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Roundtable: Startups and the Tech Space

Local entrepreneurs discuss the potential, needs, challenges and direction of a local startup hub

Posted: May 28, 2014 4:10 p.m.
Updated: May 28, 2014 4:10 p.m.
Roundtable group shot: Local entrepreneurs explored the potential, needs and growth of a local startup community and tech space in this month’s Roundtable discussion. Photo by Dan Watson. Roundtable group shot: Local entrepreneurs explored the potential, needs and growth of a local startup community and tech space in this month’s Roundtable discussion. Photo by Dan Watson.
Roundtable group shot: Local entrepreneurs explored the potential, needs and growth of a local startup community and tech space in this month’s Roundtable discussion. Photo by Dan Watson.
Roundtable group shot: Local entrepreneurs explored the potential, needs and growth of a local startup community and tech space in this month’s Roundtable discussion. Photo by Dan Watson. Roundtable group shot: Local entrepreneurs explored the potential, needs and growth of a local startup community and tech space in this month’s Roundtable discussion. Photo by Dan Watson.
Roundtable group shot: Local entrepreneurs explored the potential, needs and growth of a local startup community and tech space in this month’s Roundtable discussion. Photo by Dan Watson.

When the SCVBJ invited a group of local entrepreneurs and startup CEOs to the table this month, we knew the conversation would not follow the regular, orderly pattern of most industry professionals.

We knew their big-picture minds and knack for innovation would throw the Roundtable in a nonconventional direction.

But we didn’t expect the six people we’d invited to bring all their friends.

This month Roundtable took more of a think-tank turn as many ideas-men contemplated the state, needs, direction and potential of a local tech and startup space in SCV.

Is it possible? Will the talent come? What do we need first: the cash injection, infrastructure, government support or right startups?

Disagreements ensued, and networking and game plans followed.

The SCVBJ is glad to present the musings of a partially underground group that beats to its own drum, as it prepares to take the next steps forward.

We spoke to: Erick Arndt, founder SCV Startup; Tamer Abdel, president of Evolution Interactive Group. Inc.; John Beck, representing WayForward, and game designer and CEO of Ghostman Inc.; Jerry Chabolla, chief technical officer of Influxis; Richard Blakely, CEO of Influxis; Eric Hayes, chief technical officer of Vacation Juice; Bill Momary, CEO and cofounder of Ebyline; Matt Ridenour, operating partner of The People Fund, lecturer at UCLA Anderson School of Management; and Shibu Sen of InstaMD.

How can we get SCV on the map somehow?

ERICK ARNDT: Richard and I had a conversation in his office last week about how SCV should be a tech hub. It wasn’t the point of us getting together, but it came out of that conversation. So I wanted to bring that to the table today and discuss what we can bring to the tech industry.

What I really care about is how we can make this area better.

RICHARD BLAKELY: There are a couple really important points that come out of that.

First, how do you make SCV attractive enough to bring the minds that will start businesses here? Second, how do we rebrand the city so it has more substance — something so that when people think of Santa Clarita, they think of a city where technology meets entertainment. We’re located between San Francisco and Hollywood, and it’s perfect opportunity for us to bank on that.

How do we attract great minds? You create curriculum that speaks to them — the best teachers, the best minds.

You put them in the schools here, and people will drive here from Santa Monica and come from Silicon Valley because there’s something here that’s unique.

BLAKELY: The branding of our city as “Awesometown” has no substance whatsoever.

BILL MOMARY: I started my company and grew up out here — I was born and raised here. Our office is on Ventura Boulevard because it’s the intersection between the talent that lives on the West Side or Downtown and the folks like me who are still down here, raising a family.

If the city or another group supports a tech hub in a way that’s more attractive and appealing, then folks like me will want to start our offices out here. The talent base was really the main reason I moved the company out there.

Is the talent here, but culture hasn’t arrived yet?

MOMARY: Until I met Erick, I didn’t even realize there was an underground swell — maybe now above-ground. I never knew there was talent out here, or even a tech scene.

ERIC HAYES: I am a web developer, and I started a local Meetup group for web developers.

There is talent here, and there is talent in between here and Downtown L.A. We have more than 100 members, many who live in the area. We have developers, programmers, designers and such. I frequently get people from Simi Valley for various Meetups. I know they’re willing to make that trip up here.

JOHN BECK: I’ve been involved with WayForward for 19 years — it’s a 24-year-old company. The need for a robust educational basis really resonates with me. From the beginning, CalArts has been key to WayForward, providing access to the talent that comes through that school. It was a key drive to WayForward’s success.

BLAKELY: I thought a lot about CalArts versus COC versus starting something new. It’s all interesting to me. But CalArts in particular is very, very interesting. They don’t have a tech focus yet, though, in the way I’m talking about. A collaboration between CalArts and COC would make a lot of sense, where COC becomes the technical hub and CalArts has the art talent. There has to be a collaboration.

Walt Disney originally envisioned Santa Clarita as this art community. If you take those same concepts and apply it to technology, we could create a technology-art community. It becomes pretty amazing what could happen here.

Is that realistically, politically going to happen?

TAMER ABDEL: I think it does need to happen. In today’s world, especially in software and development, it’s very design-focused. Mixing up the CalArts artistic side, to understand usability, with the technology side, to understand the user experience, is something that all software startups need to have. Combining the two to have some sort of session is really critical to any kind of startup’s success.

JERRY CHABOLLA: We can get technical — with robotics and such — but it doesn’t connect with people until the art is there. People connect visually. Even though it’s really complicated and technical on the back end, it’s the front end that people connect with.

BLAKELY: To put this in perspective, I think about how I would get people to drive here from Santa Monica and invest in this city. From a tech standpoint, all the talent is out there in Santa Monica, from Internet technology to design. It would have to be programs like that to bring them out here.

Who could we hire? It depends where our focus is. If we decide to rebrand the city as the hub of where IT meets entertainment, you would get the right entertainment minds from Hollywood and the right technical minds from Silicon Valley. You’d have to bring them here and pay them a lot of money, but instantly you’d have something amazing happening here.

You couldn’t get to those minds before if you were outside the Bay Area. Those minds weren’t available to teach even the Hollywood space because you’d have to recruit them.

I’ve already to start to work on this idea. I started talking to some innovators in the entertainment space — and of course, the technology space is where I grew up. It’s going to take a lot of money to bring the educators down here — but it’s worth it.

MATT RIDENOUR: I’m coming from 20 years as a venture capitalist and angel investor. I guess I’m somewhat skeptical of the notion that education is the reason why people are going to drive up here. People live where they want. If you’re 22 and single, you want to live in Santa Monica not in Santa Clarita.

The issue with technology companies is how that group of people gets excited about being together at a particular location, and what are the elements that come into that mix?

You get education, and it goes somewhere else. I don’t know that education is sticky. You have to have something in that community that’s sticky for that person at that point in their life: low cost of living, great infrastructure to support their mission, funding, mentoring. Not that education can’t be part of the big cultural story later, but I don’t know that it’s the attraction.

BLAKELY: When I think about the original vision of CalArts and I drive around the school, I imagine his vision for this artist community — a land of artists. That would be attractive to young people if it could be recreated.

I mean cancel all the leases for the stores out in that area. Build the infrastructure taller. Bring in businesses where young people with influence will want to hang out. But it would take time.

ABDEL: You don’t get anything higher than the Princess Cruises building over there.

But in terms of building the elements required to motivate, everything out here is just so manufactured.

I’m a coffee shop guy, and I think a lot of entrepreneurs and artists and tech people are, too. I’ve lived here my entire life, and we used to have that Java N’ Jazz. It was that hometown community place where all the so-called nerds and artists used to hang out and collaborate. And now you just have Starbucks taking over.

There’s no young element. There’s no motivation to join a culture here.

ARNDT: I think education is a draw. Here’s why:

Every day on COC’s campus, we have about 18,000 young people walking around. They’re not there by accident. They’re here. So how do we draw them beyond COC?

I know from holding tech events that when we draw from Santa Monica and Orange County they say: “I didn’t realize how close it was. What a cool community this is. And tell me more.”

I think we can get them here. We might not have the coolest coffee shops, but there is a local feel. There is a lot of culture here. COC has their new Culinary Arts Program, and I see something really big growing out of that, through food and the arts and wine.

There are a lot of components here for something bigger. We just have to figure out how to get more people throughout California to think of this place beyond just Awesometown.

The tech space is quite cynical. We have a lot of gamers and coders, and they don’t necessarily look at the world through rose-colored glasses. Awesometown is cool, but we need to give them substance: high-quality events and opportunities to get better at their craft.

I think that’s enough to get people to come. And if they come and we have good enough product, then they’ll stay.

SHIBU SEN: For any startup, the important factors are low-cost services and showcasing. I started a couple of companies. We have to go international or out-of-state to find the talent. There is no showcasing.

BLAKELY: We have an office in San Francisco, too. And we use a co-work space. That basically means a big company or someone with money rents out a huge space, puts a ton of desks in there, and rents out each desk for a very small price. Co-work spaces are very big up there. Young entrepreneurs and startups can afford these spaces. We need to make cheap spaces as a magnet for the talent to hang out.

RIDENOUR: Is the discussion about what a government or quasi-government agency can do to shift the mindset of our community, or is what makes a great entrepreneur?

Some of the stuff we’re talking about is infrastructure, city actions, colleges. There are no city planners here, yet we’re discussing them building spaces here.

This happens a lot. I’ve been in incubators a lot. I don’t disagree with the coffee shops and the buildings, but those are all side effects.

Silicon Valley didn’t start because of cool coffee shops. Silicon Valley started because somebody got rich, and then 50 people got rich — so they said I’m going to do this again. Now I have so much money I’m going to help others do this, too. Then the coffee shops came up around them. It has to start because the money says come here, sit down and work.

Or like in Santa Monica, entrepreneurs say, “I don’t need your money. This is such an awesome place to be.”

You can’t make Bakersfield the tech hub of the world because rich people won’t want to live in Bakersfield.

ARNDT: You’re saying everything follows money, but I would flip it around and say money follows talent and opportunity.

RIDENOUR: Can you give me an example?

BECK: Stanford.

RIDENOUR: Research universities are the one exception.

HAYES: Austin, Texas is less venture-funded. The companies there are more bootstrap-oriented. It’s a cool place to live, so it’s got that going for it.

RIDENOUR: You could force an environment to grow. The stuff you’re doing, like these Meetups, is great. It gets the energy going. People say, “Hey, I could hang out here.” Those things add up and make a difference.

But ultimately, there has to be something that’s sticky. You have to decide. I’m going to get my buddies, stay up all night, get coffee — and it’s going to be in Santa Clarita. That’s the question: Why Santa Clarita?

So a tech hub starts with someone who wants to make the investment, and the culture will add value?

RIDENOUR: Let’s say one of you guys makes it big. Then people start saying, “Well, Influxus started in Santa Clarita.” Now there are 47 millionaires that were part of the Influxus deal and are now angel investors. They’ve got buildings where they’re holding people up doing good work.

Then one of those will make it. Then the angels are noticing there’s all this hot stuff going on in Santa Clarita. Some coffee shop guy says, “There are all these young guys up there.”

It’s not to say you can’t force it to happen. You try to get those guys to come up here, so you have a shot at making it. That’s the Silicon Valley story. It’s a couple of big hits.

ARNDT: But I think we’re missing a big point. We’re not the Silicon Valley, and we’re not trying to be. We’re a city that has big entertainment companies here and more coming. We’re trying to become more technological, so were not competing with Hollywood or Silicon Valley — we’re the perfect blend of entertainment and technology. That makes us unique, and that’s something that’s already in place.

The local filming industry is thriving and growing rapidly. How can you capitalize on this growing industry?

MOMARY: I agree with two parts of this equation.

We raised $6.5 million over an A Round and an A1 Round. I would love nothing more than to come back after my exit and give back in the way you’ve described. I think that’s exactly right.

But in the meantime, I didn’t personally find the ability to build it here. Now $6.5 million is a decent round. But maybe $50 million, $100 million — you recruit people and build from there.

ARNDT: So the talent wasn’t here then?

MOMARY: Yes. For example, if you raise your first or second round, what compels you to stay? What compels you to move? I had a crew on the West Side I knew I wanted to work with. There was no way I was going to get them to drive here. I knew it was a very integral part to our early stage.

ABDEL: I agree with Bill. We also have an office out in Westwood. We pay rent there, and the reason we do that is because we have clients that don’t want to drive up here. Our clients see Santa Clarita as this hometown community with no business being done out here, even though there is.

But we want to be up here because there are fewer distractions. And we’ve turned our office into this creative, Silicon-Valley-type look and feel. We could live in it. The lack of noise let’s us focus and get our job done. When it’s time to do business and meet clients, we head up to our Westwood office on the 11th floor overlooking L.A. It’s give us that image.

BECK: We’ve been talking about attracting businesses up here. Samsung is coming up here because the guy that’s heading it up lives out here. It seems like you’ve got elements in place for startups. You’ve got the venture capital, talent and the garage.

WayForward started up in the aftermath of the Northridge earthquake. Voldi Way, the owner and president, was actually down in Orange County. He was driving up here for CalArts students. After the quake, it was too hard to traverse that distance.

ARNDT: How many employees does WayForward have?

BECK: Way Forward currently has about 180 employees, and it’s about 50/50 on the creative versus engineering scale.

RIDENOUR: We’re discussing the ecosystems of thriving tech hubs and comparing it to what we have here.

The city and developers have worked to make Santa Clarita the perfect well-planned bedroom community without the trendy bars and coffee houses. Do you have to crack that to make this work?

RIDENOUR: I think it’s harder to do economic development targeted at early stage. One reason is you don’t have the advantage of tax tools. Zero-stage companies don’t make any money. The second thing you don’t have is job promises — where you’ll cut them a deal in exchange for certain jobs — because zero-stage companies don’t have any jobs.

As a government entity, you’re similar to a venture capitalist in the sense that you’re placing a bet with the hope that, if you place enough of them, one will pay off. If government was going to do something, they would have to meet with these guys to figure out what they need: a neighborhood that gets some redevelopment, a college that gets more attention, a facility to host events.

But it wouldn’t be the same kind of bet as bringing in Samsung and saying, “If you bring us this many jobs, we’ll give you a tax break.” You have to make a bet. They’d have to be very motivated, innovative and serious to consider how they’d place a bet in that environment.

Since Santa Clarita is a family community, do we admit defeat on attracting the stay-up-all-night, clubbing, young tech startups?

BLAKELY: We already have everything in place. You don’t want to change anything. Leave it a family community.

Take Disney and Samsung, marry the two, and make Santa Clarita a showcase for where technology meets entertainment.

It seems we have things in place, and they have the potential to come together. But we lack the identity. It’s an underground movement. What’s it going to take?

ABDEL: I think public relations also kind of stinks out here. We’ve got a table full of guys who are doing some good stuff here. I found out about Samsung by reading the (SCVBJ). There’s no so-called tech-crunch website that’s design friendly.

I’m sure there are 100 people out here doing cool things that nobody knows about. We need that portal where we can partner up. No one captures this target audience.

ARNDT: There should be a small tech corner where everyone can learn about the stuff that’s happening in Southern California — a new hire, when a deal closes, when one opens, even the small stuff.

ABDEL: It needs to be run by young, creative guys who are in the tech industry and are out here, as well. We need people who really have a passion. We need this information in a cool, well-designed fashion. It needs to be hip.

RIDENOUR: The people that thrive on the startups are the people that pay for it — the lawyers, accountants, investment bankers. They’re the sponsors of all these events. They’ll pay for the banner ad on a website. There’s no money at all until there’s a lot of money.

Seed money seems to be less available as venture capitalists wait for startups to mature.

ARNDT: We raised almost nothing locally. All of our money came from outside this area, which is really sad.

RIDENOUR: Venture capitalists will see 10,000 deals. If you give $10 to 10,000 startups, it really starts to add up.

You have to have a model they can believe in. It’s a tough model, especially for the local guys.

ARNDT: We need a homerun. We need the first company to blow up. We need a parking lot with a Ferrari.

Everyone goes, “What is going on here.” Then The Signal starts to cover it. Then the accountant calls up. Then you start three more, and they take off from there.

RIDENOUR: Let’s pick which one of you is going to win right now. We’ll put all our money into it, and we’ll engineer a win. (Group laughs.)

Venture capitalism is a lousy industry. People always think of venture capitalists as being very wealthy. Venture capitalism hasn’t made money as a category since 1999. That’s because of how hard it is — most businesses fail.

So the funding, institutionally, is almost gone; it’s really, really low.

Now the good news is there’s this discontinuity in the way things work. It’s dirt cheap to start something up now.

I teach at the Anderson School (of Management at UCLA), and 30 businesses will launch out of the dorm rooms.

Will they all make it? No. But they’ve launched legitimate businesses that produce product and get people to pay for it.

So we’re at this intersection of institutional capital that’s sitting on the sidelines. They have $50 million and these startups only need $250,000. So they’re beating each other up.

The tough part is the next $2 million round is gone. Bill did it, but it’s hard to do.

MOMARY: I can speak to that. I was very strategic, but it was very difficult.

BLAKELY: We could get a team behind a story that would show: Step 1, Step 2, Step 3. Get a lot of PR, and the right PR. It has to start organically.

For example, if Santa Clarita came up with the “Tech House of the Future,” and we put it out there, then there would be three more on the same block. That would be an interesting story that starts to evolve and unfold.

HAYES: That’s where colleges could step in as part of the collaborative project. The colleges set up the students and the place to launch this, and we’ll cover it.

BLAKELY: People love a great story.

Santa Clarita has many elements young executives are looking for as a place to come and invest.

MOMARY: Building a business with good principles and fundamentals is very important. Develop a linear path to profitability versus just the audience aggregation and traffic acquisition play, which is still great. Businesses can continue on with that and eventually add a revenue model, but startups are beginning to use a profitable model from the start.

But one of the things that’s evolving is to use, from the beginning, the idea of a linear path with a traditional economics to a profit point. If you have this business that’s all about traffic and hype and audience, how can you feed your family across a long period of time? But that’s exciting because it means businesses are getting more stable in the tech and startup space.

BLAKELY: There’s something to be said about bringing in businesses from outside the area.

ARNDT: Boulder, Colorado is very successful in the tech world, and today, 10 percent of the Boulder population is employed in the high-tech arena, which is a high percentage. The local government had almost nothing to do with their success.

But is there anything government can do to help foster this growth? Locally, when Google Fiber was up on the table, there was a poor effort made. There should have been more focus because it would have changed things.

RIDENOUR: That’s it. You’re done here — I hope you try to Boulder. (Entire group laughs.)

ARNDT: That’s what I came to understand. If I’m wrong, please prove me wrong.

HAYES: If you’re talking about something sticky, Google Fiber would attract a lot of nerds to come live and work here. That would have been huge.

GROUP: I agree.

ARNDT: I think it’s not over yet. We could still compete, put a team together and go after it.

Any final thoughts?

RIDENOUR: I’m going to try to bring this full-circle. I have a harder time when the stories kind of soft around culture because I don’t know how you influence that — it tends to follow.

But there is something to say about Samsung and Disney moving out here. Then it relates to the universities.

Then the city says, “Wait a minute, we want more of this.” They start thinking about the economic development activity and infrastructure development that comes underneath Samsung and Disney.

In some communities, half the startups are spin-offs or supporting the large, technology-oriented institutions that moved to that community. That story of getting on a roll toward a win makes sense to me. Then all of a sudden, the jobs are there. The softer cultural stuff follows, and hey, it’s a fun place to live.

HAYES: I think it’s both. There is the grumbling about the cultural stuff. There’s the hint of a movement of culturally and socially conscious businesses and startups. Maybe Santa Clarita could be on the cusp of that as Samsung and Disney come into the area.


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