Q&A: L.A. venture capitalists who missed Snapchat don’t want to make the same mistake twice

There’s a new factor driving Los Angeles start-up investment: Snapchat-induced fear of missing out.

That’s according to Chris Hameetman, president of Tech Coast Angels Los Angeles — the region’s leading angel investor organization. He says concern about missing the boat on Los Angeles’ next big thing is the most noticeable local trend during the first quarter.

Investment in Los Angeles and Orange County start-ups held steady compared with recent quarters, according to several reports from market research companies. But they show an increasing portion of the investment nationwide is going to well-established start-ups compared with newer ones. Expect the gap to narrow, at least in Los Angeles, in 2017 as investors pay more attention to the the newest companies, Hameetman says.

His recent investments include bar-tending robot Somabar (for which he’s a co-founder), delivery service Schlep & Fetch and inhaled antibiotics maker Savara Pharmaceuticals. Angels such as Hameetman usually are wealthy individuals who make the first bets on start-ups, often when they’re nothing more than two people and an idea.

What caught your eye in the first quarter?

One of the more interesting things happening is the Los Angeles ecosystem itself rather than any one company.

In 2016, the venture capital world was all about going further downstream to allow companies to mature more, get more traction, really prove themselves more before investing. The larger venture capitalists moved further from [riskier] angel investments because there was ample investment available from others.

Now flash-forward with Snap’s IPO [last month] and the realization that Los Angeles venture capitalists were missing out. Snap’s biggest investors were not from Los Angeles.

Snapchat: From an idea at Stanford to Southern California’s biggest-ever IPO »

In 2017, this is the year of local venture capitalists putting their tendrils out. There’s a lot of egg on people’s faces for missing out on Snap. There’s a lot more emphasis on seeing every possible deal you can in Los Angeles. We’re seeing a lot more cross-pollination, a lot more established venture capitalists coming to us with inbound inquires.

We’ve opened a venture affiliate membership for venture capital firms and larger [family-fortune investment groups] to help them see as much as they can possibly see. Trying to keep an eye on every part of the city and every node is becoming more challenging. Therefore, all the funding sources have to work together to share information. It’s a very interesting post-Snap world.

Why was there ample angel investment available? Why did that allow venture capitalists to pull back the last few years?

It is stunning how many times I heard of a new investment, and I’d never heard of the investor before. There’s an inordinate number of micro-funds, new accelerators, family [investment groups]. There are so many capital sources and people investing in very, very early-stage companies that venture capitalists have had the opportunity to step back a bit, even if they are seed funds, so they could cherry-pick those that are showing traction and innovation.

And Snap really flipped the switch?

It’s brought eyes back to early-stage companies. But I don’t know how this is all going to play out because we have these two competing forces: Half your brain is saying, “Wait, wait, wait [to consider investing].� And half is saying, “You don’t want to not see something.�

Where are you seeing VCs getting involved?

Normally, you wouldn’t see venture capital companies investing in the same rounds as angels. I have absolutely seen that this year. I can demonstrate that in [brain health technology start-up] Neural Analytics, which just closed a $10-million Series A fundraising round last week. We had both angel, family office and venture capital money. We have Coin-In, an online casino game maker, and that was local angels and VC investor money, with Wavemaker Partners.

What other trends are you seeing?

I am surprised I haven’t seen many artificial intelligence deals. AI has been so hot in the tech industry that I’m surprised in Los Angeles I don’t think I’ve seen any new [start-ups focused on artificial intelligence technology] in a big way.

I haven’t seen a ton of augmented reality technology either, but I’ve seen a ton of virtual reality content creators.

Local universities have ramped up their entrepreneurship programs. Any results from that for you yet?

Absolutely. Neural Analytics was born out of the UCLA Anderson School and the hospital. It’s built on licensed UCLA technology.

[But this school year,] nothing has blown us away from the universities.

There’s continued maturity of the university programs, but candidly, the real investable companies have been coming from the graduate schools rather than from the undergraduates. They have a better sense of the pain points, solutions and the addressable market.

Coming out of undergraduate, it’s a little harder to get your arms around issues that require a bit of entrepreneurial maturity. People with real world experience give a bit more comfort.

Do you foresee any additional Snap-like catalysts for changes then this year?

There absolutely is a markedly improved IPO environment. But I don’t see anything directly on my radar that will be a sea change.

At this point, there should be no reason a company can’t be born, matured and go public in Los Angeles. There should be no pushback.