Over the last two years, hundreds of startups have been created in Los Angeles and Santa Monica. The website peHUB has estimated that there are now at least 24 incubators/accelerators in Los Angeles. Not one of them is located in the Valley. Did the San Fernando Valley miss the boat, again? What’s the Big Deal? The old school incubator model is basically a real estate play, offering office space and a foosball table to startups in exchange for rent payments and a little equity. Between 1980 and 2006, the incubator model exploded. The number of incubators around the country rocketed from one dozen to 1,400, according to the National Business Incubation Association. During the current mania, the new accelerators offer space plus seed money investments in the range of $10,000 to $20,000, free legal services, access to startup rock star mentors and the biggest value of all — “demo day.” On demo day, each graduate startup gets a chance to get on stage in front of hundreds of potential angel and venture capital investors. Super angels like Ron Conway in the Silicon Valley are angry about demo days, believing they create a heated auction atmosphere around the graduates, driving valuations through the roof. In L.A., a few accelerators are trying to crank out dozens of “graduate” startups every three months. The graduates are “graduated” right out the door to make room for new contestants. Where Was the Valley When This All Started? In 2006, after 11 years of practicing corporate law in San Francisco during the height of the dot.com boom, I started a solo law firm in the Valley focused on startup financing. I scoured the Valley for startup watering holes here and found nothing. I quickly learned that venture capitalists in West L.A. would not come “over the hill” to meet companies in the Valley, so any startup that was paying attention located itself in Santa Monica, Westwood or in Pasadena to be close to the Pasadena Angels network. At the time, there were very few business incubators in the L.A. basin. The L.A. Economic Development Center had a fantastic space in Altadena, and there were a few small incubators in the South Bay, but nothing here. The Valley Economic Development Center had great resources for entrepreneurs that wanted to start small brick and mortar companies, but didn’t have the space, resources or mentoring that a true startup incubator needed to offer. In 2007-2008, I raised the idea of creating an incubator with leaders at the Valley Economic Alliance, the LAEDC, Valley Industry and Commerce Association, California State University, Northridge (CSUN) and the San Fernando Valley Business Journal. With the leadership of Bruce Ackerman, Greg Lippe and William Jennings, we started working on setting up an incubator centered near CSUN’s campus. Local entrepreneurial banks expressed interest and we started to put the band together. Unfortunately, the key person in the project — Bruce Ackerman — passed away from cancer. Bruce was a special resource in the Valley, and was critical to linking all of the necessary players together. The project faded away. The Valley had so little to offer startups that an April 2010 article on SanFernandoValleyNet.com covered the announcement of a new incubator in Ventura and started the article by noting that the Valley had no centrally-located tech incubators, making us a market for the Ventura incubator. To which I say, wow. Pressing our noses up against the window There is a feeling in the L.A. venture community that the concentration of accelerators, incubators and startups in Santa Monica has now reached critical mass. Driving into and out of Santa Monica during rush hour has gone from bad to painful, even by L.A. standards. Is the Valley fated to be a non-factor? I’m not losing any sleep over it. I wish we still had Bruce Ackerman around. I wish we had been able to launch the Valley incubator near CSUN. However, I’m glad that none of the accelerators reached “over the hill.” I struggle to believe that a model where 24-plus accelerators crank out 25 to 100 startups each year is sustainable. Yes, there will be a few good startups that come out of the programs. However, I think in the end the ecosystem is going to be littered with unsustainable startups that drained off funding that could have been used to build real businesses instead of companies that just gave great PowerPoint presentations on a stage. A number of the accelerators are well-funded, so I don’t think venture capital predictions that the accelerators are going to disappear in 12 to 18 months is correct. I do believe their influence will diminish, though. If the Valley can create an incubator — not an accelerator — that focuses less on “demo days” and more on training entrepreneurs to build sustainable businesses, I’m all in. Matt Crowley is a venture lawyer based in Encino. Matt is a LA Venture Association board member and author of Getting in the Game: Guiding Your Startup Through the World of Venture Capital and Angel Investors. Matt can be reached at [email protected].
