Over several generations, substantial entrepreneurial ecosystems have sprouted in Southern California. San Diego is known for biotech, Orange County for med-tech and life sciences. And Los Angeles has spawned social media, entertainment and esports startups.
But it’s challenging growing a startup here. Companies compete with each other and dominant Silicon Valley for precious venture capital.
Now OC startups and their counterparts to the north and south may get a boost—if a new joint effort gains traction. The effort is the Alliance for Southern California Innovation, created by San Diego tech entrepreneur Steve Poizner.
Poizner insists the answer is collaboration over competition. He’s spent months forging an alliance among a group of tech, university and research institute leaders—including innovation institutes affiliated with the University of California-San Diego, University of California-Irvine and University of California-Los Angeles—with the lofty goal of unifying those entrepreneurial ecosystems across Southern California and accelerating their combined growth.
The Alliance for Southern California Innovation is a nonprofit with no physical headquarters. Its reach extends as far north as the University of California-Santa Barbara. Members work remotely.
And Poizner brings the fervor of the converted to the venture.
The former insurance commissioner and gubernatorial candidate was, until 2014, a Silicon Valley entrepreneur. Now Poizner believes Silicon Valley may be morphing from Utopia to untenable: too many entrepreneurs, stifling traffic, spiking crime and insanely high real estate prices—an approaching cloud that’s beckoning SoCal to shine.
“The timing is ideal right now for SoCal to emerge as a world-class tech hub,” he said. “Unlike most other regions of the U.S., SoCal has a large number of research universities that train a large number of talented engineers and scientists needed by startups and there’s abundant office space.”
That being said, it wasn’t without challenges to put together the alliance, said Poizner, who serves as the alliance’s chief executive and chair of the board.
“We spent many, many months, prior to launch, recruiting the seven universities, the research consortium, community board members and the advisory committee,” he said. “This type of alliance had never been put together before in SoCal, so there was a lot of skepticism.”
Enticing VCs to SoCal
Ninety percent of U.S. venture capital money is in the San Francisco Bay Area, which includes Silicon Valley, Marc Averitt, managing director of Okapi Venture Capital in Laguna Beach, told the Business Journal last year. Okapi closed nine deals last year—second among OC VCs, according to the Business Journal’s list of venture capital firms.
Okapi has $47 million under management as of June 29, Averitt told the Business Journal last week. Most Silicon Valley VC firms manage several hundred million for each fund so Okapi is “very small by comparison,” he said.
“I feel SoCal is at a major inflection point with more quality investment opportunities than there are local funds to invest in them,” he said. “It would be great to finally have more SoCal VC funds across all stages.”
L.A. startups have to go north to pitch to investors, said Erik Rannala, co-founder and managing partner of Mucker Capital in L.A. Mucker invests in early-stage tech companies with its venture fund.
“I enthusiastically welcome new efforts to support the tech and startup ecosystems here in Southern California,” Rannala said. “Our firm was founded with a commitment to partner with entrepreneurs here in the region and invest tens of millions of dollars in Southern California startups every year.”
Poizner said part of the alliance’s mission is to get more VC firms with top-tier track records to set up offices in SoCal, or more likely, to convince some individual venture capitalists to leave their firms and set up a new fund in SoCal. It’s an effort to rectify a chicken-and-egg type problem that VCs want to see critical mass and some successful exits before setting up shop.
“So we are working on a damn-breaking strategy of recruiting a few great VCs … and publicizing (their) successes,” he said. “We will hopefully attract some VCs by stimulating deal flow from campuses and … identify some opportunities to build centers of excellence in SoCal.”
The first venture fund to partner with the alliance is Encinitas-based Section 32, a $160 million fund created by Bill Maris, founder and former chief executive of Google Ventures.
Incubators and Accelerators
Once the VC money is flowing in SoCal, the alliance’s goal is to funnel VC-ready startups from local universities, research institutes, incubators and accelerators to firms that affiliate with the alliance.
It has a collaboration agreement with San Diego-based EvoNexus, the largest pro-bono tech incubator in Southern California, with an outpost in Irvine. The agreement details a reciprocal relationship where EvoNexus will present investment prospects to VC funds partnering with the alliance, which will then connect its members to EvoNexus to propose potential startups for admission to the incubator.
“The alliance develops a new innovation brand for OC and SoCal more broadly,” said Rory Moore, chief executive and director of EvoNexus and co-founder of its incubators. “The region lacks venture capital. That is the real magic of Silicon Valley. It takes large amounts of investor capital to scale a venture to a size where it can become a public company.”
In total, EvoNexus has 178 companies in its portfolio that have amassed nearly $1.2 billion in funding, including 18 acquisitions, according to Moore.
Other Facets of the Alliance
The alliance itself is supported by a pro-bono collaboration: L.A.-based Latham & Watkins LLP for legal expertise; New York City-based Edelman for public relations; L.A.-based Creative Artists Agency for branding; management-consulting firm Boston Consulting Group for strategic planning; La Jolla-based Fairway Technology for IT and web services; and Ernst & Young for accounting.
The alliance’s board of directors includes Thomas Gewecke, chief digital officer of Burbank-based Warner Bros. Entertainment Inc.; Irwin Jacobs, founding chairman and chief executive emeritus of San Diego-based Qualcomm; and Sherry Lansing, former chief executive of L.A.-based Paramount Pictures. Poizner is no stranger to startups as he sold two of his to Qualcomm, worked as an executive at the company, was on the startup selection committee for EvoNexus San Diego, and serves as the entrepreneur-in-residence with UCSD’s Rady School of Management. Each member school also appointed a board member.
An advisory committee, which will provide strategic counsel to the alliance on topics including best practices and lessons learned from Silicon Valley, includes Eric Schmidt, executive chairman of Mountain View-based Alphabet Inc. and Gene Sykes, managing director of Goldman Sachs and chief executive of the L.A. 2024 Exploratory Committee for the Olympics.
The alliance intends to design a region-wide branding program presented through social-media to recruit and retain domestic and international talent and create a strategic plan to identify high-priority sectors, such as artificial intelligence.
It has engaged Boston Consulting Group to conduct a comprehensive study of Southern California’s innovation economy and to develop an action plan for making the region the next global tech center. Its findings are expected to be announced in the fall.
Building on Existing Synergy
All three regions have VC firms and programs that are already doing—on a micro level—what the alliance hopes to do on a macro level.
In OC, the alliance can look to Aliso Viejo-based OCTANe, a nonprofit with similar goals of unification and acceleration since 2002. The organization is also multifaceted, including a technology and life sciences innovation accelerator, known as LaunchPad; a $30 million ophthalmology fund; and a platform for members matching startups with investors and growth advisers. The platform has more than 100 investment firms, including First Round Capital, with offices in San Francisco, Philadelphia and New York; Menlo Park-based Sequoia and Boston-based MVM Lifesciences, which just invested $28 million in Aliso Viejo-based Vertos, a med-device company that participated in LaunchPad, OCTANe Chief Executive Bill Carpou said.
OCTANe also brings investors from all over the world to hear pitches from LaunchPad startups. The LHL Group, with offices in Beijing and Irvine, recently closed a convertible note of $550,000 for Meridian AR and is looking to fund a Series A round of funding for that company as well.
Carpou said that OCTANe’s presence in the region for more than a decade has provided a solid foundation for future VC firms to locate here, or direct their investments to OC startups.
He touts OCTANe’s track record of $1.6 billion of invested capital in OC companies, but he “would welcome working with any new sources of capital.” He said he plans to meet with Poizner.
One VC firm in OC that’s already heavily invested in the SoCal startup ecosystem is Toba Capital, created by Vinny Smith. Toba has invested over $150 million in 15 private tech companies in SoCal since its inception four years ago, said Rajan Aggarwal, a principal with the firm. And Toba has a lot more to spend—$615 million under management and the clear leader among OC VCs, according to Business Journal research.
OC’s Applied Innovation, UCI’s innovation institute, is one of the alliance’s founding members.
The alliance could be the game changer that the innovation ecosystem in OC needs to get to the next level, Executive Director Richard Sudek said.
“We are widely known as the medical device capital of the world, with around 350 companies here,” Sudek said. “Over the years, UCI has created partnerships and made significant investments in building this sector. More early-stage funding will ensure that the impact of the innovation occurring here is fully realized. We’re excited about the possibilities created by the alliance to bring more attention and investment to the region.”
