Paige Craig on the future of LA tech, the rise of female founders, & the much feared bubble

Paige Craig is a Los Angeles-based angel investor and mentor at accelerator Amplify LA. With stakes in over 80 deals, including Los Angeles startups Retention Science, Shop Hers, Laurel & Wolf, StackCommerce, and HONK, he knows the Los Angeles tech industry better than most. We spoke with Craig to get his thoughts on the past and future of Los Angeles tech.

 

 

 

First off, I've seen a huge rise in female founders, and founders coming in from outside the typical tech industry, building very successful startups. Cargomatic, Laurel & Wolf, and Nasty Gal stand out, and that trend is increasing. 

 

These women and men are so different from the typical tech-insider startup, but my point here is that I'm excited by women, as well as non-tech founders, creating new technology and setting an example for others. That growing diversity in gender as well as experience leads to new ideas that will change our lives; and their success sets an example for more women and outsiders to join tech. Being a successful founder doesn't mean you spent a decade in tech, it doesn't mean you have a CS degree from CalTech and it doesn't mean you're a white male with a degree from an Ivy. 

 

Experience, talent, character, work ethic, passion, a whole host of personal characteristics, and drive are more important to me. The industry outsiders coming from music, fashion, arts, construction, transportation and other industries means we'll have new solutions to old problems. This trend just makes me wildly excited for the future.

 

 

I'll start by pointing out that the LA investor base is growing, from professional angels to seed funds as well as local VC dollars. Mark Suster just brought home a big pile of green for Upfront and has expanded the team with some amazing new folks. There are amazing new seed funds like Crosscut, Susa Ventures, BAM, Atom Factory, Queensbridge, Kombo and many more making smart bets and actively helping founders launch and grow. LA has more money to fuel local startups.

 

But the growth in institutional money pales in comparison to the next trend: the rise of the micro-angel — average professionals investing online in tech startups. The big piles of cash that will fund early stage companies will primarily come from the rise of angels and micro-angels operating in syndicates. We'll still have amazing VCs and seed funds and increasingly they'll learn to work with this new class of investor.

 

This is the biggest movement of the decade. Women and men making over $200k in income (or with $1M in assets) can now invest in the next Facebook, Airbnb, Snapchat or Pinterest and they can do it online right now by going to Angellist. They don't have to squirrel their money away in real estate, stocks or bonds — they can invest directly in the future of America. 

 

For many years this whole business of investing in start-ups was left to VCs and angels; the average person didn't have a chance of investing in Facebook or Twitter in the early days; they had to wait until an IPO and pay a premium for stock.

 

Think about this in context of LA alone — we have 10 million people in Los Angeles county and somewhere around 250,000 of them are qualified to invest online in tech startups right now. If each of them invest an average of $20,000 per year we'd have another $5 billion a year going into new software and hardware startups in LA and around the US. That makes all these $10M seed funds and even $250M VC funds look kind of small. And these are only LA numbers — imagine what happens when average professionals across the US start investing... that's a really big number, somewhere around $140 billion in money for tech startups.

 

The biggest change is the rise of Angellist syndicates. By far, this rise in angels and micro-angels will have a massive impact on angel investing and the world. 

 

Professionals come to me asking: "how do I invest in tech?" "what companies should I invest in" and "how much should I invest." Now I can actually help them. I run a Syndicate on Angellist where anyone I approve can get into every single one of the deals I invest in. 

 

They get access to company information, product specs, metrics, the research and interviews we do, and they can ask questions and make up their own mind on every deal. When people back this syndicate with $1,000 to $50,000 they're making a very light commitment. They don't have to back all of these deals or any. In fact, they get to decide on a deal by deal basis if they want to invest and for how much. But backing the syndicate gets them to the front of the line and lets them invest online with a few clicks.

 

I'll go back to my first point, notably founders taking on old industries or industries that typical tech insiders wouldn't touch. A few companies who've had unbelievable growth in the last year in this sector are: Laurel & Wolf, disrupting a multi-billion dollar design industry; HONK, building a modern AAA and changing towing and roadside assistance; Cargomatic, making trucking more efficient; and The Bouqs, disrupting the flower industry. As much as Snapchat, Tinder and Whisper fascinate me I'm far more excited by the rise of LA founders attacking new industries.

 

I've seen overpriced deals every year, this one isn't any different in my mind. More importantly this is the worst question to ask upfront as an investor: what's more important, investing in a great company or getting a "deal" on valuation. I'd rather pay a small premium to work with amazing people. You're not going to regret a Snapchat, Honest Co, ZipRecruiter, Laurel & Wolf, or HONK deal at $3M or at $8M. 

 

Do those terms matter? Yes, absolutely. And if you're a great investor working with sharp founders you can always find a valuation that makes sense. When I meet founders too focused on valuation, particularly at the seed stage, I usually walk away. As much as I'm willing to pay a premium to work with great founders I generally see smart founders are better educated about negotiating a seed deal that makes sense and attracts great investors. 

 

I've seen a huge increase in quality deals in LA, and that quality growth far exceeds any increase in seed valuations. At the macro level maybe it's an issue, but I don't work on statistics. My belief is if you dig into founders, cut through all the noisy deal flow and know what you're looking for you'll continue to get great deals even in these times.