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The Sprawling, Booming LA Tech Scene Is Having a Moment

In Part One of this LA Stories series, Nellie Bowles has kale shakes with engineers and sits in freeway traffic, chatting up venture capitalists on Bluetooth.

Nellie Bowles

From Santa Monica’s manicured pool houses to the new downtown e-commerce warehouses, from a bland glass office park in Irvine to a grand old frat house in West Adams, Los Angeles tech is having a moment.

So why are there still so many surfboards?

There they were, six of them propped behind the coding crew at Internet personalization company Gravity in Santa Monica. At the front desk of Cooley, the favorite law firm of LA startups like Snapchat, a surfboard adorned the corporate logo. One leaned against the pool house at secret-sharing site Whisper. At Oculus VR, a virtual-reality headset company in Irvine, there was a small sandbox in the conference room, complete with chaise and parasols.

“You saw our beach?” said Oculus CEO Brendan Iribe, winking before settling into the conference room to talk about how he sold his company to Facebook for $2 billion a few weeks before. “It’s fun, right?”

With Facebook buying Oculus, Disney buying Maker Studios ($500 million), Apple buying Beats ($3.2 billion), Nasty Gal reaching $100 million in revenue and mobile apps such as Whisper, Tinder, and Snapchat thriving, the self-deprecating and often goofy LA tech entrepreneurs seem to be doing something right.

And it’s been a long time coming.

As Matt McCall, a venture capitalist with Pritzker Group, told me: “My favorite phrase is, ‘That’s in Los Angeles?!’

Which is why I wanted to find out what was going on down there. Where did all these irreverent apps and this borderline-wacky hardware come from? Who are these people, and what plans do they have for us? Does this mean we’ll now have to deal with Miley Cyrus as a venture capitalist — and am I ready for that?

So I took a road trip — actually, a lot of them — to the Southland, visiting more than 30 companies and speaking with more than 50 entrepreneurs. (If you want bigger stats, there are 889 startups in the region, according to the open source map Represent.LA.)

I had kale shakes with engineers and sat in freeway traffic, chatting up venture capitalists on Bluetooth. I got sunburned while doing an interview with a data scientist on a rooftop mini-golf course. Somewhere, I’m in a selfie with Selena Gomez and some Myspace guys at a birthday party.

There’s a lot of speculation about what’s happening down there. It might have to do with the fact that these LA entrepreneurs seem to be having fun. A few things are clear from my travels: They have an ease with mass-market consumer attitudes. In a venture-strapped environment, they were fast to get started on cheap mobile apps, and push to become immediately profitable. They tap celebrities (for better or worse), and don’t mind admitting that they’re making something playful, rather than saving the world app by app. Creativity and an attention to aesthetics seems to be in their DNA. The weather and relatively cheap rent means that recruiting people from around the world is easy.

“The broader mindset here is not just code,” said Bill Gross, the well-known serial entrepreneur and founder of an incubator called Idealab. “We have engineers with taste.”

To be clear, there have also been challenges. At times, the LA tech scene has been more fluff and party boys than workaholic entrepreneurs. No one can agree on a moniker (try saying “Silicon Beach”), or on a techie social hub (try saying 41 Ocean). The region’s highest-profile potential-rocket-ship companies — Myspace and Demand Media — collapsed dramatically.

And there is a dearth of venture capitalists — the oil of the system — since the most powerful ones are still largely based up north, and largely seeking out an archetypal 22-year-old founder who they like to keep nearby. There’s no big cornerstone company making acquisitions and spinning out wealthy young entrepreneurs. Also: No equivalent of Stanford University, another key driver in Silicon Valley’s virtuous iron triangle of entrepreneurs, academia and money.

And, perhaps most of all, there’s the geography, the endless swathes of it, crisscrossed by a massively complex highway system that separates and distances one startup from another. I saw a billboard advertising flights on the way to the airport that read: “SF to LA faster than LA to LA.” Compared to the neat and circumscribed world up north, this is perhaps Los Angeles tech’s biggest issue.

And yet.

If, as many think, the next generation of Web innovation will be about mass-market apps and consumer-friendly content, about doing something fun and lovely and useful with the technology we now have — if it’s about reaching beyond the tech bubble — these underdog LA entrepreneurs might be at the right place at the right time. As “tech” blurs into everything else, the community that has shaped mores and tastes for generations through the Hollywood cultural production machine might be the one to do it again, this time through the look and tenor of our Internet.

Consider: Facebook’s disappearing messages, Poke, never quite felt sexy to me, while Snapchat’s immediately did. “The one and only way to fight back is with feelings,” Snapchat co-founder Evan Spiegel told me over lunch at a restaurant called Axe on Abbot Kinney in Venice.

 The rental car, obviously.
The rental car, obviously.
Nellie Bowles

Or, as Felicia Day, who runs the Geek & Sundry Web video company for nerds, put it: “Silicon Valley has created the platforms. The maturation of the space is what you put on those platforms.”

When I arrived in LA from San Francisco, the cheapest rental car left at the airport was a red Mustang, which I was glad about because I had heard they like nice cars down there. Determined to take on the highways, resigned to traffic, I found a good country-music station and headed out.

Santa Monica and viral videos

At an old steel-and-concrete special-effects studio along the main drag in Santa Monica, Peter Pham and Mike Jones have set up an incubator called Science. They have a private movie theater with a 25-foot screen and leather seats. They hold walking meetings on the boardwalk outside, where vendors hawk shell necklaces and tattoos.

Jones and Pham said that while Facebook and Google spin out solid engineers, at Science they more often see savvier, pop-culture-immersed founders coming out of places like Fox Interactive and Demand Media.

“LA is and always has been a city that creates mass-market products. We’re closer to culture than Silicon Valley, so we’re crushing it in social mobile,” Jones said. “Web 2.0 might have been there. Web 3.0 is here.”

The city’s diversity is an asset, say the Science-ists, making it an ideal and perhaps more realistic place to test products.

“Here, I don’t think seven days a week — 24/7 — it’s tech,” said Pham. “You can go to a bar, and nobody works at a startup. You can go out at night and not meet anyone in tech. That can’t happen in San Francisco. Did you know most people don’t use iPhones? No, because you don’t realize that in San Francisco.”

Science raised $110 million in the last year; $90 million of that came from Silicon Valley. Mark Suster, who founded Upfront Ventures and now has about $1 billion in assets, said that in 2000 only 15 percent of his fund dollars went to LA — now 60 percent of it does.

“Money is finally starting to come,” Pham said. “Finally, finally.”

But is it? More likely they’re just figuring out how to do more with less. The influx from Suster and the success of venture capitalists like Chris Sacca and Matt Mazzeo at Lowercase Capital is still not enough capital to change LA’s rank in comparison to Silicon Valley, which is seeing an enormous influx of cash. LA received less venture capital in 2013 than 2012 and still had a smaller proportion compared to Silicon Valley.

In 2012, LA got 6.2 percent of total venture capital versus the San Francisco Bay Area’s 40.4 percent. In the first quarter of 2014, LA got 5.49 percent of total venture capital versus the Bay Area’s 49.62 percent..

Seen in a different light, though, LA has never really relied on that in the first place.

“People are blown away that we measure success through incremental growth and profit here,” said TrueCar founder and CEO Scott Painter. “That’s just so not part of the language up north. There, it’s expand first, figure out money later. Here, we tend to build businesses.”

On the other hand, perhaps to make something huge in the Internet age, investors will need to invest in ideas rather than businesses. Santa Monica-based TrueCar is a car-sales website that charges $299 per new-car sale. Most startups in Silicon Valley are largely initially designed to be profitless.

“I’ve got friends in SF with big ideas, and they’ll get funded for those big ideas,” Pham said. “I don’t think LA will achieve its potential until people invest in ideas.”

After saying goodbye to the Science founders, I drove to an old firehouse nearby, where one of the company’s entrepreneurs, Michael Dubin, runs a subscription bathroom-product company with more than 500,000 active members. Dubin, who has turned viral videos into a brand, first became famous for a video selling his razors, called “Our Blades Are F***ing Great” (14.7 million views on YouTube). His latest video was for a line of butt wipes.

Dubin, who founded Dollar Shave Club in 2012, was wearing a puffy down vest over olive corduroys, and said that the Colon Cancer Awareness folks had been seeking him out to represent them ever since that butt-wipe thing (Dubin ended up live streaming his colonoscopy). That afternoon, he was testing out various top-secret beta products.

“Too oily for you to touch, though,” he said, rubbing his palms together.

“When we interview programmers, they’re like, ‘Okay, I’ll come down because I want to meet the guy in the video,’ but when they get here, they see the tech. We’re not the first to do subscription commerce, but we’re very, very good at it,” Dubin said, leaning back in his desk chair and clasping his hands in his lap. “And come on, we’re more fun than up there.”

He is. Dubin showed me the company’s podcast room and a copy of Bathroom Minutes, their bawdy new magazine. He tried to give me a stack of butt wipes. I resisted. He insisted.

“We like to say great things happen when your ass smells fantastic,” he said, giving a two-finger salute. “Have a good time in town.”

I can assure you this has never been said to me in Palo Alto.

Nearby, on an old sound stage in Santa Monica, the team behind food-video company Tastemade is hoping to unseat the Food Network.

Through original programming and an app that lets diners make short movies of their experience, Tastemade gets 17 million visitors a month, mostly mobile and mostly international.

“There’s been a shift in camera technology, and you can get a closeness, an intimacy now with a smartphone,” Tastemade co-founder Larry Fitzgibbon said. “And we’re doing it at disruptive economics. Even to make one of our shows, it takes two people instead of 70.”

Tastemade’s sets include a Brooklyn kitchen with red-brick walls, bar stools and a chalkboard with a pig drawn on it. “We wanted to create a zone where our talent felt comfortable,” Fitzgibbon said. There was also a more mature “Barefoot Contessa” set, as well as a whiskey-bar scene.

They make videos for brands, too, which Fitzgibbon said are still just beginning to understand the space: “Many of them still think of online video as dogs on skateboards.”

He cued up a video of a young, attractive Portuguese couple shooting a cooking show, “I Could Kill for Dessert,” in an Airbnb space. The camera would dive close to the food, a la food blogs, which the Tastemade guys said had been their inspiration.

“What we’re doing, we don’t think you could do outside of LA. It has to be artistic. It’s about the content as much as the platform,” Tastemade co-founder Joe Perez said. “And anyone who wants to go into content comes here.”

That is what attracted Ryan Seacrest, who has made a development deal to possibly make a television show with the company.

Why has Seacrest, a celebrity who has plenty of other obligations and income sources, decided that he may want to invest in tech?

“I’m curious,” said Seacrest, who is leaner and more serious than he appears on “American Idol.” “LA has some negative baggage, some of it deserved, some of it not. But what I love about LA is its optimism, its creativity, its diversity.”

He mentioned his hit Bravo show, “Shahs of Sunset,” and the rapper Kendrick Lamar, and then connected those to the “next generation of talent” coming from startups like Tastemade. Connecting reality stars to startups — both flighty and unpredictable and often absurd — might make sense.

Like many investors I spoke to, Seacrest noted that LA is very good at video — a plus in a tech world in which video is increasingly important.

“Americans watch 5.3 hours of television a day, and they read for less than a half hour,” VC Mark Suster told me later. “Like it or not, you will not change dramatically people’s media-consumption patterns. If you accept that premise, then you have to accept that the Internet is going to become a very large video platform, and LA is going to win.”

I met Amit Kapur for a glass of wine at the Victorian, a big, rambling old house-turned-bar near his office in Santa Monica. Kapur has recently gotten into fine wine, so he spent some time studying the menu. An early Myspace employee (“OG Myspace Mafia,” he called himself), he had later founded and sold his company Gravity to AOL for $83 million.

After drinks, we walked across the street to the Gravity office. A former aerospace design firm, the office had a huge cross-section of an airplane wing through the middle, and a little crows-nest observatory with beanbag chairs and electric guitars. On the roof, there was a makeshift surf shower and wetsuit rack.

Gravity is a tool that lets users personalize home pages and video channels based on interest graphs. So, posted around the Gravity office are maps of the interests of PlayStation players or WebMD readers. Interest in, for example, fruity cocktail recipes might mean you probably want to watch “Scandal.”

“People always talk about LA tech as media and content, but we’re a very advanced technology company,” Kapur said. “There’s really no one unifying theme in this city.”

Pointing to a stack of assorted surfboards, he said, “We have board meetings, if you ever want to come out.”

On surfboards?

“On surfboards.”

Downtown and the bathroom of selfie dreams

Behind an imposing and stodgy facade at the Nasty Gal office in downtown LA, young women in platform shoes and leather shorts were rolling out overstuffed industrial-sized trunks for a trade show. A pair of floral shorts was hanging out of one of them, dragging on its way to the elevator.

Founded by Sophia Amoruso, the $100 million vintage-clothes company started with repackaging vintage finds, and now has its own line of sexy, snarky clothes and statement necklaces. Lots and lots of statement necklaces.

Dormant and largely vacant for years, the city’s Downtown neighborhood has recently become the hub for e-commerce companies, largely due to its very low rent. In Venice to the south, 16.8 miles away (or an hour and 26 minutes by bus), rent is about $15-$17 per square foot. Downtown, it’s closer to $1.30 a square foot, which is still about twice what it was a year ago.

Chloe Polanco, a 24-year-old human-resources manager, met me for a tour of Nasty Gal’s 50,000-square-foot space, which features a vaulted skylight. Polanco — who wore Birkenstocks, vintage linen shorts, and a blazer with leather panels — is from Orange County, and had been at Nasty Gal for two and a half years.

She showed me the showroom where celebrities get fitted. In the yoga room, there are pop-physique and hip-hop classes; the scent of lavender pervades the space. The company’s main conference room is called Mean Girls.

“It kind of feels like you’re in a giant closet,” Polanco said, as we dodged overflowing boxes of shoes.

She led me into the “bathroom of selfie dreams” — where actress Anne Hathaway had recently taken a selfie with Amoruso — and suggested I snap a selfie, too. She showed me some pictures of the company’s Kulture Club members, who organize charity events and encourage employee happiness.

As I left, the lead stylist’s dog, Fergie, ran after me, followed by a chihuahua named Amigo.

Not far away from Downtown, on South Mateo Street, Trina Spear runs Figs, which makes trendy medical scrubs and just raised $2 million, next door to Milk & Honey, which builds customized shoes; Poprageous, also nearby, makes leggings. There are 20 units in Spear’s building, and she said that almost all are e-commerce startups.

“If you have any kind of manufacturing company, you have to be in this community,” she said. “Our sewers, our dyers, our label makers are all Downtown.”

Spear said Figs is the only solely-branded scrubs website in the industry, and that the uniform retail association “bullies” people into selling through them. There’s money to be made in disruption: Scrubs, she said, are a $9 billion industry.

She’s hoping to get a celebrity endorsement soon.

“I’m closing in on Mindy Kaling,” Spear said of the actress, who plays a doctor on her Fox sitcom. “So far, I’ve already met her agent, manager and head writer.”

Spear thought for a moment and added: “Its harder on the tech side to find fashion talent than it is on our side to find tech talent. There is this mindset that LA spells lazy. And like, yeah, it’s nice out, okay? I get it.”

Jamie Kantrowitz, managing director at Mesa Global Digital Media, thinks people forget how important LA’s manufacturing scene is.

“A lot of people don’t connect that we’re a great place to build e-commerce companies, not because we have fucking celebrities or we’re creative, though we do have celebrities and an amazing wealth of creative talent,” she said. “We’re a great place to build e-commerce companies because we have the largest manufacturing business in America.”

Glendale and Culver City start to play nice

Over on the highly manicured Disney Interactive campus in Glendale, northeast of LA, James Pitaro, the company’s president, said he’s happy about all the startups, of course, but it’s hard to get good engineers to come to traditional media companies.

“The only thing I can do is get the 24-year-old kid where it’s much more important for that kid to be part of Disney and go to all the parks than to get one percent of XYZ startup, and have someone say it’s going to change the world,” he said, sighing.

Also that they can probably bring their dog to work at a startup.

“Correct,” he said. “They can’t do that here.”

And all the free food …

“Well, we do have free food in Palo Alto. You have to have it in Palo Alto to be competitive even at all,” he said. “We don’t have it here, though.”

But the engineers one does get in LA tend to be aesthetics- and design-oriented. “This is a creative community. Not just the Stanford computer science majors,” Pitaro said. “Here, you get engineers who have taste, engineers who maybe started as designers. And they’re worth it.”

As I went to take his picture, Pitaro grabbed his Mickey Mouse ears.

It was over 100 degrees outside in Culver City, 18 miles away, when I showed up at Maker Studios, the prolific YouTube network that Disney recently bought. Chairman Ynon Kreiz kept the blinds open in his glass office, making it feel even hotter. An Israeli, Kreiz likes the desert, which is what attracted him to LA over Silicon Valley.

I asked if we could go on a tour, and Kreiz and Maker COO Courtney Holt led me to an SUV for a two-minute drive to the studio.

In a workshop, a young artisan named Amanda Hosler was working on the props for a Bart Baker-Avril Lavigne-Hello Kitty parody. On a stage nearby, Snoop Dogg was shooting a video, and three women in very small bikinis were stretching in the hallway.

It’s no surprise that Disney is letting them keep their Maker email addresses and separate office: “So we can keep the culture,” Holt said. “You can’t really build culture over there. You just have to maintain it.”

“They have a respect and support for our culture, which is one that would be hard to have built from a cold start within a large media company,” Holt said.

For Maker, their company’s culture is their main advantage.

“Personally I think [Silicon] Valley is dead like Haifa,” Kreiz said, referring to a tech-heavy city in Israel. “Have you been to Haifa? Exactly. What do you do there? If you’re not in the center of tech, there’s nothing to do! And here there’s so much. You’ve got the whole world.”

Holt added: “In LA, you can incubate companies like Snapchat and Oculus, and it can define us differently than what’s happening anywhere else. We’re a content engine, and our companies have a personality. It’s the personality that makes Snapchat so unique. And that makes us so unique.”

Kreiz said he was surprised there wasn’t a big tech player in LA yet.

“I honestly thought we would be the one. In that way, maybe we sold a bit early,” he said. “In terms of size, impact, position, we were on our way.”

Irvine: The weather is great, so sue me

Oculus VR CEO Brendan Iribe, originally from Maryland, enjoys the sand-and-sun Silicon Beach diorama in his meeting room, even as he admits it’s a little silly. And he loves being down the coast, in Orange County.

“I had always, always wanted to get to LA,” he said. “People say, ‘Beside the weather, what is it?’ It’s the weather. It’s a nice day every day. And ‘it’s a nice day every day’ is just a really good motivation. What’s wrong with that?”

Iribe was making videogames at Sony when he heard about a new virtual-reality device, so he asked the inventor, a teenager named Lucky Palmer, out for a steak dinner. Palmer, who was living in his parents’ basement in the port town of Long Beach, showed up at the high-end STK restaurant in West Hollywood wearing flip-flops and a worn-out Atari T-shirt.

“The way Palmer told his story, he was very compelling,” Iribe said. “It felt fun. It felt like a fun project. VR has never worked before. It’s been all but dead and buried.”

Was he surprised to find Palmer in Long Beach?

“I was surprised to find Palmer anywhere,” said Iribe.

Why didn’t they move to Silicon Valley after the Kickstarter campaign to raise money for what became Oculus Rift took off?

“My goal was to move here, not Silicon Valley. We talked about it, like, ‘Wouldn’t this thing be better off in Silicon Valley?’ But you can create a great company anywhere, and I like the weather here, and my lease was still going.”

Iribe said he likes the isolation of their office in Orange County (51.5 miles south of Venice), where he and his team can just focus on work. The office is in a nondescript glass building dropped onto a relatively empty stretch of SoCal scrub. Some amenities might show up as it grows, though: When I left, there was a food truck outside.

“Oculus is a dream come true for most geeks like us. People want VR to work. They’ve wanted it for 40 years. Every day we work hard on it, it gets closer to the holy grail, to the Holodeck.”

So why did they get acquired by Silicon Valley giant Facebook?

“Because we needed investment,” said Iribe.

Pasadena and getting acquisitive

On a recent meat-free Monday at Idealab in Pasadena, Bill Gross, lean and smiling widely, came bounding out of his glass office. The key for LA tech’s next generation was for companies to stop getting themselves sold up north, said Gross, who has founded 125 companies.

“Give it two more years, and you’ll have a sea change of people staying for the following bogus but real reason: You’ll have two or three more IPOs, and there will be companies that can do acquisitions,” he said. “Now you grow a company and it gets acquired up there, because those are the companies that have war chests — that’s why Oculus Rift couldn’t get acquired down here. In a short number of years, there’ll be a Snapchat with a $10 billion to $100 billion market cap that will do that acquisition.”

Gross cited Evan Spiegel turning down a $3 billion offer from Facebook as a pivotal moment.

“That’s aggressive. It could be stupid, but it’s aggressive,” he said of Spiegel refusing the offer. “Ted Meisel didn’t turn down the $1.6 billion offer from Yahoo [for Overture] — that could be a $10 billion to $100 billion company down here now.”

Overture was a hit for Gross back in the day, but he also presided over, by his count, around 40 failed companies, like eToys.

But now is different, he insisted. Gross said companies outside Silicon Valley are often winning, because they’re closer to their customers.

“The flattening of the Earth due to the Internet means that smart people anywhere can have an impact. Look at what Waze did,” he said. “There’s a company that had their ear closer to the customer, that engaged the user just a little more, that gamified it, took on Google Maps, and Waze was the winner. LA’s having that more and more — look at Snapchat. You’ve got Facebook trying to make it, and it’s not the same.”

Gross got more enthusiastic as he spoke, and as the hour wrapped up, he hopped from his seat and headed back out. He’s now focusing, he said, on solar tech, mobile advertising, cheap 3-D printers and wearables.

“I don’t think anyone can mimic Silicon Valley, and I don’t think anyone should,” he said.

Playa Vista is closer to Madison Avenue than it appears

Frank Addante, the founder and CEO of Rubicon, works from a rolling chair with a desk and cup-holder attached to it. He saw it at fellow entrepreneur Tony Hsieh’s office in Vegas, and wanted one for himself.

When I got to the Rubicon office near the airport in Playa Vista (3.0 miles from Venice), Addante showed me the company’s new “Rubi Cube” — “450 pounds with 2500 CPUs,” he said. He took me up to the roof and pointed out the iconic Hollywood sign in the distance. The warehouse next door to the office used to be, he said, Howard Hughes’ old airplane hangar. There’s a mini-golf putting range, and some chaise lounges under an awning.

Rubicon, which is automating the market for online advertisements, reaches 97 percent of Internet users in the U.S. They process three trillion transactions on a monthly basis: “We’re doing for advertising what Nasdaq did for the stock market,” Addante said.

For Addante, the major advantage LA has is its relationship with New York’s advertising industry.

“Madison Avenue — that’s where all the advertising money’s spent,” he said. “Madison Avenue and LA have had a relationship for a very long time because of the movie industry, the TV industry — they speak a common language.”

Addante continued: “In Silicon Valley, while there’s a lot of great technology talent there, they haven’t been speaking the same language. Walking over to Madison Avenue and being like, C++ and Java, they don’t understand. Madison Avenue doesn’t buy technology. It’s got to have that emotional element.”

Addante had moved his previous company, StrongMail (now StrongView), to San Francisco in 2003.

“LA was a different place then, so I thought we needed to move. What people don’t tell you is that engineers are flipping jobs every year, and everything revolves around venture capital,” he said. “I’m not wired that way.”

When he started Rubicon, he knew it would have to be in LA. And he wanted to build a community. He started throwing monthly $20,000 tech parties called Thursdays in the Mix at various spots around town.

“I didn’t want to have to go move another company up to Silicon Valley,” Addante recalled. “Not that that’s the worst thing in the world to do, but I wasn’t going to do it again.”

Addante lives along the beach, where he goes for a run every morning. “People hate it when I say there’s a laid-back culture here. There’s an intensity and a fire to win, but it seems like people here are less competitive internally, and more competitive externally,” he said. “In Silicon Valley, they get hung up on what architecture should we use. In LA, it’s more focused on, ‘Hey let’s go do what we need to do, and figure out the best path.’ It’s a little less academic.”

He said the startup cycle isn’t so different from the Hollywood movie-making cycle: “Where do you have something that starts and then, a year or two later, has built a hundred-million-dollar company? Here. That’s called a film.”

“You know, I once made a Silicon Beach video,” Addante said.

What’s a Silicon Beach video?

“This isn’t something I show a lot of people,” he added.

And yet:

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