Silicon Valley vs. Los Angeles: Comparing the VC Scenes

High-tech startups continue to concentrate in a few select cities, with Silicon Valley taking the largest share. When we broadly define Silicon Valley to include Oakland and San Jose, startups in the Los Angeles area receive only 55% of the funding. This disparity is reflected in the figures: $30 billion in Silicon Valley compared to a mere $5.4 billion in the Los Angeles region.

The Los Angeles venture capital (VC) scene is smaller, more tribal, and more factionalized, with less cooperation than in Silicon Valley. Yet, the startup community is growing, with several unicorns and near-unicorns such as SpaceX, Riot Games, Snap, Oculus, and Tinder leading the charge.

Based on the lower valuation terms offered by Valley VCs compared to those in Los Angeles, I argue there is a significant opportunity for established players like Peter Thiel to dominate the Los Angeles VC scene.

The Decline in Los Angeles VC Investment

Despite seeing growth in the Los Angeles startup community, with numerous college-related accelerators, startups, and other initiatives, venture capital investment in Greater Los Angeles has fallen. This trend extends beyond Los Angeles and affects the larger region, as evidenced by a drop in investment. Peter Thiel has moved to Los Angeles, and his presence is seen as an indication of the potential for increased investment.

Peter Thiel: A Shark in the Los Angeles Waters

Jonathan Termobile (LinkedIn Profile) describes Peter Thiel as a "shark," a term used here in a complimentary context. Thiel's decision to move to Los Angeles seems driven by his perception of the potential for increased returns due to the limited competition compared to Silicon Valley. Thiel's book, Zero to One, emphasizes the importance of competition. He believes that it is easier to create legal monopolies or dominant market positions in a less competitive environment like Los Angeles.

A Tale of Two Vineyards: Silicon Valley vs. Los Angeles

Thiel's move to Los Angeles can be likened to the move of a vineyard from Wall Street to a smaller, less competitive region like Greenwich, Connecticut, or Boston. He aims to find companies that can stand out and become leaders in their industries, a strategy that is more feasible in a region with less stiff competition.

Los Angeles has a thriving startup ecosystem, but it lacks the scale and cooperation seen in Silicon Valley. Despite this, there are many talented and underappreciated startups and investors in Los Angeles who can learn from an experienced figure like Peter Thiel. Thiel's presence is hoped to help build a more collaborative and competitive ecosystem in Los Angeles.

Los Angeles VC Scene: A Small but Growing Pond

While Los Angeles has some great VCs, their numbers are significantly fewer than in Silicon Valley. However, with the growing ecosystem and increasing competition, the Los Angeles VC scene is poised for rapid growth. It is likely that Peter Thiel will quickly become a dominant force in this smaller but soon to be larger pond.

Conclusion

Los Angeles has shown growth in its startup community, with industry leaders and near-unicorns contributing to its success. Despite the current smaller scale and limited cooperation compared to Silicon Valley, there is a significant opportunity for savvy investors like Peter Thiel to make a significant impact. The data suggests that Thiel's move to Los Angeles with the Founders Fund is not only an economically wise decision but also a strategic one that can lead to increased investment and collaboration in the region.

Note: This article is biased, and the information provided is based on current trends and personal observations. It is not intended for reproduction or reliance as financial advice.