Idealab are Gross’ own. Evolution Robotics, his venture in personal robotics, was acquired by iRobot for $74 million in 2012. And under his mobile ad firm Notable Alumni: Picasa, CitySearch, eToys, Overture 45% of LA’s Startup Facilitators Open In The Past Three Years Launch Year Share of 2013 total* (%) UberMedia, he launched a new mobile ad platform in May of this year that targets app users based on their location and social media data. Also this year, Idealab accepted a new accelerator into its own program. The Design Accelerator, created in a partnership between Caltech and the Art Center College of Design in June, is housed in Idealab and focuses on early stage design and technology businesses. “Idealab continues to be a strong and vocal supporter of entrepreneurs and startups,” says managing director Tom McGovern. “We’re excited to see the additional attention being paid to [those] in the greater LA area.” Pre-2011 21.3 2011 19.1 2012 17.0 2013 8.5 *Years for remaining share were unavailable LA’s Co-Working Spaces Concept in High Demand, Though New Entrant Numbers Slow Launch Year Coworking by Region Region Share (%) Silicon Beach 22.2 Orange County 19.4 Downtown 19.4 Pasadena 5.6 South Bay 4.3 Other 27.8 Over 50% of LA’s Co-Working Spaces Open In The Last 2.5 Years Share of 2013 total* (%) A concept still in its infancy by startup standards, co-working spaces have become the home base of choice for many Los Angeles startups in recent years. Conceived from the ideas that two (or more) heads are better than one and that some small businesses and professionals just don’t have the finances to sink into traditional commercial office space, co-working spaces provide tenants flexible terms (from daily to yearly), tools and resources (e.g. desks, internet and conference rooms) and a community, from the entrepreneur at the other end of the table to mentoring from experts and consultants. Although experts trace the concept of co-working spaces back to San Francisco in 2005, it took a few years before the first facilities opened in Los Angeles and at least six years before the concept picked up traction. Of the city’s 36 spaces today, 22.2 percent opened in 2008 to 2010, compared to 27.8 percent in 2012 alone. After two strong years, growth in the number of new co-working space has tapered off quite a bit. In fact, by year-end 2013 it is not even anticipated to reach half the number that launched just last year. At least two factors are responsible for the slowdown: saturation in the city’s key startup markets, particularly Silicon Beach, and an improving economy that allows small businesses to afford pricier, longer-term leases in traditional office buildings. To no surprise, Santa Monica and Venice together house the greatest share of co-working spaces, with Nextspace, Real Office Centers and Cross Campus making the biggest waves. The region’s myriad startups and entrepreneurs keep vacancies low at its eight co-working spaces. And regular networking events, conferences, launch parties, mentoring sessions and pitch opportunities at the facilities bring in an equally high number of startups and entrepreneurs from other cities. In fact, the 2013 Silicon Beach Fest, which held daily activities at most of the co-working spaces, hosted about 3,000 people from around the country June 19 to 23, according to festival director Kevin Winston, up from 2,000 in its inaugural year in 2012. Another region making a name for itself in the coworking space arena – and one that isn’t as close to its saturation point – is Downtown Los Angeles. With office, studio and meeting spaces less accessible in the dense, urban region, startups are increasingly looking to co-working facilities. Although downtown only launched one space in the first half of this year, the fact that most in the region have been around for at least two years speaks to its potential. 2008 5.6 2009 8.3 2010 8.3 2011 16.7 2012 27.8 2013 5.6 *Years for remaining share were unavailable SPOTLIGHT Company: Real Office Centers Founder: Ron McElroy LA Locations: Newport Beach, Irvine, Santa Monica After years of professional surfing, Ron McElroy hung up his wetsuit and entered the real estate space. And then in 2011, he launched what would become a powerful name and tool in Southern California’s startup scene. The initial inspiration for Newport Beach-based Real Office Centers’ co-working spaces came from the neglect McElroy saw in the commercial office space arena. He saw a need not only for facilities that had the tools and resources that many entrepreneurs and small businesses don’t have within reach but also those that inspired creativity and encouraged collaboration. So from 2011 to October to 2012, he launched six co-working spaces stretching from downtown San Diego to downtown Santa Monica. Notable Tenants: Uber, Business Rockstars Radio, Klick Communications, SimplyHired Although the serial entrepreneur and his team haven’t launched any new locations yet this year, ROC continues to grow like crazy. Construction on the new 44,260-square-foot Santa Monica location wrapped up in the first half of this year, allowing more than 80 companies to call the old Google building “home” by June, up from about 30 in January. From January to June, total tenants across his facilities (excluding those in La Jolla and San Diego) expanded from 200 to 275. McElroy has his sights set on up-and-coming startup hotspot Pasadena as well as Hawaii, New York and Mexico City. Outlook Although the steam behind Los Angeles’ startup ecosystem has been pushing it along at a fast pace in the past few years, the growth is coming off years of slow movement and the city still has a lot of potential. The leading markets have plenty of accelerators, incubators and co-working spaces, so ideally proven brands explore untapped markets. Be Great Partners itself is headed in that direction, with plans for nine Be Great Lab co-working spaces in the works. While some are planned for the key startup markets of Santa Monica, Pasadena and Downtown LA, some are planned for more underrepresented areas in the space, including Sherman Oaks and Century City. Funding is also key, and the region can always use more of it at all stages. As Andy Wilson of Innovate Pasadena said, “Capital shows up where the opportunities are,” so investors will come to the startups as activity picks up. While the influx of technical talent, incubation programs and capital have been big for small businesses, investors and entrepreneurs alike say the big deals and exits are what will really put Los Angeles on the map. “What happens in the later-stage deals is what’s going to be big,” says Michael Green of Tech Coast Angels. “What will send LA soaring is a big exit where you have a significant number of people making money – that would really help. There’s already a lot of activity and a lot of excitement, so time will tell what cream rises to the top.” The local industry has already been headed down that path for the past few years, according to estimates from the LA Mayor’s Council on Innovation and Industry. From 2009 to 2012, the number of mergers and acquisitions in Southern California as a whole has increased from 63 in 2009 to about 170 in 2012, representing strong growth of 28.2 percent per year on average, including a 56 percent spike in 2012. Similar is anticipated for 2013 and the coming year, with Pasadena-based OpenX being a prime contender. “In the next 12 months, we’ll see a few high-profile exits and IPOs,” forecasts Matthew Goldman of Wallaby Financial. “Game-changing events like those can catalyze an entire region, significantly growing the number of startups and the local talent pool. And as a Southern California entrepreneur, that’s what I want to see.” Lindsay Holloway, Lead Writer & Researcher Emily Viernere, Research Intern Layout and Design by mediaTHREEsixty Brought to you by BeGreat.co For Additional Information Please Email [email protected] Credits About Be Great Partners Be Great Partners (BGP), a leading technology incubator in Los Angeles, has an active $6-million fund to expand Los Angeles' startup ecosystem and bring the most talented tech startups and continued long-term job growth to Los Angeles, specifically its Miracle Mile. The company is seeking bigdata projects to invest average capital ranging from $25,000 to $50,000, while providing the startups with strong mentorship, worldclass facilities and a team of 25 innovative developers. Be Great Partners works directly with entrepreneurs to develop their project's full potential. For more information please visit BeGreatPartners.com. About this Report The research and writing of this report was contracted by Be Great Partners to a private, unbiased third party. Research was conducted over a three-week period in September 2013 and included numerous in-person interviews, comparative studies with existing sources and extensive qualitative and quantitative research. Unless otherwise noted, all data are estimates. Sources include but are not limited to: Built In LA CrunchBase Entrepreneur.com FindTheBest Forbes.com LA Mayor’s Council on Innovation and Industry LATimes.com Represent.LA StartupNation.com SoCalTech.com Silicon Valley Business Journal SeedTable Startup California