The city of Los Angeles has long been the global capital of film. Hollywood’s storytelling power is unmatched, and its movies have influenced cultures far and wide. But LA has a deeply diversified economy beyond Hollywood and most recently the city has rapidly emerged as a hub for technology companies. This rapid rise has a strong structural basis in the role LA plays in the US economy and is only just beginning.
Los Angeles is a uniquely important pillar of the US economy. More than 10 million people live in Los Angeles County, making it the most populous country in the United States. The economy of LA, powered by these 10 million residents, contributed a whopping $656 billion to US GDP in 2015 (the most recent results available). Impressively, LA County contributes the most to US GDP of any county in the nation. New York County is a close second at $629.7 billion.
The economy of LA has gone through an extraordinary period of vibrancy and growth in the last five years under Mayor Eric Garcetti’s leadership. LA’s GDP has surged 11.8 percent in the last five years, almost three times New York’s 4.1 percent growth. Similarly, per capita income has grown by 19 percent in the same period, a dramatic increase.
A big driver of the growing economic vibrancy of LA is the expansion and deepening of the local tech ecosystem. LA first emerged as a tech ecosystem in the early 2000s and was dominated by three industries: consumer, digital media and adtech. Companies such as Dollar Shave Club, Wag!, Nativo, GumGum, DemandMedia (now LeafGroup), Tinder, Snapchat and The Honest Company are just a few examples of early successes in the ecosystem. These companies were a natural extension of LA’s DNA as a city of storytellers and media makers.
Outside of LA, the ecosystem is perceived to be primarily or wholly dominated by these three categories. However, this perception is out-of-date and has been slow to adjust with recent changes. In fact, the future of LA tech will be far more broad and rest on a more rich foundation. LA will continue to have deep roots in consumer, digital media and adtech and build highly successful companies in these categories. At the same time, the future of LA will center around a new set of industries: manufacturing, logistics and mobility.
The last five years have seen an explosion in manufacturing and industrial tech startups in LA. While this might seem surprising, LA has the largest manufacturing workforce of any city in the United States, a little known fact. Creating things is at the core of the city’s DNA, from movies to physical parts and products.
Manufacturing employs about 340,000 people in LA annually and is responsible for about $25 billion in annual wages. To put it in perspective about 111,000 people are employed in the film, video and production industries in Los Angeles County with annual wages of about $14 billion. Manufacturing employs three times as many people and is responsible for nearly double the wages of Hollywood! Companies like SpaceX, HyperLoop and institutions like NASA’s Jet Propulsion Lab and Caltech are key drivers in the growth activity in next-generation manufacturing companies in Los Angeles.
In addition to manufacturing, logistics will also be an area of core strength and activity in LA tech in the future. LA has some of the busiest ports in the United States and the world: LA Port and Long Beach Port. Annually a whopping 18 million cargo containers move through these two ports. LA port is the busiest port in the United States and the 18th busiest in the world, while Long Beach is a close second and the 21th busiest. LA’s deep logistics DNA has led to an explosion of startups based in LA focused on logistics include the likes of Shiphawk, CargoMatic, ServiceTitan, NextTrucking, Dray Alliance and others.
Mobility, closely related to logistics, is another part of LA tech’s future. Companies in LA are helping uncover the wonders of space (SpaceX, Relativity Space), move around the last-mile quicker (Wheels, Bird) and reimagine how we buy and use cars (Fair.com and Faraday Future). Space in particular is an industry LA has historically dominated, given that NASA’s Jet Propulsion Lab and companies like Northrup Grumpman ($50+ billion market capitalization) are headquartered here. A new generation of space-related companies are sprouting from former employees of SpaceX, the start of a “SpaceX Mafia.” In addition, the Techstars StarBurst Space Accelerator recently set up shop in LA to serve as a starting point for space companies.
These industries are the future of LA tech, building on the strong foundation and legacy of the first-generation of consumer, digital media and adtech companies. Excitingly, the first “big turn” is happening in LA tech where employees from early success stories like Snapchat, SpaceX and Wag! are transforming newfound liquidity or their years of experience into the next-generation of LA startups. For example, Imran Khan, the former chief strategy officer of Snapchat, recently launched a new ecommerce startup based in LA. The cycling out of employees from early success stories has, and will continue to, deeply enrich the local tech ecosystem, beginning a flywheel effect similar to the one that has made Silicon Valley so tremendously successful. This flywheel effect is going to power exponential growth for LA tech in the near future.
Finally, the relative affordability of living in LA compared to New York and San Francisco, and the great quality of life (thanks in large part to the great weather) are powerful magnets for highly-skilled employees to flock to LA. LA’s highly diversified, outsized role in the US economy and the significantly increased number of accelerators and venture capital firms based locally positions LA tech for hypergrowth in the decades to come.
The next innings of Los Angeles tech has just begun.