In New York And LA, New Startup Communities Flourish

//David Hirsch//

TechCrunch Featured Guest Post.

I first started coming to Los Angeles for business in 2001. We decided to open up a satellite Google office there along with many others around the country. We actually chose Orange County out of the gate.

There was a small, nascent tech scene and most of my time spent there for the next decade would be for short trips that were mostly me parachuting in for a meeting or two. Much of the energy was ironically was educating traditional industries based in Los Angeles around technology.

This changed dramatically in the last few years as I became an investor. We made our first investment in an LA-based company in 2011 in a company called ThinkNear (which was later acquired by Telenav). Since then we’ve made 8 additional investments in LA-based companies (including ThinkNear founder Eli Portnoy’s second company, Sense360).

Like New York, Los Angeles is experiencing quite the renaissance in technology and entrepreneurship. Notable companies like Snapchat, TRUECar, DogVacay, Tinder and The Honest Company were all started in LA.

According to data compiled by UpFront Ventures and CB Insights, LA venture funding reached $700 million in Q1 2015 while only amassing $2 billion total in all of 2014. The same research showed that New York’s venture funding reached $1.3 billion in Q1 2015 while only amassing $4.5 billion in all of 2014. Both cities are on pace to exceed funding levels in any of the past 5 years.

Much of LA’s success in technology growth (and New York’s) is attributed to the major industries that are synonymous with both cities. For Los Angeles this is entertainment, gaming, production and video and for New York finance, advertising, health, media, amongst others.

Companies like Maker Studios, Oculus, Machinima, are all very much products of these categories in Los Angeles. In New York you have companies like BuzzFeed, Tumblr, Oscar, and Warby Parker, which marry the above categories with technology.

There are other, less obvious, traits of these cities that have helped them both to become tech hubs in verticals that aren’t quite as obvious to the valley. Don’t get me wrong, the valley is still the most magical place in the world. The energy and urge to innovate is infectious and amazing, world-changing companies are being built every year. However, there are certain traits to both New York and Los Angeles that have created successful startups and vibrant ecosystems.

Beyond the traditional industries that are native to both cities, both LA and New York have unique geographic features that offer a different perspective for would-be entrepreneurs. The density of the population in New York allows it to be the home to social/location-based companies like Foursquare and PlaceIQ as well as building/space startups such as WeWork, BoxBee, and MakeSpace. Because LA is more spread out, and everybody owns a car, companies like TRUECar and Cargomatic have been able to thrive.

Because both cities are very desirable places to live in your 20’s, they have a large population of millennials. This has a created a thriving ecosystem for social startups like SnapChat and Whisper in Los Angeles and Tumblr in New York, but also new commerce models and an increased affinity for progressive lifestyle products.

In New York we have Blue Apron, Plated, ClassPass, Harry’s, Birchbox amongst others. In Los Angeles companies like The Honest Company, Thrive Market, Soylent, Dollar Shave Club, JustFab, and DogVacay have been able to flourish.

What’s most exciting though is that as the ecosystems have been built, more and more smart people are attracted to these cities and more and more investors are as well. This activity is building to a new wave of companies in both cities that don’t leverage the traditional strengths of their existing industries.

In New York we have companies in the machine learning and AI space like X.AI, Clarifai, Makerbot, Shapeways, Canary, littleBits Electronics, and Sols that have many characteristics of companies that would’ve only started in the valley just a few years ago. In LA companies like Oculus, DAQRI, GumGum, Survios amongst others also fit the valley mold.

What’s most exciting to me about New York and Los Angeles is that both cities were mostly absent in the first and second waves of technology being built (this was mostly in Silicon Valley and Boston. Now they’ve begun to catch on… and take off.