Explaining Southern California's economy

LA startups: Tech makes all the difference

Gaikai Screen Shot

Gaikai, an L.A.-based gaming startup, just sold to Sony. It was engineering talent that made the company successful.

Nate Redmond, the managing director of L.A.'s Rustic Canyon, an early stage venture capital firm, had a must-read piece at TechCrunch over the weekend. Taking as his jumping-off point Sony’s purchase of of gaming startup Gaikai for $380 million (Rustic Canyon was an investor), he makes a case that something important is happening on the Los Angles startup scene:

LA has once again become a hotbed for technical leadership, as indicated by the flurry of investment activity. Entrepreneurs in the LA region attracted $567 million in venture capital in the first quarter of this year, 50% greater than the NY Metro area in the first quarter of the year, according to PriceWaterhouseCooper’s Money Tree report. Between the outstanding technical talent and the passion and vision of great founders, those dollars are being invested into technology-driven companies that break the stereotype of startups in LA.

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Venture capital isn't over — it's trifurcating!

TechCrunch Disrupt SF 2011 - Day 3

Araya Diaz/Getty Images for TechCrunch

Venture capitalists and founders at a recent TechCrunch Disrupt conference. Are the those who disrupt about to get disrupted?

Scott Anthony, who runs venture investing for Innosight — a consulting firm founded by the founder of "disruptive innovation," Clayton Christensen — has applied the master's lessons to the venture capital space at Harvard Business Review's blog. Like a lot of folks, myself included, he takes a recent Kauffman Foundation report as his starting point. 

And then he effectively deploys Christensen's best-known concept to explain why venture capital — and particularly big VC funds — isn't performing as well as an investment class as it has in the past. The way disruptive innovation works is that in an established industry, a new player will enter at the low end and wind up disrupting the major players.

A good example might be Japanese carmakers attacking first small motorcycles and later small cars, then moving up the food chain to make plenty of trouble for Ford and General Motors. More recently, you could argue that Instagram did this to Facebook by creating a lightweight mobile photo-sharing app that was so easy to use that it acquired 50 million users practically overnight. 

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The possibly meaningless LA startup map that everyone is talking about

Represent-LA

Welcome to Los Angeles! The land of startups!

The interactive map above, which lives at represent.la, has been the talk of the Twitters and the L.A. startup community for a week now. One of the companies on the map, Ebyline, actually generated a blog post about what it all means. Peter Beller was the author, and I thought his take was pretty fresh.

So I checked in with him. I should have known that a former Forbes writer who did a presitigious Knight-Bagehot Fellowship at Columbia University and then stuck around Morningside Heights to get his MBA would go the extra mile: he cranked out a spreadsheet on VC funding in Silicon Valley, New York, and L.A.

When he isn't doing this type of thing, Beller is the Director of Content at Ebyline, an L.A. startup that has built a platform to provide primarily daily newspapers with a steady stream of high-caliber freelance journalists. It is not a content farm. (I've actually worked for a content farm, and Ebyline definitely isn't one, although in fairness not all so-called content farms deserve all the bad press they've received.)

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Jilted TED speaker Nick Hanauer's former hobby: Biosphere2

Biosphere2

University of Arizona

The famous (and infamous) Biosphere2 is now owned and operated as a science lab by the University of Arizona.

This has been making the bloggy rounds since last week. The YouTube video embedded below is from a TED U talk that Nick Hanauer, a Seattle venture capitalist, gave earlier this year in Long Beach. Hanauer was miffed that his talk wasn't posted on the TED site and took his case to the media, namely National Journal.

Accusations of censorship arose: the talk wasn't posted because Hanauer said that the rich aren't job creators, it was alleged, and TED's Chris Anderson didn't help matters by sending Hanauer an email indicating that the talk was "out and out political." Then Anderson wrote a blog post explaining the whole thing in more detail. And then the Hanauer talk somehow got posted, although Hanauer agreed that the quality wasn't great, acknowledging Anderson's point.

Hanauer is indeed a partner at Second Avenue Partners. The firm looks to have invested about $6.5 million in two companies over the past two years and have been involved in much larger deals over the past decade, according to CrunchBase

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Good money after bad: CalPERS and the crisis in venture capital

Max Whittaker/Getty Images

The California Public Employees' Retirement System (CalPERS) building in Sacramento. The fund has billions invested in venture capital and other alternative asset classes.

VC-Returns-Kauffman

The performance of VC has been poor sine the the mid-1990s.

Smaller-VC-Kauffman

In VC, smaller funds outperform larger ones.

VC-Big-Kauffman

Big VC doesn't meet outsized return expectations.

N-J-Curve-Kauffman

The "N-curve" is in blue and red. The "J-curve" is in green. In VC, you expect J, but you actually get N, with most returns coming early, rather than late.

Institutionalization-VC-Kauffman

A healthy VC ecosystem? Not really. Most of the money is going to fewer funds.

VC-Fees-Kauffman

Are VCs really all about raising money and charging fees? The Kauffman Foundation blames itself for creating this compensation structure.


Pretend, for a moment, that you’re a computer science student at Stanford University. Chances are good that you’ve thought about taking your degree — or even not waiting to get your degree — and starting a technology company.

It’s the new American Dream. It attracts the most talented international students to our major research universities. It’s made the likes of Jerry Yang, Sergey Brin, Larry Page and, more recently, Facebook’s Mark Zuckerberg and Instagram’s Kevin Systrom (both under 30) multi-millionaires if not multi-billionaires nearly overnight.

Technology. The Internet. Mobile. Innovation. Disruption. Entrepreneurship.

These are the things that make America great in the early 21st century. Many of these new businesses are located in California. And they all have one thing in common: They live and die based on the investment decisions of venture capitalists, arguably the most important reallocators of wealth in the global economy.

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