Los Angeles in 2015 isn’t just a destination for young hopefuls trying to make it in movies — it is now competing with its northern neighbor, Silicon Valley, for number of tech startups. “Silicon Beach” — a loose term used to describe an area in the Westside area of the city — is home to a growing field of young tech stars, like Snapchat and Oculus, as well as outposts for companies like Google and AOL. The city is home to more than 1,000 startups, according to open source map Represent.LA.
If Los Angeles County was a nation, its economy would rank 19th largest on the planet, according to the city’s government. Almost 250,000 businesses are located there, and it boasts more businesses owned by women and minorities than anywhere else in the country.
While LA is a freshly attractive home for tech workers looking outside the confines of Silicon Valley or the “Silicon Alley” of Manhattan, there are perks for small business owners of all stripes besides the prospect of surfing before work.
The City of Los Angeles offers several robust tax incentives for small businesses planning to move or start in the city. This includes an ongoing Business Tax Holiday that exempts any new business from paying gross receipt tax for three years after starting or locating to LA. Small businesses with less than $100,000 in taxable and nontaxable gross receipts do not currently have to pay this tax at all.
Depending on the nature of the business and locations in the city, other grants and tax incentives are available. For example, the Port of Los Angeles, the busiest container port in the Western Hemisphere, is a Foreign Trade Zone [PDF], meaning duties are eliminated from exporting merchandise from the port and are reduced for imported merchandise. California’s recycling agency offers direct loans with low interest rates (currently 4 percent) to Los Angeles businesses that either manufacture products out of recycled goods or are focused on reducing waste. California also offers businesses conducting scientific or engineering research and development a 15 percent tax credit for research expenses. The city has a tool to look up these incentives.
Los Angeles has a population of more than 10 million and a workforce of roughly 5 million. Southern California is home to several important universities and colleges, including UC Irvine and UCLA, churning out highly skilled young workers in a multitude of fields. While the city recently approved a measure to increase the minimum wage to $15 by 2020, businesses with less than 25 employees have an extra year to comply.
Another advantage is downtown LA’s centrality, according to Hal Bastian, a downtown LA revitalization consultant and commercial real estate broker with 33 years experience. Because every major freeway leads to downtown as well as most bus lines and other public transit options, Bastian claims the area is usually the easiest to access for a labor force based throughout LA. “Downtown L.A. is a great, great place for small business, whether its a creative tech company or a traditional company like a law firm,” says Bastian, who has brought over 300 restaurants, bars, and nightclubs into the downtown area.
The extreme housing costs of Silicon Valley are creeping south, with many areas like Santa Monica and the Westside becoming increasingly unaffordable. However, because LA is so large, there are many other options.
“Occupancy costs in downtown are 40 percent less than the Westside,” Bastian says.
Following World War II, most of the people living in the downtown Los Angeles area left for the suburbs, leaving the neighborhood empty outside of business hours, according to Bastian. However, in recent years many former commercial buildings in the downtown area have been zoned for residential units, a change that has some specific consequences for small business owners. Bastian sees many small business owners living and working in the same space — an arrangement that slashes housing expenses. Back in April, a developer announced plans to convert a brick building from 1917 into 53 live-work units in the downtown arts district, and there are many other LA buildings with similar situations.
Zoning downtown for residential use has led to a renaissance in the area, meaning it is fertile territory for restaurants, small retailers, bars, and other businesses that need a lot of surrounding foot traffic to thrive. Bastian has spent the past two decades bringing in these small businesses to the revitalized downtown area. “The streets used to be dead at nighttime,” Bastian adds, “but now they’re bustling with people, baby carriages and dogs.”
Los Angeles County enjoys a world-class economy–it has a larger gross domestic product than Belgium or Saudi Arabia. It is the largest manufacturing center in the country with more manufacturing jobs than the state of Michigan. Companies and universities in Southern California are leaders in industries like aerospace and biotech. By opening a small business in the city, no matter whether its a tech start-up or a bar, small business owners engage a diverse customer base and open themselves to potential partnerships in a long list of industries, from shipping and foreign trade to fashion to clean energy.
Of course, most people think of LA as a creativity hotspot. One reason LA is becoming so popular with the tech industry is because the city is essentially the national capital of content –it’s home to industry leaders in film, television, music, and design. As technology collides more with content in the coming years, Los Angeles has a prime position over Silicon Valley or Silicon Alley. Talented content creators are becoming increasingly valuable for consumer apps and digital advertising as well as entertainment-centric tech fields. The infant field of virtual reality is centered in LA, for example. Oculus VR (creator of the popular Rift headset) still operates in nearby Irvine even after Facebook bought the small firm for $2 billion in 2014. Other VR startups like DAQRI (which recently partnered with Crayola to create interactive coloring books) and Jaunt (founded by former LucasFilm executives) feed off the combination of high tech experts and creative artists found in Southern California’s diverse talent pool.
Less obviously, Dollar Shave Club also received huge benefits by harnessing Los Angeles’ content creators. The Silicon Beach-based razor delivery service was boosted into the national consciousness in 2012 because of a humorous viral video featuring its CEO, Michael Dubin. Dubin had dabbled in the city’s comedy scene and was able to tap contacts in the entertainment business to create the now-famous video for just $4,500.