The Fender guitar. Vizio TVs. Vans shoes.
Just a few one-time startups that are now part of Orange County history.
Innovation and grit continue to be hallmarks of the startup scene here, but today’s entrepreneurs also are getting help from an infrastructure that’s only recently begun to take on a new, substantial shape. It’s a phenomenon that has yet to attract the sort of attention that’s bestowed on renowned epicenters, such as Silicon Valley or more recent entries, such as Silicon Beach on the Westside of Los Angeles.
But OC is getting in the game, thanks to a confluence of factors that have conspired to help more OC startups gain traction and visibility:
• funding for startups, which continues to accelerate in 2016, according to industry experts;
• an “ecosystem” that includes everyone from angel investors to venture capital to crowdfunding, with service providers geared toward startups in between;
• and more connections between entrepreneurs being made than ever before due to the growing number of incubators.
Some hurdles remain on the road to achieving a critical mass of startups, according to leaders in this area, but there is a bevy of proponents pushing that way.
“There’s been a lot of startups here, but we can do a better job of connecting and keeping them,” said Richard Sudek, executive director of Applied Innovation, the University of California- Irvine’s institute for innovation.
‘Paradise Culture’
OC has always been a springboard for startups across industry segments. Chalk that up to Southern California’s “paradise” culture as an allure for entrepreneurial minds, according to strategist Andrea Guevara, the founder of Costa Mesa-based Lucky 19, which provides branding, graphic design and Web-design services.
These days there’s a huge emphasis on networking and mentoring. A mecca of the trend is The Cove, the 31,000-square-foot home of Applied Innovation, where 200-plus mentors and experts-in-residence are on hand to help any startup in OC, free of charge.
Other resources include Tech Coast Venture Network and the Orange County Small Business Development Center, Guevara said.
OC boasts a cluster of academic institutions, including a prize in UC Irvine, one of 108 research universities in the U.S., according to the Carnegie Classification of Institutions of Higher Education.
Southern California as a whole has a more highly educated workforce than anywhere else in the country, according to Jason Lantgen, a vice president with real estate brokerage Jones Lang LaSalle’s Irvine office.
Incubator hubs have sprung up at a number of local universities besides UCI, including California State University Fullerton’s Center for Entrepreneurship and Chapman University’s Leatherby Center for Entrepreneurship and Business Ethics.
The result is a more formalized infrastructure and self-sustaining “ecosystem,” said Bill Carpou, president and chief executive of Aliso-Viejo based OCTANe, formed in 2003 with a mission of connecting entrepreneurs and resources.
“The ecosystem exists on its own,” Carpou said. “It’s the air we breathe. I think if you look at any of the ecosystems that are successful, they’re dependent on collaboration amongst the entire constituency.”
Also in Irvine is EvoNexus, a high-end incubator for startups that is transitioning from ideation to fundraising and revenue generation, according to Dan Jenkins, an adviser there.
“In the past, this more complete and obvious support infrastructure from idea to funding to revenue did not exist,” Jenkins said.
Not Silicon Valley
How does the startup scene in OC compare to its more-established counterpart in Silicon Valley?
Silicon Valley has a concentration of organized, tech-savvy investors, including venture capitalists and angels, according to Jenkins. OC has some of the same but they’re not as organized or active, he said.
“OC has suffered from fragmentation, which is what we’re collectively working hard to change.”
Michael Sawitz, founder of Irvine-based FastStart.studio and an entrepreneur-in-residence at Cal State Fullerton’s Mihaylo School of Business and Economics, notes that money in OC has typically been invested in more mature, developed businesses and industries.
“Investors in OC, as a whole, are really more risk-averse than what you see in other places,” he said. “In Silicon Valley, many, many, many investors have lost—but [they know] you don’t win every time. And the ones that have tasted success, it brings them back in with even more money, and the word of their success drives more engagement.”
What will it take to motivate investors to take more risks with their money here in OC?
Sudek, for one, has seen more people step up to the plate, which he attributes to the OC startup landscape being less fragmented these days. He noted that more than 35 donors combined to contribute more than $6 million to establish The Cove, the physical home of Applied Innovation, in the first year.
Carpou said it’s not necessary for OC’s startup industry to try to emulate Silicon Valley, noting that OC has a more diverse array of businesses than its northern counterpart. Entrepreneurs involved with startups here should focus on what works best in this particular environment, he said.
“We have support to build the best possible ecosystem for Orange County that has the longest sustaining results.”
Venture capital funding for OC startups has shot up over the past 18 months, according to Lantgen.
“We have always seen seed and Series A rounds in Orange County,” he said. “But now we’re seeing later-round stages to more mature startups, where they’ve got a proof of concept, are generating revenue, and have reached a growth-inflection point.”
Historically, startups in the county collectively received between 15 to 20 funding rounds per quarter, said Lantgen, who tracks that data.
“That has not changed,” he said. “The amount of investment going into these companies has.”
Venture capital funding rounds had yielded approximately $150 million per quarter until last year, when they topped $200 or $300 million each quarter, Lantgen said. During the first three quarters of 2015, OC startups raised more than $600 million from VCs compared to $389 million in the same period last year, he said.
Lantgen said he expects the money to keep flowing this year.
“The clients that we are working with and talking to are saying that access to capital is still there,” he said.
“It’s still available, and a number of the businesses are looking to expand and hire more people.”
The local startup scene isn’t dependent entirely on local money, either. Venture capital continues to flow to OC from Silicon Valley, New York, Boston and L.A. Lantgen said.
Challenges
Lucky 19’s Guevara said she would like to see more funding, outreach and support specifically for female business owners and teens.
“I am excited to see more and more women and young entrepreneurs taking the reins of their own financial futures,” she said. “They need more resources, training and funding opportunities to help them not only start up, but scale their businesses.”
Sudek said OC ultimately needs to create more “collisions,” pointing to the potential of University Research Park, 185 acres owned by UCI and built and leased out by Irvine Company. Applied Innovation and EvoNexus are some of the companies that have taken up residence there.
“We will attract more startups so we will have more density,” Sudek said. “We need more density for everyone involved. More startups need more talent. It’s definitely something where you don’t work on one piece. You have to work on multiple pieces to make it a robust ecosystem.”
