Are Major Changes on the Horizon for Santa Monica's Tech Startups?

Many people still equate Silicon Valley with technology, but the reality is that several areas throughout the country have become industry powerhouses. The greater Los Angeles area is one of the latest and greatest spots for tech companies, and many of these businesses are located in Santa Monica and other nearby cities. However, some experts are predicting a major shift in financing opportunities that could challenge the area’s tech growth.

The Los Angeles Boom

The Los Angeles area is home to a number of notable tech startups that have become hugely successful, including Snapchat and Tinder. The number of investments in L.A. almost tripled from 2012 to 2014, and approximately $4.2 billion was invested into the area’s tech industry last year. This shows a strong commitment to growing L.A.’s tech sector, but anyone who is currently considering launching a startup or small business should not expect investor money to continue running so freely throughout the rest of the decade.

Will the Investor Bubble Pop?

Mark Suster is widely regarded as one of the leading tech gurus in L.A., and he has placed a lot of time and money into the area. For example, Suster was instrumental in bringing venture capital firm Upfront Ventures to Santa Monica, and he is also in charge of managing a $280 million investment fund. Although 2015 was a record year for tech investments and stock prices, Suster has issued a warning that this bubble cannot possibly last for much longer.

According to an interview with LA Weekly, Suster has predicted that investment capital is about to become much scarcer, especially from angel investors. This is due in part to current tech properties being overvalued, which is something that could quickly turn a major player into a financial dud overnight.

On the other hand, Suster is not saying that we are about to experience a new version of the dot-com crash that rocked the industry in 2000. This is always a possibility, but the odds are high that the upcoming changes will serve as more of a correction that will get everything in back in line. After all, technology has firmly rooted itself into our culture. Because of this, there will always be a need for innovative companies that can take technology into new and bold directions. What these future movers and shakers currently need to be aware of is the fact that they may need to receive financing from alternative options.

Building Capital without Investors

Angel investors and venture capital firms have become the backbone of the tech industry, but what happens if their willingness to hand out money drastically diminishes? The good news for anyone who is currently building a small business or startup in the world of technology is that they can still turn to traditional options such as business loans. Additionally, services such as Snapcap provide alternative lending, small business news updates, and borrower resources.

Fully utilizing these options will make it much easier to weather any upcoming investment storms. As an added bonus, new tech startups can avoid the volatile nature of putting too much of their company’s financial stability in the hands of investors and venture capital firms. This might mean starting smaller, but it will also ultimately give these businesses more control over their products and services.

It is hard to say for certain exactly when or even if the tech investor bubble in the L.A. area is going to pop. However, an understanding of investor history and an appreciation for Suster’s highly experienced viewpoint makes it necessary for new and aspiring tech companies to look closely at their financing possibilities.

It may be easier to get a lot of seed money from a company or individual investor who has a long history of backing tech projects, but the odds are high that this will not be the most stable solution in the relatively near future. Instead, traditional and alternative lending resources are well-poised to help the L.A. tech scene continue to grow while investors reassess their financial choices.