Building an Entrepreneurial Ecosystem: Why L.A. Is Working

Panel Overview & Context

• Steve Drobny (Drobny Capital) notes that despite negative headlines regarding traffic, taxes, water scarcity, and "flakiness," Los Angeles is experiencing a surge in entrepreneurship driven by quality of life, global connectivity, and a unique small business culture.
• The panel focuses on "Silicon Beach," citing the expansion of the Milken Conference and the presence of major tech companies like Google and Facebook in Santa Monica and Venice as catalysts for growth.

Regional Ecosystem Dynamics

• Microcultures: Julie Gerbinger identifies Pasadena as a distinct microculture influenced by Caltech, JPL, and the Art Center College of Design, offering a blend of technology, design, and market access (e.g., Elon Musk/SpaceX).
• Talent & Recruitment: Compared to Silicon Valley, Los Angeles faces less competition for hiring, though the primary challenge is retaining local engineering talent against the "gravitational pull" of Silicon Valley.
• Engineering Output: Despite a reputation for entertainment, a presentation by Upfront Ventures indicates Los Angeles graduates more engineers than any other city in the U.S., though local retention requires competitive compensation.

Capital & Investment Trends

• Investment Growth: VC capital in Los Angeles has grown from $500 million five years ago to $2.5 billion last year, driven by a shift from infrastructure to application-based investing.
• Ecosystem Ranking: Los Angeles holds the third-largest tech ecosystem on AngelList, representing 12% of startups, trailing Silicon Valley (24%) and New York (14%) but with the highest growth rate.
• Diversity of Capital: Eric Schmidt (Bank of California) highlights a diverse capital structure including family offices, 150+ local banks, and private equity, which supports companies seeking longevity rather than immediate exits.
• Term Sheet Evolution: Scott Jaye (TrueCar) notes that term sheets in LA have historically been unfavorable to founders but are normalizing to match Silicon Valley standards as demand increases and "tech cred" improves.

Company-Specific Strategies & Milestones

• Upfront Ventures: Closed its fifth fund near $300 million, the largest in Los Angeles, aiming to support the transition to an "experience economy" where design and user interface are core competencies.
• Boston Consulting Group (Digital Ventures): Deploying ~$20 billion from corporate balance sheets (Western Digital, Tesla, Live Nation) to incubate agile startups; 120 employees are located in Silicon Beach.
• TrueCar: Generated $200 million in revenue (projecting $1 billion by 2018/2019), recently completed an IPO, and is scaling to cover the entire auto transaction lifecycle (financing, leasing, insurance) rather than just price discovery.
• Strobe (Walter): Developing sensor technology to lower the $80,000 cost of current autonomous vehicle prototypes, anticipating a 10-15 year timeline for widespread autonomous adoption.

Challenges & Friction Points

• Real Estate: High commercial real estate costs in Manhattan Beach and Venice are being offset by the strategic value of proximity to LAX and the beach for talent retention; companies like TrueCar pay top-tier salaries to match these amenities.
• Liquidity & Exits: The panel agrees that LA lacks the sustained "big exits" (IPOs/strategic acquisitions) found in Silicon Valley, which currently limits institutional respect; upcoming exits like TrueCar and Cornerstone are viewed as critical validation.
• Taxation & Regulation: Despite being a high-tax jurisdiction with regulatory hurdles, the unique mix of entertainment, defense, biotech, and media industries creates a "wild west" capital environment attractive to entrepreneurs seeking non-standard structures.
• Traffic & Logistics: Commuting limits in-person sales calls (reduced to two per day vs. four in NY) and creates logistical friction, though the geographic spread fosters unique micro-economies.

Industry-Specific Shifts

• Automotive Sector: Despite trends in the sharing economy, Scott Jaye predicts vehicle ownership will rise due to improved affordability and ease of transaction via platforms like TrueCar, rather than decline.
• Demographics: Steve Groveyard (Bank of California) identifies Latino entrepreneurs and female homeowners as the fastest-growing segments of new business creation, far outpacing the tech sector in volume.
• Autonomous Vehicles: Walter notes that while autonomous tech will reduce accidents, it is 10-15 years away from disrupting the core car-buying model; the immediate market remains "buying cars on phones" for financing and trade-ins.

Entrepreneurial Advice & Future Outlook

• Skill Acquisition: Panelists advise young entrepreneurs to master coding languages (e.g., Swift) early, focus on mobile-first user experiences, and prioritize building genuine engineering competency over "street cred."
• Risk Management: Steve Drobny suggests reducing risk by revisiting failed business models that were "almost successful" (e.g., Google revisiting search engines, Facebook after Friendster) rather than purely blue-sky innovation.
• Community & Networking: Harry Schmidt emphasizes the importance of surrounding oneself with diverse talent (gender, ethnicity, discipline) to foster innovation and personal growth.
• Work-Life Balance: Julie Gerbinger and others note that the quality of life in LA is a primary driver for retention, arguing that happy engineers in desirable locations are more productive than those in lower-cost, less attractive inland areas.