2018 Year in Review for Southern California Tech

Last month marked my five year anniversary as an investor. I first moved back to Los Angeles to join the world of venture capital in 2013, when the tech ecosystem in Southern California looked very different than it does today. Long time LA fund GRP Partners had just rebranded as Upfront Ventures, moving its office from Century City to Santa Monica. The biggest recent exits were for Cornerstone OnDemand, Riot Games, and Demand Media. GQ had recently named Abbot Kinney the coolest block in America, but the Snap-driven tech transformation of Venice was still in its infancy. Greater Southern California had a long history of building strong tech businesses, but still felt like it wasn’t living up to it’s full potential.

Since then, Southern California has been on a roll. Major exits for companies like Oculus VR, BlackLine, and Lynda.com have shown that Southern California can build successful companies in diverse industries. Greg Bettinelli’s list of SoCal investors has exploded in length. And everybody in the Bay Area seems to be moving to SoCal, or at least talking about it. The trend continued with in 2018, in which Southern California saw a record number of unicorn financing rounds, several strong exits, and the emergence of what was arguably 2018’s hottest venture-backed company.

The Unicorn Club Keeps Growing

According to CB Insights (plus two possible additions of Fair and Seismic right at the finish line of the year), seven companies joined the Unicorn club in Southern California in 2018. Perhaps what is most notable about these companies is their diversity in industries. For years, naysayers downplayed Los Angeles startups in particular as being too focused on consumer and media markets, and lacking expertise in enterprise software or deep tech. In 2018’s unicorn batch we see industries ranging from healthcare to law to HVAC — no media or CPG this year. Santa Monica is heavily represented on the list, but the surprise runner up city was Glendale, which counts both LegalZoom and ServiceTitan as residents. Already home to the edtech unicorn Age of Learning, Glendale has quietly emerged as a major center for tech hiring in Southern California, far away from the hype of Venice or the laboratories of La Jolla.

Strong Exits Across the Region

By far the biggest news story of 2017 for the Southern California tech ecosystem was the IPO of Snap. In just a little over five years from launching, the company had managed to change the way that teens communicate, build a serious competitor to Facebook’s social media dominance (spurning acquisition offers in the process), and turn the neighborhood of Venice on its head as at spread into every square foot of available office space. Shortly after Snap went public, many LA tech watchers were left wondering, what’s next?

Perhaps the theme of big SoCal exits in 2018 was perseverance. Santa Barbara-based Sonos finally went public in August, a full sixteen years after its founding. Carlsbad-based Luxtera announced a major acquisition by Cisco seventeen years after its founding. And Amazon acquired Santa Monica-based Ring, which Shark Tank investors publicly rejected on national television. These three exits showed that the vast majority of companies are not overnight successes, and they require time and patience to build in the face of constant detractors.

Another major acquisition for 2018 was that of Irvine-based Cylance by BlackBerry for $1.4B. Over the past few years, Cylance has joined CrowdStrike in building a cluster of cybersecurity expertise in Irvine, and we are already beginning to see a new generation of companies emerging out of Cylance’s success, such as Obsidian Security. Meanwhile, CrowdStrike has had a banner year and is hot on IPO watch-lists for 2019.

The Scooter Invasion

If Venice thought it would receive some respite from tech mania after the Snap IPO, it was sorely mistaken. Just a few months later, Travis VanderZanden released the first Bird Scooter onto the streets of Venice. Within a year, Bird would notch over 10 million rides, radically changing transportation in cities across the globe and setting a new benchmark for rapid growth. Wired Magazine even named 2018 the “Year of the Scooter”.

In the process, the company raised over $400m from Sand Hill road heavyweights like Index, Sequoia, Accel, and CRV, as well as from almost every large SoCal-based firm: B Capital (where I work), Greycroft, Lead Edge, Upfront Ventures, Pritzker Group, and Sound Ventures, among others.

Over the course of the year, Bird caused bikeshare company Lime to rapidly pivot into scooters and inspired a wave of copycats around the world. It drew Uber and Lyft into the market right in the middle of their IPO preparations. And it set off a wave of panic among municipal governments and regulators, who didn’t want to be caught flat footed in the face of a new technology on their streets.

We are still in the early innings of the scooter game, but Bird’s rapidly expanding team has already shown it can continue to innovate rapidly, launching a GovTech platform and announcing an initiative to allow local operators to launching their own fleets. Time will tell how this market plays out, but Bird has been a clear proof point for Southern California’s ability to attract talent and capital to build world-changing businesses.

The Housing Crisis and Looking Ahead

2018 was a year in which the tech industry was placed in the spotlight for its negative effects on society, ranging from Amazon’s HQ2 tax credit grab to the scourge of fake news. Perhaps the most pressing local issue has been tech’s impact on housing. Amid the backdrop of a much larger Southern California housing crisis, the clustering of startups around Venice and Santa Monica and large tech companies in Playa Vista and Culver City has put extreme pressure on housing prices on the Westside, leading to increasing arguments about gentrification, displacement, and what it means to be a good corporate neighbor.

I am a firm believer that the long-term health of Southern California’s technology sector depends on its ability to continue to expand outside of Venice and Santa Monica, where there is simply lack of affordable housing options for employees within reasonable commuting distance. Greycroft was a pioneer in opening an office in the Arts District well before there was a notable cluster of tech companies in Downtown Los Angeles. The move is beginning to pay off, as large tech companies like Spotify put down roots and a new cluster of startups including the likes of Hollar, HopSkipDrive, and ProducePay decide to make DTLA home. I’m also encouraged to see clusters of great startups emerging in regions such as the Valley (e.g. Floqast, Papaya) and the Gateway Cities (e.g. Cargomatic in Long Beach and Next Trucking in Lynwood), where the local expertise in transportation and logistics is beginning to spawn tech-enabled challengers to a staid industry.

As we look to 2019 and the future, we need to make sure that we foster these budding communities and give the same level of support that has helped the Westside produce so many winning companies. As the past year has shown, the growth in Southern California’s tech ecosystem will come from across the region, in sectors that we might not have anticipated. SoCal has finally proven without a doubt that it can compete across every subsector of tech, and the future continues to look bright.

VC at B Capital