For online advertising executive Peter Kim's money, Los Angeles is a better place to start a technology company than the perceived tech center of the universe, Silicon Valley.
Kim should know: He's run a tech startup in both places. He launched online advertising company Interpolls in Los Angeles in 1999 and within a year, moved the company to Silicon Valley at the behest of his venture capital partners.
Kim quickly realized that move was a mistake. Although there was plenty of talent in Silicon Valley, it came at a very steep price. The cost of just about everything for his business was 30 percent to 40 percent higher in Silicon Valley than in Los Angeles. What's more, he found he lost easy access to some of his client base, including film studios and auto companies. So, two years later, Kim moved Interpolls back to Los Angeles; he now says he's learned a valuable lesson.
"One of the big misperceptions that technology people have is that if you want to start a business, you must be in Silicon Valley," Kim said.
Kim is one among a growing rank of technology entrepreneurs who are finding out that the Los Angeles area is giving Silicon Valley a serious run for the money when it comes to starting and growing technology companies.
Of course, the tech colossus to the north is still the place to be for computer hardware, software engineering and online product sales companies. It is, after all, the home of Google Inc., Cisco Systems Inc. and Intel Corp., three of the world's biggest technology companies.
But Los Angeles is a cheaper place for launching tech companies. And in several areas chiefly online creative content and anything related to multimedia entertainment Los Angeles trumps Silicon Valley. The region is home to online gaming giants Activision Blizzard Inc. and THQ Inc.
"For somebody just coming out of the gate, L.A.'s the place to be," said Bob Foster, adjunct professor of technology and entrepreneurship at UCLA's Anderson School of Management. He said the L.A. area is closing the gap with Silicon Valley in terms of having a quality labor pool. Plus it has the huge advantage of being cheaper.
"Sure, you have more talented people in the Bay Area, but you also have more companies vying for that talent, pushing the price of that labor sky high," said Frank Addante, chief executive of Rubicon Project, a Santa Monica online advertising company with about 130 employees.
U.S. Bureau of Labor Statistics reports show a software engineer in Silicon Valley can earn up to $67 per hour, while in Los Angeles County, the max is $48.
Addante noted that back in the mid-1990s, much of the L.A.-area labor pool for technology companies came out of the aerospace sector and had to be retrained to think in an entrepreneurial manner. But things have changed.
"You've got people who have been through a generation of technology startups," he said. "So they know what to expect."
It's not just the supply and demand for labor. Silicon Valley is also much more constrained geographically, which pushed up average housing prices to much higher levels than in Los Angeles County. In late 2007, the median home price in Santa Clara County the heart of Silicon Valley was about $800,000 compared with $575,000 in L.A. County.
While home prices have plunged in both counties since then, the median is still 50 percent higher in Santa Clara County, at $485,000, while it's $320,000 in L.A. County.
When it comes to government regulation and taxes in the two regions, analysts and entrepreneurs call it a draw. The local tech hubs of Los Angeles, Culver City and Santa Monica are among the highest tax cities in the state, according to the recently released Cost of Doing Business Survey by economic development consultant Larry Kosmont and the Rose Institute of State and Local Government at Claremont College.
But Silicon Valley cities such as Palo Alto, Redwood City and San Jose are almost as costly and the survey doesn't take into account labor and housing, which are both considerably more expensive in Silicon Valley.
"In parts of Silicon Valley, there is a similar attitude of government towards business as you find in places like Santa Monica: no tremendous outpouring of economic development activity," Kosmont said.
One recent problem in Los Angeles is controversy over business tax classification. Local tech entrepreneurs are concerned about the city's audits of some companies that claimed tax advantages for being a tech company. L.A. officials are placing some of them into higher business tax categories.
"No question that certain communities in Los Angeles County are not very favorable to our industry," Rubicon Project's Addante said.
On the whole, Los Angeles still trails Silicon Valley in transferring technology from world-class universities into commercialization. Caltech is renowned on that front, but L.A.'s other universities lag behind the tech titans in the Bay Area.
"Silicon Valley's workforce is over-represented with people with college and advanced degrees," said Kara LaPierre, executive director of the Silicon Valley Economic Development Alliance. "We have Stanford, UC Berkeley, UC San Francisco and San Jose State, all of which have well-developed technology transfer programs."
She cited U.S. Patent and Trademark Office figures showing the Silicon Valley region generated 9,500 patent registrations in 2007, just about half of the patents for the entire state.
Los Angeles may have the jump in training the businesspeople who will one day run tech companies, however: UCLA and USC excel in their entrepreneurship programs.
Los Angeles also has a wealth of creative talent that has turned the area into the preeminent location for creative content for everything from online gaming to multimedia content to online advertising.
That's what helped spawn companies such as Big Stage Entertainment, a Sherman Oaks company of 20 employees producing online gaming avatars.
"Los Angeles is the center of the content world," said Chief Operating Officer John Kraft, who is also a board member of the Technology Council of Southern California. "And content has become a huge part of technology."
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