‘People are following ideas, not funding’: Why Los Angeles is emerging as an ad tech hotbed

For Gil Elbaz, Los Angeles is the best city to start an ad tech company. There, he set up his first startup Applied Semantics, which was acquired by Google in 2003 and later became Google’s LA office. Elbaz then started another tech company, Factual, in LA. Now, he is seeing more ad tech firms moving to the city.

“In 1998, nobody was leaving the Bay Area for LA to start a company, but I was drawn to LA because people were following ideas versus following funding,” said Elbaz, who is also Factual’s CEO. “LA always had the right ingredients to grow a fantastic startup scene. The reason why we didn’t see an influx until the last five years was because LA is so close to Silicon Valley, making it easy for companies up north to acquire companies down south.”

Like Elbaz, a growing number of tech entrepreneurs — including Snap’s Evan Spiegel and Rubicon Project’s Frank Addante — are choosing LA as their headquarters to take advantage of the nice weather, the beach lifestyle, as well as the lower cost of living and running a business than New York City or Silicon Valley. Plus, they can hire local engineering talent from the likes of California Institute of Technology, University of Southern California and UCLA.

“LA offers great tech talent in three baskets: The first group is from other tech firms; the second group is from consumer-facing companies like Dollar Shave Club; and the third group is from aerospace and entertainment — I don’t think you can find those people in New York City,” said Frank Addante, founder and chairman of Rubicon Project. “Most people didn’t realize that before because LA is geographically spread out.”

John Matthews, managing director for investment bank Desilva+Phillips, added that the LA city government is also offering startups incentives to set up there, and the increasing emphasis on tech meeting creative is driving this trend, too. “If LA is about anything, it is about movie production, content studios and creative lifestyles,” he said.

With a tech belt known as “Silicon Beach” centered on Santa Monica and Venice Beach, and downtown LA emerging as the core of the city’s arts, culture and corporate renaissance, the area has attracted many entrepreneurs and investors.

For instance, Dan Altmann, CEO for Snapchat ad network Naritiv, founded his startup in Venice Beach about three years ago because the neighborhood offers “a good mix of engineers, product people, ad agencies and entertainment companies.”

“We were in the Disney Accelerator so we had to be in LA,” said Altmann. “Snap is also a great example of a big win. We are seeing more activities in Venice Beach because of Snap.”

Angel investor Eric Franchi, who had meetings in Santa Monica for two days straight last year to learn about some startups there, also thinks New York-based ad tech firms are largely focused on performance and targeting, while LA peers think more about content and branding.

“I’m super interested in LA because the entertainment industry is there, and the $70 billion TV market will eventually turn into digital dollars,” said Franchi. “There are many social platforms in Santa Monica coming up with fresh perspectives rather than just banners.”

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But ad tech entrepreneurs have struggled in LA before. When Nikao Yang co-founded ad tech firm AdColony in LA back in 2009, two big challenges his team faced were the limited local capital for tech companies and not being taken seriously in the tech community because LA was stereotyped as a city focused on only glitz and glamour, with not much substance from a technology and advertising perspective, said Yang. Addante had a similar experience — he even made a parody video in 2007 to mock the lack of venture capital funding in LA at the time.

“We had to punch above our weight against better-established Bay Area and East Coast competitors,” said Yang. “But today, these challenges have largely been overcome for the LA tech ecosystem.”

For LA to be a real ad tech hub like Silicon Valley and New York City, though, the city needs more big homegrown companies aside from Rubicon Project, OpenX and Factual.

“One disadvantage is that in LA, there are fewer executives who have grown companies to huge scale,” said Elbaz. “The silver lining is that executives are open to moving to LA, end up staying and advancing into bigger roles.”

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