Slew of new L.A. tech accelerators boosting start-up prospects
Tim Sae Koo had an idea for a tech start-up, but the first-time entrepreneur had no idea what to do next.
In January, at the advice of a friend he joined the inaugural class of tech accelerator StartEngine, hoping to turn his vision for Hypemarks — a website at which users create collections of their favorite links — into a bona fide business.
Within three months Koo launched the website, and is now talking to a local investor about a substantial investment in the company.
“I learned more in the past three months than I did in the past 31/2 years at USC,” said Sae Koo, 21, who graduated a semester early before joining StartEngine. “Going into it, I expected to basically accelerate the business 90 miles per hour. Looking back, that’s exactly what happened.”
Tech accelerators such as StartEngine are booming in Los Angeles, boosting prospects for tech start-ups locally and, program founders hope, transforming the region into a technology hub.
Considered boot camps for early-stage companies, tech accelerator programs such as Y Combinator have been an integral part of Silicon Valley, helping companies that may not have had a chance otherwise. Among its successful graduates are Dropbox, Airbnb and Reddit.
Now a slew of new accelerators are taking root in the Los Angeles area, where hundreds of tech start-ups have surfaced recently. Program founders say they believe the region dubbed Silicon Beach is on the cusp of becoming a serious tech contender, but needs help getting off the ground — especially as traditional avenues for funding dried up during the recession and the bulk of venture capital money still gets funneled to the Bay Area.
MuckerLab, Amplify, Launchpad LA and K5 are just some of the local accelerators to emerge, nearly all of them in the last few months. They’re being run by former tech executives and investors who are using their connections and clout to prop up budding companies, typically for a 6% to 10% stake in the start-ups.
“Now all of a sudden L.A. can sustain not just one but several accelerators,” said David Travers, a partner at Los Angeles venture capital firm Rustic Canyon Partners. “There are enough quality companies to go around for all of them. It’s hopefully allowing and convincing more super-talented teams to make a go of it.”
Unlike tech incubators such as Pasadena’s Idealab and Santa Monica’s Science, which originate ideas in-house and form teams around them, accelerators help entrepreneurs with established business visions.
Typically, applications are accepted for about five to 20 spots in a class, with start-ups receiving roughly $20,000 to $50,000 in seed funding to cover salary and other expenses (some accelerators accept start-ups on a rolling basis). Programs run 10 to 16 weeks and include business development as well as financial guidance and legal and administrative support.
StartEngine gave Sae Koo and his team $20,000 in seed funding and had them move into its headquarters, where they attended one-on-one sessions with program founders and special advisors, and launched the Hypemarks website.
The 90-day program culminated in a demo day that drew more than 300 major venture capitalists and angel investors who listened to brief presentations by StartEngine’s 10 start-up companies. A local investor expressed interest in Hypemarks; the two sides are currently negotiating a round of funding.
L.A. accelerators are attracting significant interest from start-ups and potential investors. Launchpad LA received more than 400 applications for its current class of 10 spots, and recent demo days for StartEngine and MuckerLab drew hundreds of attendees from big firms such as GRP Partners, Greycroft Partners, A-Grade Investments, Pasadena Angels and Tech Coast Angels.
“It has been a dramatic shift,” Travers said. “In 2005, the majority of our new investment dollars were going to the Bay Area, but in 2011 a large majority went to L.A. It’s great to be able to invest in our backyard.”
Last Thursday, 16 top seed-stage start-ups, most of them from local accelerators, made presentations during a group demo day, which event organizers touted as a first for L.A. More than 1,000 people attended.
Of course, getting accepted into an accelerator doesn’t mean guaranteed success, program founders caution. Many pointed to examples in which entrepreneurs soured on their ideas halfway through or weren’t able to execute them. Even start-ups that graduate and go on to secure outside funding often don’t generate revenue immediately.
Launchpad LA, one of the area’s first accelerators, has had 33 start-ups go through its program since 2009. Of those, 27 have received outside funding “and I suspect that within 60 days, 29 of them will be funded,” said founder Mark Suster, who is also a partner at leading venture capital firm GRP Partners.
The 27 start-ups have raised more than $100 million combined, with 90% of them now generating revenue, he said. He estimated that 10% or fewer are profitable, noting “that’s normal for venture-funded tech companies” as they focus on adding staff and growing their user bases instead of optimizing short-term profits.
To launch an accelerator, program founders often invest their own capital and also raise money from venture capital firms and angel investors. StartEngine raised $15 million before accepting its first class and Amplify raised $4.75 million. Science, which calls itself a tech studio because it doesn’t run a structured class program, announced $10 million in funding.
Each L.A. accelerator has its own specialty and approach. MuckerLab has become known for its deep Silicon Valley ties, while Amplify, which has strong entertainment industry relationships, is seeing success with more mature start-ups. StartEngine has arguably the most ambitious vision, aiming to pump out 500 L.A. start-ups in five years.
“I always tell entrepreneurs what you want to do is meet with the people running it and make sure there’s a personality fit and you believe in their vision and what they can bring to the table,” Science co-founder Peter Pham said.
Surf Air — a private all-you-can-fly membership airline geared toward people who travel frequently to Silicon Valley — this year was invited to join Santa Monica-based MuckerLab. Chief Executive Wade Eyerly, 32, said the program was like starting a company with training wheels and also likened the experience to “business school on speed.”
“It was the best 6% I could have spent,” Eyerly said of the stake in the company he gave up to be part of the accelerator. “Every major firm in L.A., they all will take our call. For other start-ups that don’t have that access, getting into the door and getting past the gatekeeper is one of the greater challenges. Those doors flew open for us.”
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