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Wednesday, March 23, 2011

The Challenges (& Opportunities) of Starting a Tech Company in LA Jason Nazar

from Jason Nazar





I recently hosted a panel at the Twiistup Conference about LA tech companies. I asked the panelists (David Travers, Brian Norgard, Fouad ElNaggar, & Demian Sellfors) about the specific challenges that we face down here in Los Angeles as opposed to Silicon Valley. I have some pretty specific thoughts on the differences between companies in the two cities, as I wrote about in my previous post A Tale of Two Tech Cities. But I thought I’d take some more time here to expand on what I think are the challenges, and opportunities, of starting a tech company in LA.

Challenge #1 – Tech Companies are Not Typically Started by Technologists.

In the bay area it’s quite common for the entrepreneurs starting a company to be developers or technologists who can build the first versions of their products. That’s typically not the case in Los Angeles. Here it seems that entrepreneurs are coming out of business school, transitioning from corporate life, or hail from the entertainment industry. Whereas in Silicon Valley, you can have a V.1 of a product up and running in a few months weeks getting thousands of users for next to no capital, in Los Angeles many folks will take over a year and spend a million dollars just to get a beta product ready.

A perfect case in point is Mark Hendrickson the founder of Plancast. He worked for me at Docstoc for a brief stint (and did an awesome job) after being a writer at TechCrunch for a few years. When he had the idea for his company, he didn’t write a long business plan or try to raise money to hire an agency to build a website for him. He just pounded out design and code for a few weeks and got Plancast up on the web and users adopting his product right away.

In Los Angeles we are at a disadvantage because the founder(s) often have no experience in building consumer web applications. This makes it infinitely more difficult to bring our ideas to life, to quickly iterate on the inevitable misdirections that happen early and often, and to raise capital to continue building our companies.

Opportunity #1 – Tech Companies are Not Typically Started by Technologists.

Entrepreneurs that start companies in LA are often focused on revenue and business models. If you can create such a virally popular product that it reaches millions of people… yes, you can put off worrying about business models and revenue, but this isn’t the case for most of us. The fact that we’re focused on building great businesses and not just great products, give us our own advantages.

While we often lack the technology and product depth of our counterparts in the Bay, I would argue that entrepreneurs in LA would thrive if you dropped them into any industry. We tend to be better at things like team building, negotiations, sales, and fundraising – which are arguably the most important skills entrepreneurs should posses.

Challenge #2 – There is Not Enough Great Tech, Product and UI/UX Design Talent in LA .

Simply put LA has a lack of GREAT product, UI/UX, and design talent. I know because I’ve spent the last three years trying to hire these folks. Many of the product managers/designers in LA come from the entertainment industry, which doesn’t lay the foundation for how to build an addictive interactive consumer experience. You’ll often find folks that are great at big glossy designs, but who lack the depth and experience to build a seemless user experience that just feels intuitive to the person engaging with the website.

Opportunity #2 – There is Less Poaching of Great Tech, Product and UI/UX Design Talent in LA .

On the other hand, if you are able to build a great product team (like we have at Docstoc) then you are much less susceptible to have these folks poached away from your company. In the bay area you have Facebook stealing employees from Google, Zynga stealing from Facebook, and some new hotshot startup ready next in line to pounce. Loosing talent is a HUGE problem and the reason why Google will give big bonuses and cash to keep their teams in tact.

Challenge #3 – There Needs to Be More Institutional Capital in Los Angeles .

There simply are NOT enough venture capital firms in the Southern California. In the bay area there are dozens of firms that are actively making investments. In LA there has typically been a small handful of firms actively making investments in tech, they include: Rustic Canyon, GRP Parners, Clearstone Venture Partners, Redpoint Ventures, Mission Ventures, Anthem Venture Partners, Greycroft, Crosscut, Palomar Ventures, and Rincon Ventures. It’s a chicken and egg problem. If there were more great companies coming out of LA then it would create more demand for high quality VC firms. But there are also less great companies in LA, BECAUSE there is less access to sophisticated capital.

Opportunity #3 – There is Plenty of Capital for Great Team/Products .

Despite the above, great entrepreneurs, teams, companies in LA can always find capital. They’re the ones that rise to the cream of the crop and get the attention of the folks that are investing in LA, and they often have Bay Area or East Coast suitors who want to invest in their companies. If you’re complaining that its too hard to raise money as the founder of an LA tech company, stop bitching about a lack of funds and focus on being a bigger badass.

Challenge #4 – We are Divided by Our Geography.

LA is really a collection of many different cities, that depending on traffic, can be anywhere from 15 minutes to 2 hours away from each other. There’s Santa Monica, Westside, Hollywood, Downtown LA, the Valley, and Pasadena. This dispersed geography prevents entrepreneurs from easily meeting up for both formal functions and the informal drinks/dinner that so often lead to great ideas and partnerships. In San Francisco, you can walk out of your office and within a 1 mile square radius you probably have 12-24 other tech founders working alongside you.

Opportunity #4 – We are Building our Own New Tech Hub – Silicon Beach

I may be biased, but it really feels like downtown Santa Monica is becoming the tech hub of LA. In fact Paige Craig has coined it Silicon Beach. There’s a fast growing group of tech companies including: Docstoc, Demand Media, BetterWorks, GoodReads, Mahalo, Beachmint, Campus Explorer, DECA, eHarmony, GumGum, Savings, Shoedazzle, Business.com, FamilyFinds, Affordit, Bestcovery, JibJab, CoLoft and many more. I still consistently work very late nights, and one of my favorite parts, is that I can email any number of other founders that are doing the same and walk out of my office and go to dinner/drinks with amazing folks in the tech space right next door to me.

Challenge #5 – There Hasn’t Been Enough of an Organized Tech Community

From what many people have told me, in past years there simply were not many high quality tech events where someone new on the LA tech scene could break in and meet other connected folks. That’s no longer the case….

Opportunity #5 – That’s No Longer the Case…..

LA is now filled with high quality tech events, mixers, meetups, and a thriving community. I’ve been leading the charge here with Mark Suster (read his blog BothSidesofTheTable). In the past 2 years I’ve now hosted 20 Startups Uncensored Events that bring out the best CEOs and VC in LA, and at our last event we had 1000 RSPVs. Some of the past events & videos are linked to below. And Mark Suster has been fostering an environment to help find and grow the best and brightest new LA tech companies with LAunchpad. Plus there are amazing LA tech events put on by DealMaker Media, DigitalLA, Twiistup, and many more. To see a great list of LA tech events check out the event calendar on SocalTech, Nicole Jordan’s Blog, and the newly revamped LaLawag.

Jason Nazar is the Co-Founder and CEO of Docstoc.com, the premier online community to find and share professional documents. Before starting Docstoc, he was a partner in a venture consulting firm in Los Angeles where he worked with dozens of startups. He holds have a BA from UCSB and his JD/MBA from Pepperdine University, where he was the Student Body President of both Universities. He originally posted this on his blog.


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