Start-up funds rush­ing into the re­gion

More in­vestors are com­pet­ing to fund South­land firms amid a big turn­around.

Los Angeles Times - - MONDAY BUSINESS - By Paresh Dave paresh.dave@la­times.com

Sean Per­ci­val, a for­mer vice pres­i­dent of Bev­erly Hills-based Mys­pace, fled to San Fran­cisco in 2013 be­cause he couldn’t find money in Los An­ge­les for his start-up.

When he got there, the start-up mar­ket in Los An­ge­les be­gan to boom.

“Lit­er­ally, the quar­ter I left, ven­ture cap­i­tal money com­ing in to L.A. was huge,” he said.

Now, as a Sil­i­con Val­ley ven­ture cap­i­tal­ist, a turn­around in the Los An­ge­les start-up mar­ket presents a new chal­lenge: More in­vestors are com­pet­ing with his firm to fund new South­land start-ups.

Start-up in­vest­ments in the Los An­ge­les area rose 25%, to $2 bil­lion, from 2013 to 2014, re­searcher CB In­sights and ven­ture cap­i­tal firm Up­front Ven­tures said in a re­port last month. The study also ex­am­ined the New York re­gion, a tech hot spot for years, which grew 50% to $4.5 bil­lion in in­vest­ments last year. Sil­i­con Val­ley was not in­cluded.

Start-ups rep­re­sent a small per­cent­age of the high-tech econ­omy. But they rep­re­sent the po­ten­tial for an econ­omy’s fu­ture growth. Venice-based Snapchat started with a hand­ful of em­ploy­ees in a beach­side bun­ga­low. Now it has more than 330 across sev­eral cities, and with a re­puted mar­ket value north of $15 bil­lion jobs are bound to grow.

“The mo­men­tum that’s been built over the last five years just shows the fu­ture is bright in Los An­ge­les,” said Billy O’Grady, the South­west mar­ket manager for tech bank­ing at City Na­tional Bank. “The bet­ter we can make L.A. tech, the bet­ter we will all be.”

The L.A. mar­ket is so hot that start-ups are com­mand­ing more money at higher val­u­a­tions, leav­ing fewer dol­lars to be spread around and caus­ing a decline in the over­all num­ber of deals. More than 1,000 star­tups in Los An­ge­les or Or­ange coun­ties have re­ceived cap­i­tal since 2010, ac­cord­ing to sev­eral es­ti­mates.

The de­crease in the num­ber of deals is a po­ten­tial sign that the ven­ture cap­i­tal cy­cle is near a peak. A steep down­turn could fol­low. But Per­ci­val says Los An­ge­les has de­vel­oped a strong start-up cul­ture and a fi­nan­cial in­fra­struc­ture to match.

“In terms of peck­ing or­der, L.A. is be­com­ing No. 2 to Sil­i­con Val­ley in qual­ity of deals, in qual­ity of founders,” Per­ci­val said.

Hol­ly­wood makes the area a nat­u­ral fit for new dig­i­tal en­ter­tain­ment and mar­ket­ing tech­nolo­gies, Per­ci­val said. San Fran­cisco has be­come so high-priced, for both of­fice and res­i­den­tial space, Los An­ge­les seems like a bar­gain to other star­tups, ea­ger to pre­serve cash.

Per­ci­val is a part­ner at ven­ture firm 500 Star­tups, and even though it’s based in Moun­tain View it has made the most early-stage “seed” in­vest­ments in Los An­ge­les since 2009, CB In­sights said. In­vest­ments in­clude on­line cater­ing ser­vice Chewse, on­line shop­ping mar­ket­place Green­toe and fake phone num­ber app Burner.

Per­ci­val would love to cy­cle more Los An­ge­les star­tups through 500 Star­tups’ men­tor­ship pro­gram in Sil­i­con Val­ley, but with money and sup­port widely avail­able in L.A., he knows few of them will go that route.

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