LATW 2022: Investing in Los Angeles

To celebrate the LA community and the city’s growth, a16z recently hosted “Time to Build Los Angeles,” an event where we invited LA-based investors, founders, and operators from across a diverse range of industries to talk about company building in LA. In the first in our series of interviews, we invited Andrew Chen from a16z, Minnie Ingersoll from TenOneTen, and Turner Novak from Banana Capital to talk about why LA is at an inflection point, misperceptions about the region, and what makes a great meme. But first, we opened our panel discussion with a presentation from a16z consumer partner, Katia Ameri, on what you need to know about the LA scene and why we think it’s worth paying attention to in the years to come. 

Transcript

Katia Ameri: Welcome, everyone to “Time to Build Los Angeles.” I’m Katia Ameri. I am a partner on the consumer investing team at a16z. I think most of you probably know me as the one that sends you a bunch of LA Tech Week emails. You’re welcome. We are super excited to have you here today. We have a really incredible agenda where we’re going to talk about the innovation that’s happening here in LA and also what’s catapulting LA into a top tech hub. And before we get started with our first session, I’m going to take a minute and walk you all through: why LA So, I think we’ve all seen tech meets entertainment conferences in L.A. for the past decade. I can tell you that today, you are here to see something a little bit different. LA has a long history of winners. We have a diverse set of established companies across industries represented here from consumer to aerospace, to health tech and more.

And while the LA ecosystem has historically been strong, in the past two years, in particular, the ecosystem has grown significantly as well. LA is the fastest growing of the top three tech hubs outpacing San Francisco and New York, and is far ahead of emerging ecosystems, like Miami and Austin. And the number of investments in capital flowing to LA has only continued to increase. And at a16z, we felt this inflection firsthand as we’ve done more investments in the last two years in LA than we had done the six years prior combined. Right now, we have about 40 active portfolio companies in LA across seed, series A, and later stages. And we might not be the first people to the party. But in the last two years, we put a ton of skin in the game and we’ve had a chance to work with many of you in this room.

LA has gone through a number of inflections in the past. And looking at what’s driving the most recent change, it’s really due to the growing talent in the ecosystem. We have founders of unicorn companies that have built and scaled businesses moving to LA and injecting the ecosystem with knowledge. The startup scene is also up-leveling in the form of hacker houses like Launch House and founders of early stage companies are also moving to LA to start their businesses as well. And it’s really this kind of new wave of talent that’s cross-pollinating with the existing ecosystem that’s really supercharging the growth.

So, question of the day, why LA Tech Week? The goal of Tech Week has been to create community, specifically amongst the recent transplants that have moved here in the past two years, in addition to the community at large. Two, the goal of Tech Week is to attract talent and to leverage Tech Week as this mechanism for attracting new founders, builders, and engineers to LA. And ultimately, the goal is to broadcast the action. LA has been quiet, but LA has been building. And the goal of Tech Week is really to put the spotlight on LA tech and to showcase how rich this ecosystem really is. So leading up to Tech Week, we surveyed about 450 attendees to better understand the ecosystem, to actually put numbers behind what we were seeing, and here’s what we heard from you.

So, it’s no surprise that looking at who’s in the room, the top two industries represented here are media and consumer. But that makes up less than 30% of the pie, which means that 70% of you come from industries across fintech, crypto, enterprise, health tech, gaming, aerospace, and more. And looking at how long we’ve been here, about half of you are newbies and have lived here for less than five years, about 16% of you have lived here for only less than one year, and about 10% of you are just visiting, and, hopefully, this week convinces you to stay. And what’s particularly exciting is that L.A. is sticky. Even though we have a ton of new blood, most people don’t have any plans to leave for the foreseeable future. And so when we asked why LA, this was the word cloud that we generated from your responses. And as you can see, kind of overwhelmingly, diversity and culture show up prominently in the answers. Diversity is very much in the DNA, diversity of people, diversity of industries, diversity of values. And culture is created and disseminated here. And so proximity to media and entertainment is one of the draws.

And when we ask people, why not LA, when you remove answers like cost of living, it’s really the fragmented nature of the city that really stood out and prevents people from finding community. Hopefully, today is the start of bringing people together more often. In today’s remote world, you can build anywhere. What makes LA special is that you have a rich ecosystem of seasoned operators that make LA not just a city where you can build, but a city where you can scale. And so as promised, today, you are not here to see a Tech Meets Entertainment conference, but rather a Tech Meets LA conference, which means you are about to hear from many founders across the diverse range of industries that we’ve talked about today. So, without further ado, it’s time to build Los Angeles. 

I’m very excited to introduce our first session on investing in LA. Please, welcome Andrew Chen from a16z, Turner Novak of Banana Capital, Minnie Ingersoll of TenOneTen Ventures, and Michelle Kung, our venture editorial lead at a16z.

Michelle Kung: So, welcome, everyone, to our investing in L.A. panel. I’m sure most of you guys are familiar with the people we have here on stage. But I figured we would start with some quick introductions, and maybe if you guys can also talk about your relationship to LA as you start. Turner, why don’t we start with you?

Turner Novak: Hey, everyone. I’m Turner. I am the founder of Banana Capital. My relationship with LA, it’s my second home that I visit once a quarter.

Minnie Ingersoll: Hi, I’m Minnie Ingersoll. I’m a partner at TenOneTen. TenOneTen is an LA-based fund, started with two missions in mind. Our first mission is to support early stage technical founders. Our second is to return tons of money to our investors. We were started in 2014 by my partners, Gil Elbaz and David Waxman. They were both technical founders who had scaled companies, and they built the fund that they wanted to see. I started a company in 2013 called Shift. I had the chance to exit Shift, it’s a used car company, in 2019, and join TenOneTen then. And now, we’re investing out of our third fund. I’m from LA, so I’m thrilled to be back in LA, Pasadena.

Andrew Chen: Nice. And it turns out we’re neighbors, actually. We’re both neighbors in Venice. I’m Andrew Chen from a16z, and I’m part of the first GAMES FUND that we built, which is very, very tied into LA. It’s really the reason why I started to visit in the first place. So, I just moved to Venice. I live in the canals. My neighbors are ducks. We have a canoe. It’s fantastic. Highly recommended.

Michelle: Great. So, because you guys all had differing levels of connection to LA, I wanted to start by asking what you guys thought of Katia’s presentation. Was there any data points that stuck out for you? Was it exactly what you would expect from a survey of people working in LA?

Minnie: I’m happy to jump in. So, I think it all comes down to culture. And it was interesting when Katia talked about it. She talked about the culture of the city. I think of a lot of the culture of the LA tech community. We talk about how at startups, the first 12 employees set the culture of a startup. I think the same is really true of an ecosystem. And I credit a lot of the founders and VCs who were here early because I think they’ve set that up. And I will just add, because I think it’s important, that I think LA Tech Week has been an amazing example of being welcoming, inclusive. I know a16z set this up, but they’ve really included almost all the funds in LA. And it’s been fabulous.

Andrew: Yeah. What I was going to say on the presentation is it is absolutely true. I’ve seen it for myself, just the influx of fantastic people over the last few years. I think this is always a place where folks from Silicon Valley would visit. But it was always a place that you would visit, and then you’d go back to the bubble. That was always the thing. And the amazing thing over the last two years has been to see the founders of places like Airtable and Patreon, and AngelList, and Coinbase, and many, many, many other folks actually call LA home. Now, interestingly, not everybody is as active on Twitter announcing all these things, but there are so many people… I mean, it’s incredible how many people are here. And so I think just seeing that whole community coalesce really seemed super obvious.

Turner: Yeah. I think, for me, I remember seeing, it was a couple of years ago, LA, it’s either the second or third largest economic region in the world. So, it’s really wasn’t surprising when Katia said it was the fastest growing of all the hubs. I think it makes sense if you drag the spreadsheet out, it’ll probably keep you going pretty quick because you have a lot to grow into. I don’t have a source for that stat either, so I made it up

Michelle: And I feel like you can’t really talk about calling out the last two years, obviously, without mentioning the pandemic. So, how do you think the pandemic has played a role in driving all this growth? It’s the growth of remote work, which allows people to do this, allows people to understand that it’s possible. I would love to get your takes on how you see the effects of the pandemic.

Andrew: Well, at least the firm has come out and said, “Look, we’re going to the cloud, right?” And what does that really mean? It doesn’t mean we’re uploading our consciousness into the metaverse, that comes later. But what we’re doing instead is we’re opening up offices in LA, in New York, we have one in Miami. There’s probably gonna be more coming down the line. And I think it’s our sincere belief that we’re not going to go back to the way that things were pre-COVID, right? We’re not going to all go back to an office five days a week. Instead, there’s going to be a lot more different new creative ways to work. And what that means is, hubs like LA stand to significantly benefit because, all of a sudden, if you’re an investor, you can meet people from all over the world on Zoom. If you’re a founder, you can have a distributed team, including folks in Europe, including folks in Latin America, including folks in all the other startup hubs, and you can build a massive company. And so I think this has kicked off, this whole wave has kicked off something brand new. And I think that’s why this time is going to be very different than all the various kinds of waves before.

Minnie: I’m the solo B2B investor, I think, on this panel. And I would add to Turner’s point about it being the second largest economy in the United States, nearly a trillion-dollar GDP here. When you look at B2B investing, you look at the massive industries here. It’s a great source of talent, it’s a great opportunity when you look at the manufacturing, the logistics, insurance, entertainment. There’s massive industries. And I think it’s fabulous to have capital that is close to the people and close to the industries that they’re building for. I think that’s fairly unique. I don’t think there’s anything wrong with VC-backed companies building for other VC-backed companies, but I think it actually is different here in LA in the sort of B2B companies you see.

Michelle: Kind a follow to that, what do you guys see as maybe misperceptions then? There’s a lot that’s drawing people to LA, but, obviously, there’s still reasons why people might be reluctant to start. What are some of the biggest misperceptions?

Minnie: Okay, I have a podcast, I have to just mention this. I have a podcast. A lot of people in the room know because I talk about my podcast. It’s called “LA Venture.” And on “LA Venture,” I interview a different LA-based partner at a VC fund every week. And everyone tells me, you’re going to run out of guests. I hear that all the time. And the truth is, I’ve been doing it for three and a half years. I’ve had 170 episodes, and my pipeline gets bigger and bigger the more I do it. I think that is a misconception. And I think it’s a great thing, again, to have capital close to industry.

Andrew: Yeah, I was going to add to that because Hollywood has historically been such a huge part of the ecosystem. You know, people I think naturally assume that everything is connected to the celebrity and influencer scene. And there absolutely is that part, right? But what’s also amazing to me is, one of our initiatives, the American Dynamism effort, a lot of it is around deep tech. It’s around aerospace, it’s around building these brand-new industries. And guess where the headquarters of all that is? It’s here, right? I mean, in SoCal. And I think that is a huge part. There are very serious engineers and folks that are coming out of the top schools in this area. I think the kinds of companies that are being built are actually very diverse. There’s a reason why this is a major effort around crypto also in the city is for all of those reasons. And so I think it’s a way broader and more diverse set of companies than you think.

Turner: Yeah, I think maybe adding to misconceptions, maybe broadly, I do a lot of consumer investing, and I think a lot of people will tell you, you have to be in San Francisco just because of density of talent. I just don’t think it’s true. I mean, we saw the screen, I forget all the companies around. There are so many. There’s tons of very large exited tech companies that were headquartered in L.A. You know, way back in the day, MySpace, but then also, I forget the name, Applied Semantics, maybe that’s the wrong one, it’s Google’s advertising business.

Minnie: Shout out to Gil Elbaz.

Turner: I mean, it’s like Google’s advertising business, it’s like the best business in the world. The thing that powers it, it was based in LA. There’s definitely been a lot of misconceptions. I think Katia did a really good job highlighting a lot of things in the presentation.

Michelle: Switching gears a little bit. Turner, you’re not based in LA., but I feel like you have mastered the very LA art of storytelling and working with memes. I was wondering if you could talk a bit about how you first got started, how you realized you were good at it, what makes you good at it, but also what makes a good meme versus a bad meme? Like, when do you push the line, and then when do you know to hold back?

Turner: So I was born in Canada, grew up in Michigan, and never moved to San Francisco. So I had to figure out how to meet people. And it was on the internet, a lot of Twitter writing. And then I guess there’s a period of time, maybe four years ago, some of the popular meme and parody accounts had started. I wouldn’t say it’s ghostwriting, but you get to know them and you give them some ideas. And my ideas did really well. So, I was like, “Why don’t I just start making memes?” Like, people love it. And I think it’s just a way to show a little bit more authenticity. I think that’s kind of the secret to storytelling is you want people to be entertained and you want to have it be as authentic to you as possible, to make it really easy to scale. Based in LA, everyone knows about creators, all that kind of stuff. But I think burnout is real in any creative artistic pursuit. So, if you do something that’s very authentic to who you are, it’s just a little bit easier to kind of scale it and keep it going. And for me, I’m a serious person, but I don’t take myself very seriously. So, memes just kind of slotted in pretty easily. And when it comes to taking it too far, memes specifically, for me, the strategy is, you just kind of poke fun at higher-level things, you never put down any one individual or person, it’s always a class. And I think VCs, it’s very easy to make fun of VCs. And I am one. So, I think some of us are very self-aware and some of us aren’t, but it’s entertaining content. So, the intersection of all those things, just, it kind of snowballed over time. And it’s fun too.

Michelle: And I think the interesting thing that you were talking about is, obviously, this is also a lot of work, right? It’s not like you work for five minutes a day and you’re done…or maybe it is.

Turner: Sometimes I don’t proofread them. Sometimes there’s typos in them. But, yeah, that kind of is why it worked for me. It just scaled really well.

Michelle: So, Andrew, you’re actually an LP in Turner’s fund. Are his memes and storytelling something that first attracted you to Turner? 

Andrew: I think one of the fun things about what we do is you get to meet all these amazing people, and you meet them over Twitter, right? And I think, again, this is one of the magic parts about this sort of post-COVID setup. And so one of the things I’ve done over the years is to actually LP probably two dozen funds at this point. And I think half of them, or at least, a quarter or third of them are LA-based funds. And that is such an awesome way to get to know all the investors in the community and to hear about all the amazing things. And what Turner’s done an amazing job of, in particular, is, in the world of consumer investing and all the new social products and photo products, this is a whole area that we still believe there’s still a ton of innovation left. And Turner is on top of every single one of those products. And being in LA, that’s one of the things that you get to chat with a lot of influencers and creators about is their use of all these tools.

Michelle: Minnie, you were mentioning that you were born in Pasadena, you moved away, you came back, you have your podcast. What have been some of the most insightful things you’ve actually learned from talking to so many people in-depth on your podcast? What are some of the lessons that you’ve taken away?

Minnie: Lately, I’ve had a lot on the intersection of tech. It’s been interesting. I just had Charlie Hanna from Marcy Venture Partners, that’s Jay-Z’s fund. They grew from $30 million to $900 million. I mean, huge jump. I had Megan from a16z’s Cultural Leadership fund. You know, that intersection has been just a growing theme. Actually, I had Plus Capital on, and they talked a lot about how it seems like you can sort of slap a celebrity into some people, right? They can make an investment. But really, what Plus has built, for instance, is they talked a lot about that infrastructure because the startup isn’t set to measure what success looks like from the celebrity, and the celebrity isn’t really set up to measure that success.

So, really setting up those connections in a very deliberate way has been really interesting because agents, like the talent agents, they’re not set to take a percent if you make an investment. They’re set to take a percent, I think it’s like 10% of the cash that you get. So, that’s been one of the really interesting things. I also get a lot of listeners who are very interested in hearing what’s going on in the LA ecosystem. I mean, the reason I started the podcast was when I moved here, I couldn’t find out that much about the investors. I felt like LA was actually really underexposed relative… I feel like a lot of the investors…I like VC as well, but I do feel like they’re more vocal, tend to be more vocal in the Bay Area, and I felt like LA was underexposed. So, it actually is a lot of work. But I was asking Mark Suster, “How do you become a great blogger or that sort of thing?” And he was like, “You have to like to write.” And it turns out I like to talk, so it suits me.

Andrew: Well, and we were having a funny conversation before about how the Bay Area investors often had a secret partner in LA. Do you want to talk about that?

Minnie: Yes, I mean, I was saying that I think a16a is the first fund from Silicon Valley, a traditional Silicon Valley fund, that is really publicly had a big presence here in LA. And that it used to be that you might have one partner from one of the other Sand Hill Road funds in LA, but their LinkedIn might still say San Francisco. And so I think it’s a big change for LA, and I think it’s really the right fund to be planting the tent pole here.

Andrew: A lot of it was, I think, from a career standpoint, if you felt like you had to meet the founders in the Bay Area that actually going…and being anywhere other than the Bay Area was kind of like maybe you were less serious about those kinds of founders. And so there was so much pressure I think for… You know, I was in the Bay Area for 15 years, and so there was always so much pressure to just be there, and stay there, and just do that. And I think being able to work on Zoom, and also, obviously, the trends of everyone moving around has just really significantly changed things. And so I think many of you know this, but we’re putting a big office next to Elephante in Santa Monica. That’s going to be, I think, 30,000 square feet. It’s like a whole building. We already have 25 employees in LA, and that’s going to significantly grow as well. We’re taking all these additional regions very seriously.

Michelle: Andrew, you mentioned, we have this new office, you have just moved here, and then you’re working on a new fund. I know that we have another games panel later in this afternoon. But I was wondering if you could also talk a bit about what you’re looking for, why you came, anything that’s been surprising to you that you didn’t already expect.

Andrew: So I joined Andreessen Horowitz four and a half years ago, something like that. And really, my focus there was around social networks. And so think of that as: every generation of consumers really has their own new social network, right? And so if you grew up, maybe you were using AOL Instant Messenger for a while, or you were using MySpace, or you were using… you remember when all your young friends were on Facebook. And now, when you talk to Gen Z, first, they maybe don’t even have a kind of big blue main Facebook account, they’re just using Instagram. And then when you go even younger, what you find is that the 10-year-olds, the 12-year-olds are spending all their time either playing Minecraft and Roblox or watching videos about Minecraft or Roblox. That’s where they want to really hang out with their friends.

And so with the a16z GAMES FUND ONE, the idea there and what kind of led us in that direction is there’s an amazing new trend among consumers. Just the adoption, again, at the intersection of technology and entertainment is just so strong within games. And the center of that in the country and on the continent is really in Los Angeles. And so it really just naturally fit that, “I should move here, I should, you know, work on the fund full-time.” Most of the portfolio, most of the games portfolio is also here. My partner, Jon Lai, is going to be interviewing some folks later today and going deeper in metaverse, and avatars, and gaming, and all that good stuff.

Michelle: Turner, I wanted to come back to you because I feel like you have the newest fund out of everyone on the stage. How difficult did you find it to get started? And how are you thinking about expansion plans?

Turner: Yeah, getting started, it was hard, but I just did a lot of work ahead of time. I guess, for people thinking about starting a fund, Google, read blogs on how to do it, take it very seriously, all the playbooks, I won’t go through it. But it’s a lot of work, definitely. I think one of my best tweets was actually a joke about why I see why people join a16z instead of starting their own fund because it’s just a lot of work. And the expansion plans. I mean, I’m not trying to build the next Tiger Global. I don’t want hundreds of billions of dollars in AUM. I am just trying to be a good investor, and find good founders, invest in the pre-seed and seed mostly doing consumer stuff. So, we follow on a little bit over time. Sometimes we’ll do some SBVs, like, a little bit later stage, keep making memes, slowly add to the team, should be fun.

Michelle: Do you require everyone joining your team to have a certain level of followers before they’re allowed to apply?

Turner: Actually, I don’t.

Michelle: And you were based in Ann Arbor, so I just wanted to ask, do you have any plans to move? Or is it totally possible to completely stay in the cloud as it were?

Turner: Yeah, I think you can be totally in the cloud. And it’s kind of fun to…you know, married with two kids, it can be nice to say, “Oh, I’m gonna go to LA for a week.” Sometimes that’s nice. But I think when you’re doing consumer investing, sometimes it can be helpful to live in the Midwest and outside of some of the big hubs. Kind of the joke that I make is I show some of the products that I’m looking at to my wife, to my mother-in-law, get their take. Sometimes you can cut through some of the steps of what adoption will look like over time. So, that’s always helpful, honestly, just kind of being a little bit insulated from some of the bubble. There’s also the challenge of trying to stay connected. I was joking earlier, but LA would probably be my first choice if I could move. But, we’ve got family in Michigan, so I’ll probably stay there.

Michelle: So we’ve just got a few more minutes left. I wanted to end by asking, what questions you’re most commonly asked? So, this is an opportunity to answer a lot of questions at once. But what are you most commonly asked about investing in LA?

Minnie: People ask for money usually.

Andrew: Well, I was going to say, I think right now, the big thing is just the macro market and how to approach investing. Are people still investing right now? And in the end, and I would love to hear from all of you, is that there are tons of investors that are very active. We’re very active, we’re looking at tons of stuff. We’ve sent out, I think there’s a term sheet going out today from my team. So, I think there’s a lot of activity. But it is definitely one where the bar is higher, there’s more questions, there’s more data. Being high growth and high burn is not a good thing. People want more efficient, higher quality businesses, etc., etc. And my colleague, David George, has a great blog post that he’s written about how to think about the downturn and unit economics, and all that good stuff coming up.

Turner: Common question, living in Michigan, how do I invest outside of Michigan? I do some international investing too. Since it’s super early, it’s really a lot of founder-driven questions, and you just try to pattern match other types of businesses and products and see if it would work. So some people say like, “How do you do due diligence on an LA investment if you’re in Michigan?” Sometimes I’ve already met the founder before in person, sometimes I might go to meet them at a time, and sometimes it’s a pre-seed round. They’re raising a million dollars, there’s no product yet, there’s no diligence to do there. You do diligence, but there’s not a lot. So, yeah, it’s one of the questions I do get a lot and you just make it work.

Michelle: Minnie, pretty similar for you?

Minnie: Pretty similar. I mean, with thinking about what does a series A look like? I used to know we have 80 portfolio companies now. And we used to know what a series A looked like. And so I think we’re looking at what is the financing risk, and what is the business risk? And we tend to do B2B companies. So, I think the business risk actually is low, but the financing risk I think is still a bit unknown.

Michelle: I wanted to thank you guys so much for your time and for coming here today. So, thank you very much.