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LA Biz Journal: Venice’s funky vibe clicks with tech firms

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Venice’s funky vibe clicks with tech firms

Venice’s 1350 AK building on Abbot Kinney.

Monday, November 29, 2010

The Abbot Kinney neighborhood in Venice has long been known for its laid-back atmosphere, distinctive shops and antique stores. But a spate of startups has found a home in the area, and now it’s becoming a center of tech and media.

At least five startups have launched there in the past few years, drawn by the neighborhood’s charms – and low rents. The miniboom has created a synergy of sorts: As the number of companies and their workers increase, several restaurants have opened to cater to them. That in turn draws more businesses.

“It’s a relaxed environment with amazing amenities within 100 feet,” said Todd Collins, vice president of sales and marketing of software company First Freight. “The restaurants and coffee shops make it a really dynamic, true community vibe down here that’s really attractive.”

Collins’ company, which provides management software to the freight and logistics industry, found a home in a colorful office at 1350 Abbot Kinney. The four-story white building, which tenants call 1350 AK, is also the site of three other tech startups and two business consulting companies that signed leases in the last year.

Santa Monica may be the center of the L.A. tech world, but the people who run the startups at 1350 AK said they’d rather be in Venice than among corporate high-rises and business parks.

“There’s a type of person who’s going to go to Third Street Promenade and a type of person who’s going to go to Abbot Kinney,” said Mark DiPaola, co-founder and chief executive of CheckPoints, a location-based iPhone app company that has a modern two-floor office at 1350 AK. “I’m more interested in that funky, eccentric person who will like Abbot Kinney. It fosters more creativity.”

But startups in Santa Monica say the area is a popular tech hub for a reason. Its central location makes it easy for employees and customers to access and the close proximity of so many companies fosters a close community of entrepreneurs.

“It’s all about location,” said Jason Nazar, co-founder and chief executive of Internet startup Docstoc. “When you’re looking to hire employees and bring people to the office, Santa Monica’s got prestige.”

Nevertheless, R Blank, chief technical offer at Almer/Blank, an interactive media company, said Venice’s location also helps build customer relations.

“It’s easy to get people out here,” Blank said of his warehouse office just off Abbot Kinney on Venezia Avenue. “We have a lot of clients who want to come to us because they want to visit Venice.”

Cheaper rent has also been a draw for some companies. The average price for office space in the West L.A. market, including Venice, is $3.72 per square foot, compared with $4.21 per square foot in Santa Monica, according to third quarter data compiled by Grubb & Ellis Co.

“Everybody’s thought about locating in Santa Monica, but the prices are so high,” said Collins, who moved into the building on Abbot Kinney about three years ago. “For startups, Venice is the ideal place.”

Restaurant revival

Many of the business owners live in Abbot Kinney and point out that it wasn’t always so attractive. Because of high crime rates in Venice’s rougher areas, there was some wariness attached to the neighborhood.

“When I first moved to Venice, it had a lot of crime and gang issues that were nationally known,” said John Plesnicar, who runs neighborhood blog AbbotKinneyOnline.com and moved to the area in 1989.

As crime concerns eased, entertainment companies began moving to the area, drawn by Venice’s reputation as an artists’ community. Blur Studio, a visual effects and animation company, set up shop on Electric Avenue in 1995 and many other companies followed. Psyop, a digital advertising company with headquarters in New York, opened its L.A. office near Abbot Kinney in 2008.

“In the 1990s, a lot of media companies moved from Hollywood to Santa Monica,” said Colleen O’Mara, chairwoman of the Venice Media District, which promotes the industry’s interests in the area. “But now we’ve seen them move south. They’ve been pushed out of Santa Monica because of the cost of rent and real estate.”

And where businesses go, restaurants follow.

Mediterranean restaurant Gjelina opened on the east end of the street in 2008 and high-concept Tasting Kitchen, which features a new menu every night, arrived in July last year. Chicago-based coffee bar Intelligentsia also opened a location on Abbot Kinney last summer.

Longstanding restaurants have also benefited. Hal’s, which opened in 1987, has become a popular takeout option.

“I joke with them that sometimes at lunchtime it looks like Burger King because they get all these to-go orders for people working in their offices,” said Carol Tantau, chairwoman of the Abbot Kinney Merchants Committee for the Venice Chamber of Commerce and owner of boutique Just Tantau.

Another element of Abbot Kinney’s revival is the arrival of high-end shops such as Jack Spade. The New York menswear designer opened a store in one of the street’s 1960s Craftsman bungalows in May.

DiPaola of CheckPoints said the new restaurants and shops have transformed the once-quiet street. He founded his first startup in 1350 Abbot Kinney in 2003 but outgrew the space in 2007, moved out and sold the company. When he returned to the same office to start CheckPoints, he noticed how much the area had changed.

“It’s gotten a little more fancy,” he said. “Abbot Kinney is starting to get to a critical mass where it can support more restaurants and shops.”

First Fridays

Most shop owners attribute the recent popularity of Abbot Kinney to its monthly event, First Fridays, which started in 2008 with a handful of shops. The first Friday of each month, store owners stay open late and give out wine or hors d’oeuvres to customers.

First Fridays got off to a slow start, but recently grew popular – perhaps too popular. As attendance has grown, so have the crowds. Some businesses are complaining.

“We were trying to bring more business to the street,” Tantau said. “Now it has a reputation as a party night. We’d like it to go back.”

With more visitors to the street, Abbot Kinney has faced a number of other problems, among them parking.

“It’s gotten really bad in the past two years. I have customers who drive around for 20 minutes looking for parking,” said Blank of Almer/Blank.

Area rents have also begun to rise, especially on Abbot Kinney. Blank said the parking problems and rising rents eventually could even drive him to move his company out of Venice.

But for many other companies, Abbot Kinney is just starting to have the growth they’ve been waiting for. With so many technology and media companies moving into the area, they’ve formed their own small startup community.

Matthew Burgess, founder of Formation Solutions, which helps startup businesses incorporate and is also housed at 1350 AK, has started a blog to engage this community of entrepreneurs. Through VeniceEntrepreneur.com he organizes dinners and get-togethers for them.

He said he’s excited by the number of startups that have moved to the area in the last two years. He expects that number to grow.

“Santa Monica gets a lot of attention because there’s a lot of great activity going on for startups,” Burgess said. “But I’m starting to see that kind of energy right here in Venice. It’s building momentum. It feels great.”

A New Era for Start-Ups

We need more start-ups. A lot more of them. New companies mean new ideas, new approaches, new products and services, and new jobs. What’s more, in the wake of the Wall Street meltdown and the catastrophic oil spill in the Gulf of Mexico, a wave of start-ups could spark a new sense of optimism about what businesses can actually accomplish — something else this country sorely needs.

We are not just talking about the fast-growing “gazelle” companies that expand at double-digit rates — though we could certainly use more of them. Nor is this solely about sparking, say, a green business boom or the creation of more tech companies or a bunch of cool new iPhone apps — though we like all of those, too. Instead, what we are seeking is a kind of rebooting of the entrepreneurial ideal — the notion that starting a company is a viable option for all Americans, regardless of where they come from. This country has long been a haven for entrepreneurs. Ten years into the 21st century, it’s time to rethink exactly what that means.

Given our anemic and largely jobless economic recovery, this is more important than ever. Young companies — those younger than six years old — provide the bulk of new jobs; in 2007, they accounted for 64 percent of them, according to a 2009 survey by the Kauffman Foundation that looked at start-up formation since the 1970s. John Haltiwanger, an economist at the University of Maryland, came to a similar conclusion in a more recent study: His research found that start-ups account for only 3 percent of total U.S. employment but almost 20 percent of gross job creation.

Unfortunately, creating new companies is easier said than done. The rate of business creation has remained stubbornly constant over the years. Since the early 1990s, the number of start-ups has hovered at about 500,000 a year, according to a survey by the Kauffman Foundation. This has been the case during booms and busts, whether taxes were rising or falling, and whether venture capitalists were irrationally exuberant or largely recalcitrant. Clearly, some new thinking is required.

That’s what Inc. aims to provide in the pages that follow. We spent months talking to economists, entrepreneurs, academics, politicians, and policymakers about what can be done to spark a renaissance of American entrepreneurship. What we ended up with was a game plan to help revitalize the American economy.

This is not just a matter for elected officials. Sure, issues such as immigration and tax policy need to be addressed. But we also need action by schools, corporations, nonprofits, investors, and entrepreneurs themselves. The good news is that you don’t have to look too hard to find approaches that work. Indeed, we discovered an entire infrastructure of programs, policies, and ideas designed to stimulate business formation. These programs need to be studied, emulated, fine-tuned, and scaled. And their leaders need to be acknowledged and brought into the national conversation about the economy.

Step 1: Take Entrepreneurship Out of the Business Schools

Arts and humanities and science students need entrepreneurship education every bit as much as b-schoolers. Universities as diverse as MIT and the University of Miami have created model programs for training students in the fundamentals of business formation. More programs like these should be created.

Step 2: Tap the Best and the Brightest Wherever They May Be

Entrepreneurs from all over the world want to start companies in the United States. Our immigration policy should reflect that, by offering short-term visas to would-be entrepreneurs who are in the country on H-1B or student visas. If those visa holders create companies that create jobs, then we should offer them green cards.

Step 3: Our Education System Should Foster Entrepreneurship Among the Young

Putting ideas into action may be the biggest challenge for entrepreneurs. Teaching youngster–especially middle-school students–how to start businesses is one of the best investments we can make. Programs such as the National Foundation for Teaching Entrepreneurship offer a good model; educators should also take small steps such as adding the biographies of great entrepreneurs to the standard curriculum.

Step 4: Speed the Start-up Process

Most start-ups don’t need much money to get started. But that doesn’t mean they don’t need help. That’s where incubators and seed accelerators such as Y Combinator in San Francisco and TechStars in Boulder, Colorado, come into play. Investors, entrepreneurs, and city officials across the country should jump on the bandwagon.

Step 5: Give Manufacturers the Tools They Need to Get Started

Plenty of Americans have the desire to make actual stuff, not just software. What they often lack are the tools to get their ideas off the ground. Shared manufacturing spaces such as TechShop in Menlo Park, California, can provide aspiring manufacturers with access to sophisticated prototyping equipment. We need more of these facilities.

Step 6: Cut College Graduates Some Slack

The rising level of student-loan debt among recent college graduates may well inhibit them from starting businesses, driving grads into stable corporate jobs that will allow them to pay down their loans. The government should find a way to let college graduates who start businesses postpone loan payments for a few years while they get their ventures off the ground.

Step 7: Give Angel Investors a Tax Break

A number of states including Wisconsin, Minnesota, and Ohio, offer angel investors a tax credit for backing early-stage ventures. More states should follow their lead, and so should the federal government. As Stephen Spinelli, co-founder of Jiiffy Lube, observes: “If I get an immediate tax credit, I get an immediate return. I know I would increase my investing if there was a tax credit.”

Step 8: Reward Innovation Through Business-Plan Competitions

A revved-up contest economy will harness the competitive spirit to launch a wave of businesses. Programs such as New York City’s NYCApps and the nonprofit X prize should be expanded and encouraged.

Step 9: Cut the Incorporation Red Tape

In New Zealand, an entrepreneur can register a business with one filing and be legal and legit in one day; in the U.S., it takes about six steps and six days. We need to make it easier for founders to register their start-ups. Hawaii’s approach, which involves an online step-by-step guide to registering a new business, should be adopted across the country.

Step 10: Pass an Energy Bill, Already

Markets–and investors and entrepreneurs–abhor uncertainty. So let’s get serious about the emerging energy economy by creating an actual energy policy. Only then will companies be able to make informed investment decisions.

Step 11: Revamp the SBIR

The Small Business Innovaton Research Program is a good idea that unfortunately supports a small number of companies that seem to excel only at getting SBIR grant money. The government should revamp the agency’s mission so that it provides seed capital and contracting opportunities to younger companies, and not just small companies. While we’re at it, let’s rename it the New Business Innovation Research Program.

Step 12: Grow Local Investment Communities at the State Level

It’s foolish to try to duplicate Silicon Valley, but smart governments can do a lot to lure investors to their states. Since 1993, for example, New Mexico has committed funds to venture-capital firms with the requirement that they open an office in New Mexico and pledge that investments equaling the amount provided by the state were made in state. The results have been encouraging, and suggest that other states should nurture local VCs.

Step 13: Bring Government into the 21st Century

Government entities have more resources–generally in the form of data–than officials realize. They need to follow San Francisco mayor Gavin Newsom’s lead and hand that raw material over to entrepreneurs.

Step 14: Fund Big Science

As a percentage of gross domestic product, funding for scientific research has dropped from 2003 levels. What’s more, the federal contribution to R&D is now below 1 percent of GDP, a commonly accepted minimum goal for economically developed countries. Meanwhile, our global economic competitors are seizing the opportunity. We should reverse course, and fast.

Step 15: Stop Enforcing Noncompetes

Midcareer executives are a rich source of entrepreneurial talent. But studies indicate that in states and in industries where noncompete agreements are commonly enforced, workers are forced to make career detours, finding their next positions outside the industry in which they had expertise. Noncompetes make it hard for people to start companies, and hard for start-ups to attract seasoned talent. Let’s follow California’s lead and stop enforcing noncompetes nationwide.

Step 16: Bank the Unbankable With Microfinancing

Over the past few years, many mainstream banks have beefed up loan requirements or significantly cut back on small-business lending. Nonprofit microfinance lenders have come to play an ever more important role in bridging the funding gap. Cities and states should embrace these kinds of programs. Businesses that seem unbankable are often anything but–if you know what to look for.

It’s difficult, if not impossible, to say how many new companies Inc.’s 16-point plan would help create. We went over our proposals and performed some back-of-the-envelope calculations and estimate that implementing these ideas would spur the formation of at least 300,000 additional start-ups over the next decade or so. The number, we admit, is speculative. But blue-sky thinking is fine with us. The point is that the old models are no longer working. We need bold thinking about how a new wave of entrepreneurship can transform the American economy, spark innovation, and provide new jobs, new vibrancy, and new opportunities.

How to Raise Capital: Part VI

Things That Matter to an Investor

Financial projections in the business plan

There is no doubt that an effective business plan is needed to successfully raise capital. Included in a business plan should be a financial worksheet which outlines all the various categories of costs that can accrue monthly. By using a financial worksheet, the new business owner can provide lenders and investors three very important financial measures in order to raise capital- the income statement, cash flow statement, and balance sheet. The income statement is probably the most important component of the three to raise capital. It includes a projected cost report, which provides projected revenues and the expected income for the new business owner in the next 3 to 5 years. Providing such financial predictions will enable the new business owner will gain credibility from their financial lenders. It also gives them an assertive edge to raise capital from additional sources.

Professionalism

Whether an entrepreneur decides to raise capital from traditional bank loans or from angel investors, new business owners will first have to impress them with their business plan. New business owners should be aware that despite the possibility of multiple rejections, they must not be discouraged and always keep a positive, professional attitude. If an entrepreneur strongly believes in their project, then they will seek any and all means to raise capital. If an investor or financial lender sees potential in an entrepreneur’s new business ideas, then they will strongly consider the opportunity to enable the new business owner to raise capital and provide funding for their new business endeavor.

Good credit vs. bad credit

Credit rating has become a very significant component when a new business owner decides to raise capital. This policy holds true for every financial lender: the higher the credit score, the lower the interest rates. If a new business owner has bad credit ratings, such as 600 and below, then they will most likely not be able to effectively raise capital since there is a high probability that their loan application will be denied. The entrepreneurs that seek to raise capital for their new business in large amounts and are planning to borrow this money from a bank should try to monitor their credit score and fix their credit history beforehand so that they can get new business loans at favorable rates. There is no doubt that a high credit score is a vital component to raise capital for a new business.

A few years ago, there were several financial institutions and banks with a scoring rank system that automatically determined the new business owner’s interest rates. However, nowadays, there are multiple credit rating agencies that diligently analyze the new business owner’s credit score before granting capital. For a new business to effectively raise capital, the new business owner must have a good credit rating.

Many entrepreneurs will agree that it is not an easy task to raise capital for their new business. The credit score agencies can easily determine the credit ratings of an entrepreneur simply by collecting information on the new business and analyzing the details, such as the borrower’s current income level, payment and debt history, and other important financial facts that may be useful in the process to raise capital. After credit agencies obtain a detailed report on the borrower, this information is sold to loan providing organizations, which further determine the amount of capital to be allocated. Whether an entrepreneur is seeking funding from a private investor or lending institution, their credit history will be investigated before they are able to raise capital for their new business.

How to Raise Capital: Part V

What You Need Before Going to an Investor or Bank

The importance of a business plan

In order to effectively raise capital, every new business idea with marketable potential should always be accompanied by a well-constructed, comprehensive business plan. To create such an extraordinary business plan, new business owners must first organize their thoughts, and then create a documented first draft. New business owners are also encouraged to seek the assistance in proof-reading in order to avoid any errors, which can seriously damage their overall credibility and chance to raise capital. A well-written business plan is the key for new business owners to successfully raise capital.

Many successful entrepreneurs strongly believe that preparing a business plan is similar to writing a resume. The new business owner has to focus on every detail, explain their academic background and credentials, and clarify how their experience could add value to the new business endeavor. In addition to providing several references, the business plan should be constructed in such a way that it leaves potential investors speechless, with no further questions asked. By creating a well-prepared, solid business plan, new business owners will greatly increase their chance to raise capital for their new business endeavor. In addition, their solid business plan will also improve their chance to raise capital throughout the development of their new business.

To further increase one’s chance to raise capital, new business owners are encouraged to seek the help of professional legal consultants or accountants. These professionals serve as a valuable resource to new business owners who want to raise capital since they can provide new business owners with all of the necessary paperwork for their business plan. They can even develop the entire business plan for the new business owner. But before seeking their help, the new business owner must make sure that these professionals are accredited and that they have experience in the field of new business startups. The assistance of accredited, experienced professionals when preparing a business plan will definitely impress investors, increasing the entrepreneur’s chance to effectively raise capital.

Fixed vs. variable expenses

In addition to a solid business plan, new business owners must be able to differentiate between two types of expenses that they will have. These essential startup expenses can be divided into two separate categories: fixed and variable. Once both types of costs are evaluated and a total amount can be predicted. Bankers and investors expect new business owners to know these costs in order to estimate how much capital will be awarded.

Fixed expenses- New business owners need to consider the amount they have to pay for rent, utilities, administrative costs, and insurance costs when they decide to raise capital.

Variable expenses- New business owners also need to take into account inventory, shipping and packaging costs, sales commissions, and other costs associated with the direct sale of a product or service for their new business when they decide to raise capital.

How to Raise Capital: Part IV

Determine Your Startup Expenses

Once a new business owner identifies the different sources of funding available, they should now determine the amount of money that is needed to raise capital. Startup fees can be rather steep since office expenses (including rent and utilities), research, development and marketing costs, technological expenses, and employee payroll and benefits are considered to be necessary business expenditures. Legal and professional fees should also be considered as well as the basic living salary for the new business owners for at least one year. During a young company’s initial years, all of these expenses can accumulate very rapidly, discouraging new business owners how to productively raise capital. However, with a solid business plan as well as ample industry and funding research, new business owners can definitely increase their chance to raise capital for their new business.

Financial crisis can mean failure

There are many reasons why new businesses do not succeed; however, deficient funding remains one of the significant reasons behind a company’s failure. In fact, all too often, the amount to raise capital for a new business can be frequently overlooked. In addition, many entrepreneurs with precarious economic circumstances are putting their new businesses at risk for failure simply because they have underestimated the monetary costs of running their new business. Rather than resorting to raise capital elsewhere, these new business owners tend to limit much of their business-related expenses which immediately restrict their new business’ capacity. As a result, this greatly threatens their company’s potential growth and stability.

Seeking financial help from outside sources

If any new business owner is ever in a desperate financial situation and need additional capital to sustain their new business or to revive their finances, then they are strongly recommended to raise capital from outside sources. This can come in the form of a loan, either from a bank, friends and family, or personal investors, such as an angel investor, who can all effectively raise capital for a new business. Although many new business owners may underestimate their start-up costs, they should not be discouraged about their rapidly growing expenses since many different exist to raise capital. It is extremely important to research all of the different avenues thoroughly in order to become familiar with the various choices and the processes involved in order make a well-planned and educated decision. Education and preparation are the two most important components that will lead new business owners to successfully raise capital.

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LA Biz Journal: Venice’s funky vibe clicks with tech firms

Street Smart

Venice’s funky vibe clicks with tech firms

A New Era for Start-Ups

How to Raise Capital: Part VI

How to Raise Capital: Part V

How to Raise Capital: Part IV

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