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LOS ANGELES, CA

Innovation That Matters 2016

We are at the dawn of an extraordinary technological revolution and it is transforming every part of the U.S. economy. Innovation That Matters examines and ranks 25 cities’ readiness to capitalize on the inevitable shift to a digital economy.

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LA shows startup strength across sectors

When it comes to the next wave of digital startups, Los Angeles is in a strong position across the board. Strong performance in education, energy, health and smart cities highlight the power of the region’s digital economy. LA’s established business clusters do not perform as well in these fields, which show just how new these emerging specializations are. Just because a city may not have specialized in a specific industry does not mean it won’t be able to compete in the next wave of the digital economy.

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Los Angeles has the startups—and the capital—to compete.

In our study, LA was one of the top regions when it came to many of the traditional metrics. The city ranks among the top 5 in the nation for number of startups, funding and successful exits. These indicators matter to building a strong foundation, and they show the success that the LA startup scene has had in recent years.

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  1. Los Angeles has the startups—and the capital—to compete.
    Los Angeles was one of the top regions when it came to many of the traditional metrics: companies started (4th), money invested (4th), and exits produced (4th in acquisition totals). These indicators matter, and they show the success that the LA startup scene has had in recent years.
  2. Talent may be the city’s Achilles’ Heel.
    Somewhat surprisingly, LA seemed to struggle on every dimension of the talent question. Weak population flux (20th), educational attainment (14th), and concentration of tech skills (18th) combined to give it a low score on this indicator. While part of this may be attributed to the city’s size, it nevertheless represents a real challenge for the region. Strong international inflows (9th) represent LA’s greatest strength when it comes to talent, while domestic outflows (23rd) signal underlying weaknesses.
  3. When it comes to the next generation of digital startups, Los Angeles is in a strong position across the board.
    Strong performance in the Ed Tech (5th), Energy Tech (4th), Health Tech (5th) and Smart City tech (3rd) sectors highlight the power of the region’s digital economy. Surprisingly, its established business clusters in these sectors do not perform as well (10th, 23rd, 12th, and 21st, respectively), demonstrating that, while legacy assets matter, communities can emerge as digital era leaders in entirely new arenas.
  4. Citizen and investor engagement are key elements of the ecosystem’s success, but work needs to be done to get the established business community more involved.
    The region ranked 1st and 6th in the first two indicators, but lack of support from institutions (14th), corporates (12th) and professional services firms (15th) suggests that entrepreneurs do not feel well plugged into the traditional business community. Lack of support from cheerleaders (16th) implies that the region is not doing a good enough job of celebrating its successes and telling its story.
  5. The regulatory environment is a major problem for Los Angeles startups.
    In our survey of entrepreneurs, the city ranked near the very bottom on this score (23rd), suggesting the challenge startups face in navigating existing regulations. Los Angeles may want to look to some of its other peers—Dallas-Fort Worth (2nd), Boston (6th) or Raleigh-Durham (7th) to figure out how to solve this problem.
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