Los Angeles Bred Tech Companies are Giving Stiff Competition to their Cousins in Silicon Valley

If you thought Silicon Valley is the hub of all the tech action in Southern California, think again. Startups based in Los Angeles and Santa Monica, both of which are only a few hours away from Silicon Valley have cornered a sizable chunk of the funding pie. Their success has promoted venture capitalists who were previously concentrating on startups in the Silicon Valley area to look North, so much so that in the last five years, the funding attracted by companies based out of LA and Santa Monica has tripled. 1081 deals worth $4.71 billion have been struck here since 2009. These details are supplied by CB Insights, which undertakes research into angel and venture fund investing.

Venture funds showing increasing trust in Los Angeles and Santa Monica based companies

2013 was the greatest year for Los Angeles and Santa Monica startups till now - 302 deals were struck last year bringing in a windfall of $1.55 billion for these startups. Interestingly, most of the money came from angel investing and venture funds located in the Bay Area of Silicon Valley. It indicates that these companies are showing a growing interest in the thriving Los Angeles and Santa Monica startup community. They believe these startups have the potential to bring in the profits they seek. Of the ten venture capital funds that have invested most in Los Angeles based startups, five are working out of Silicon Valley.

The second quarter of 2014 was spectacular for LA and Santa Monica startups. Some big ticket deals were struck in the second quarter, including a $60 million round of investment in Swagbucks, an online gift card and rewards platform. 82 deals were finalized which infused $560 million into startups located here. However, it is clear that Silicon Valley still dominates in attracting funding into startups. In the second quarter of 2014, Silicon Valley based companies struck 1114 deals worth $7.09 billion.

It may just be the tip of the iceberg for Los Angeles and Santa Monica based tech companies

For Los Angeles and Santa Monica based startups, the best may be yet to come. There are reports that Snapchat (based in Los Angeles) is in talks with Alibaba for a funding round, which might value the company at $10 billion. If that happens, the company's worth would match Dropbox's and Airbnb's valuation.

There is another major difference between the investments in Silicon Valley and Los Angeles-based startups. In the former, venture funds are reportedly favoring established or later stage companies while in the latter, early stage investments are still popular. In Los Angeles in 2013, Series A funding attracted 32 percent of the deals.

The Los Angeles deals are also more diverse. Traditionally, fashion, media and gaming companies used to dominate funding but now more hardware, security and software companies are clinching deals. All this is a good sign because it means that engineers (founders) are comfortable starting companies in Los Angeles and they are open to recruit from the pool of talent in the city and surrounding areas.