What's Ahead for SoCal Startups?

Predicting what 2019 will hold for the SoCal innovation economy is risky. Market swings, geopolitical tensions and shifting trends always have the potential to throw us off course.

A decade ago, Silicon Valley Bank launched Startup Outlook, capturing what US tech and healthcare entrepreneurs think about business conditions, hiring, fundraising, exits and the public policy issues that affect them most.

Having been in the industry for a while, I’d say that for the most part, startups have remained optimistic, even amid uncertainty. And that holds true today. After all, where would we be if entrepreneurs weren’t positive about their next idea for positive disruption?

One thing that has certainly changed on my watch? Our SoCal startup ecosystem – which is barely recognizable from 10 years ago when we debuted the first US Startup Outlook. But entrepreneurs are just as passionate about wreaking havoc on the status quo. Dollar Shave Club, The Honest Company, Ring, Snap, Tinder, Service Titan and ZipRecruiter are examples of SoCal startups that have made a major mark in the past decade, some in less than half that time.

Some color around the findings:

SoCal startups expect business conditions to improve

It’s difficult to build and scale companies under the best circumstances, and it’s not clear how 2019 will unfold. Still, 61 percent of entrepreneurs tell us that they expect business conditions to improve. As an example, 81 percent plan to expand their workforces this year – good news for our region.

Raising capital grows easier for some

Many startups are well-capitalized compared with recent years, and can likely find the resources to grow and reach profitability. In fact, 22 percent of SoCal startups tell us raising funds is not challenging. There is plenty of private and venture capital waiting in the wings to fund successful companies. About half of US startups expect VC to be the source of their next round. Early-stage companies with less cash flow may find it tougher, though we see alternative sources eager to finance growing companies with potential.

Startups name most promising technologies

When we launched Startup Outlook 10 years ago, there was zero mention of autonomous transportation on earth, manned transports to other planets or blockchain. This year, we asked startups to name the most promising technologies now and in a decade. While AI and big data show the most promise today, SoCal founders expect autonomous transportation, life science and cleantech/energy innovation to join AI at the top of the list a decade from now.

While SoCal entrepreneurs are more bullish on space technology in a decade than US entrepreneurs as a whole, just 13 percent in SoCal say it would be one of their top three picks in 10 years.

Top US public policy concern? Access to talent

Access to talent is the top policy concern for SoCal startups, aligning with findings from previous years. Concerns over employee healthcare costs, consumer privacy and cybersecurity also rank highly.

For the first time, we asked US startups to assess the impact of trade policy between the world’s top two economies: Half of SoCal startups say they are concerned that tensions with China will hurt their businesses in 2019, matching the total US finding. By comparison, two-thirds of Chinese startups express concern about a negative impact.

Be prepared for what’s ahead

From my vantage point at SVB, startups would do well to stay on their toes by planning for alternative scenarios, raising some extra capital, being prepared to shift more quickly than usual and working with experienced partners.

Nobody can say for certain whether 2019 will bring a shift in economic times. But we do know that SoCal innovators are successful when they focus on solutions and find opportunities -regardless of market conditions. We’ve seen the proof time and time again.

Rob Freelen is the Los Angeles Market Manager for Silicon Valley Bank.

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