Snap’s IPO Will Be Great for L.A.’s Tech Scene… Just Not L.A. Investors
For the rest of the week, the tech press will be hitting refresh on the SEC’s website waiting for Snapchat’s parent company Snap to file its initial public offering S-1. The highly anticipated IPO is expected to be a boon for the company’s hometown of Los Angeles. It will make many of its employees rich. Usually after big tech IPOs, those employees use their riches to “give back” to fellow startups by angel investing, or they leave to start their own companies.
But Snap has not done most things the usual way. It has not positioned itself as an advocate for the burgeoning L.A. tech scene, and it has not taken any money from local investors.
L.A. is home to a number of well-known venture firms including Upfront Ventures, Greycroft Partners, Pritzker Group Venture Capital, A-Grade Ventures and Anthem Venture Partners. But none of them will be minting a return on Snap’s IPO.
One reason for that is that Snap co-founder Evan Spiegel started the company in San Francisco while attending Stanford University. He raised his first round of funding from Valley investors.
L.A. investors have less of an excuse for not backing The Honest Company, which was founded locally and only includes one L.A. investor, Pritzker Group. Missing the next one, some venture associates tell me, is a fire-able offense.
One hypothesis for why L.A. investors have missed two of its fastest-growing startups include the fact that the tech ecosystem there is still relatively young. Investors in burgeoning tech ecosystems often have smaller funds and therefore must take fewer risks. Valley funds “have more money, more ego and more company behind which to hide when one blows up,” one investor observed.