When Jamdat Mobile Inc. agreed to be acquired Dec. 8 by Electronic Arts Inc., the Los Angeles-based firm got $680 million that included a big premium.
For good reason.
Jamdat Mobile, founded only five years ago, came up with a way to adapt popular video games for cell phones a concept that allows Electronics Arts to compete for a growing business among video game publishers.
It’s no surprise that Jamdat comes from Los Angeles, where the first e-mail, the first commercially viable aircraft and the first independent movie studio originated. A concentration of research-oriented universities combined with L.A.’s entrepreneurial mindset makes the region a breeding ground for new ideas.
But that innovation has its limits. Some economists say the region has faltered since the 1940s and 1950s due to the region’s large size, high cost of living and lack of management.
“We’re so geographically diverse that it’s hard to have a center of activity,” said Elaine Hagan, executive director of the Harold Price Center for Entrepreneurial Studies at UCLA. “But what we do have are these knowledge clusters.”
Even so, does the area still have a spirit of innovation?
Background There’s the Weather
In the early 1900s, local business leaders touted L.A.’s temperate climate as a means of luring companies to the region. That marketing strategy has paid off: Aerospace entrepreneurs, such as Donald Douglas and Howard Hughes, considered the clear skies a good testing ground for new aircraft.
Entertainment firms, enticed by the backdrops available in the varied topography of Los Angeles, also moved west.
But the economy has moved from manufacturing and towards a growing service sector some of which has since been outsourced to other countries. Meanwhile, large businesses have shed research dollars to boost sales.
All that has changed the source of innovation.
“Small companies and universities are pushing this,” said Richmond Wolf, assistant vice president of technology transfer at California Institute of Technology. “In the ’40s and ’50s, they had to be here because that’s where aerospace and entertainment was. Now, the focus is on small startups and fast-moving companies.”
Still a Hotbed of Innovation
Los Angeles has no shortage of small companies. The county’s unemployment rate is a record 4.5 percent, largely due to an “informal economy” made up of self-employed business owners, independent contractors and an underground economy.
“This is a self-employment town,” said Tom O’Malia, director of the Lloyd Greif Center for Entrepreneurial Studies at the University of Southern California. “People find ways to get things done, as opposed to in a strong steel mill company town where other people are given the responsibility to take care of them.”
But not every new company is a new idea. Innovation in L.A. revolves around its research institutions, primarily UCLA, USC and Caltech. By itself, UCLA received research contracts and grants totaling $821 million in 2005. All those institutions have technology transfer programs that regularly spin-off startups with new ideas.
Much of the innovation in Los Angeles originated in aerospace. “It is clear the aerospace industry itself has morphed in Los Angeles,” said Rohit Shukla, chief executive of the Larta Institute in Los Angeles. “It is no longer a manufacturing hub in aerospace. But what has stayed here is the most innovative part of an aerospace complex, and that is design.”
Also, a growing mix of communications technologies has spurred a host of video game firms in the region, such as Jamdat.
Struggling To Commercialize
Still, Los Angeles has struggled to turn ideas into manageable companies. That limits their impact.
“They have federal dollars when they’re in the laboratory stage,” said John Morris, managing director of GKM Ventures and chairman of Los Angeles-based Tech Coast Angels, a network of individuals who provide early-stage financing to startups. “But they have to figure out how to define the market, identify the customer and craft a solution that solves a problem.”
One of the biggest problems is that there is no central base of management executives, venture capitalists and entrepreneurs, as in Silicon Valley or Boston. Geography, the cost of living and traffic contribute to that impediment. Also, the city leaders of Los Angeles have not invested in the region as a technology hub.
“There’s no critical mass in one location of money, talent and ideas,” Wolf said. “Those three pieces are a requirement for building a high-growth dense network.”
Many Caltech startups seek financing from Silicon Valley, where investors are more willing to consider early-stage companies. More importantly, a major shortage of seasoned management executives makes it hard for start-ups to find mentors who help them grow into viable companies.
Unlike Silicon Valley, which is home to large cutting-edge companies, Los Angeles has few Fortune 500 companies from which to pick management executives. “Stanford has a track record of this,” Morris said. “We don’t have the rich corporate environment that Northern California has.”
Outlook: Still Bright
L.A. start-ups need to create more interest from investors and management executives in order to commercialize their ideas and to do that, the region needs more success stories. “We don’t have 10 Jamdat stories or 10 offerings that went public in the last 12 months,” Morris said.
Still, the prospects look good. So far, members of Tech Coast Angels have invested in 17 companies this year, up from 12 last year. And the entertainment world has continued to drive much of the creativity behind video games, animation and special effects, typified by Yahoo Inc.’s recent move to Santa Monica.
“Beyond the hip culture, there is a geek culture and a design culture and serious hard working culture that has to do with innovation,” Shukla said.
