Upfront Venturesʼ Mark Suster Forecasts Escalating Success for L.A. Startups

By Carolyn Gray Anderson and Cheechee Lin

UCLA Anderson’s Entrepreneur Association and High Tech Business Association, in conjunction with the Harold and Pauline Price Center for Entrepreneurship, presented the annual EA conference, now in its 30th year and newly named CREATE. The event brings together leaders from across Southern California and beyond for a full day of discussion around the most current topics in entrepreneurship.

Michael Silton, executive chair of the UCLA VC Fund, introduced keynote speaker Mark Suster, a partner in Upfront Ventures. Suster is the most successful venture capitalist in the Los Angeles area and a strong advocate for entrepreneurship in Southern California. Suster shared his 2015 outlook for the future of the Los Angeles economy and how venture capital will drive it. His presentation focused on tech (a third of Upfront Ventures’ business is in SaaS/cloud) and why it’s important to retain that sector — along with other innovative startups and creative talent — in our local economy.

Los Angeles is the third largest tech ecosystem in the U.S. and the fastest growing. The capital consistently flowing in is mostly from outside the region and this means talent and business can often be lured north, which hurts local job infrastructure. Suster feels strongly that L.A.-based “startup juggernauts” like Snapchat, Tinder, Oculus VR, Maker Studios and SpaceX are going to attract more VC and creative interest to the region. Tech talent that has traditionally migrated north to Silicon Valley is being pulled back by the success of these companies, which is good for the long-term economic health of the city.

In the 1990s, some 50 million Internet users heralded great market potential. With the growth to 2.5 billion people online, along with the advent of mobile technologies consumers never imagined 15 years ago, the rate of change is profound. “When things work,” said Suster, “they work at a pace that’s never happened in human history before.” He cited Uber, which didn’t exist six years ago and is now worth $40 billion; and Apple, which went from zero to $35 billion in app revenue when it implemented single-click to purchase.

Suster remarked the advent of “unicorns,” a term coined by Kleiner Perkins Caufield & Byers partner Aileen Lee, founder of Cowboy Ventures, to describe those rare and possibly mythical startups worth $1 billion. They are increasingly backed by VCs despite no inherent ties to their value and performance. They are funded based largely on potential and, Suster said, the unicorn narrative (which has triggered a new fable of the “decacorn”; think Airbnb, Pinterest and Dropbox) is persuading some VCs to pay greatly in excess of a company’s value.

Suster has been in the game since before the tech bubble, circa 1995, when VC interest in the sector was about $3 billion. By 2000, venture interest had burgeoned to $50 billion and, whereas it did go down rather precipitously from there, several factors are contributing to renewed escalation in VC for tech. The new cycle sees successful, fast-growing companies with access to VC remaining private instead of going public. Traditional public investors and corporate VCs are backing these companies at a higher rate than they used to, too. It all augers well for L.A., Suster said, if more of this capital recycles back into startups in the region.

Comments

[Scott Davis]

What a great story. It is critical that Southern California embrace the tech community and work to attract people to our area and all it has to offer (after all, 20M+ people can't be wrong!). We need to form a partnership among our industries (media, fashion, tech) to make this successful. Good job Mark, that was a great presentation you gave.

[Annabelle Smyth]

It's amazing the start-up 'unicorns' that keep popping up. I read an article in Forbes a few months back that talked about this very thing. I think that most entrepreneurs hope that their business becomes a 'unicorn'. I can think of a couple of start-ups recently that joined the 'unicorn' club as well (e.g. Domo and InsideSales).