Venture capital investment is rising in Los Angeles — and not just for AI startups
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- Venture capital investors and private equity firms poured $3.1 billion to fund 144 deals in the L.A. area in the first quarter of this year, up 15% from a year ago.
- The money not only funded AI ventures, but also businesses in healthcare, e-commerce and defense technology, underscoring the diversity of L.A.’s economy.
Early this year, private equity firm Blackstone bet big on the future of artificial intelligence by investing $300 million in a Chatsworth company that’s been around for more than two decades.
The company, DDN, helps businesses store and manage the massive trove of data that powers AI systems — the lifeblood needed for chatbots, self-driving cars and more. DDN’s high-profile customers include chipmaker Nvidia, Elon Musk’s AI startup xAI, Google Cloud and Ford. DDN, short for DataDirect Networks, has roughly 1,000 employees.
“They have a trillion dollars of assets under management, and it’s a company that we thought would really move the needle for us in terms of extending our reach,” said Jyothi Swaroop, DDN’s chief marketing officer.
The investment was among the largest this year in the Greater Los Angeles region, which remains a hot spot for investments in both old and new tech companies poised for growth.
All told, venture capital investors and private equity firms poured $3.1 billion to fund 144 deals in the L.A. area in the first quarter of this year, up 15% from a year ago, according to research firm CB Insights. The area encompasses Los Angeles, Ventura, Orange, Riverside and San Bernardino counties.
While investment levels can fluctuate, funding in the greater L.A. region has steadily increased since 2023, when investment cooled following the collapse of the cryptocurrency exchange FTX.
Along with AI, investors also financed startups and established businesses in healthcare, e-commerce and defense technology, underscoring how investment in the L.A. market has diversified in recent years beyond ad tech businesses and video apps.
“Today it’s going into much more ambitious projects,” Mark Suster, a general partner at Santa Monica-based Upfront Ventures. “It’s going into satellites, alternate energy, national defense, drones, shipbuilding and pharmaceutical drug discovery. So it’s a lot more exciting than it ever has been.”
L.A.-area startups received $1.8 billion in the third quarter, the highest quarterly amount for the region, according to CB Insights. Most of it went to a single company.
Los Angeles-area companies that received the most money in the first quarter include Torrance-based defense company Epirus with $250 million; and Thousand Oaks-based Latigo Biotherapeutics, which received $150 million, according to CB Insights. Latigo Biotherapeutics develops non-opioid pain treatments, while Epirus makes technology that helps defend against attacks from drone swarms.
Economic consulting firm Econic Partners raised the most funding with $438 million, according to CB Insights, which relied on a report filed with the U.S. Securities and Exchange Commission. Econic disputed the total, saying it raised nine figures in the first quarter, but the company declined to say how much.
Masha Bucher, founder and general partner at Day One Ventures, said she views El Segundo as the most promising hub for “deep tech” startups tackling complex issues, such as, water scarcity.
Businesses in the L.A. area have access to a highly qualified workforce from aerospace and defense tech companies. The tech hub known as Silicon Beach also is close to the airport, making it easy for entrepreneurs to hop on a plane to raise funding in San Francisco.
“There is a power of community, and it’s definitely like a power spot on the map,” Bucher said. The firm’s investments include various AI startups and an eye-scanning crypto project backed by OpenAI’s Sam Altman in which people verify they’re human.
Investors aren’t interested in only AI, however. Culver City-based Whatnot raised $265 million, one of the biggest deals in the L.A. area this year. The live shopping app allows people to buy and sell items such as clothing and collectibles. Potential customers can ask questions about products in real-time, find deals and bid for products shown in live videos.
Whatnot says it surpassed more than $3 billion in sales in 2024, and the company expects that figure to double this year. The startup, founded in 2019, says it isn’t profitable yet, but the TikTok rival has shown investors it’s growing fast.
World made its official U.S. debut, allowing people to scan their eyes in Los Angeles, San Francsico, Austin, Atlanta Nashville and Miami, to verify they’re human. As AI makes it tougher to tell who is real and fake online, people are weighing whether to hand over their biometric data.
“Live and social shopping has the potential to be an absolutely monstrous market,” Whatnot Chief Executive Grant LaFontaine said.
The company has roughly 750 employees across the United States and Europe. The funding will help market Whatnot to attract more users and hire people to improve the shopping experience, he said.
Tech companies such as OpenAI and Google as well as payment services are doubling down on their efforts to get people to use AI-powered tools to shop, but the experiments are still early.
Like other businesses, Whatnot uses AI for customer service and to moderate content on the platform.
“I tend to be sort of a purist, which is that consumers don’t care about AI. They care about problems being solved,” LaFontaine said.
Businesses have been using AI long before the rising popularity of chatbots such as ChatGPT that can generate text, images and code.
But the frenzy surrounding what’s known as generative AI has meant that various industries are confronting how technology will disrupt the way they live and work.
San Francisco’s vacancy rate is expected to decline later this year thanks to OpenAI and other AI startups that are leasing more space in the city.
Not surprisingly, investor interest in AI drove much of the nation’s venture capital commitments in the first quarter. San Francisco-based OpenAI secured the largest funding round of $40 billion, placing its valuation at $300 billion, according to CB Insights.
“There’s a ton of opportunity to rewrite the playing field on which people do business in everything from across verticals, across industries,” said Jason Saltzman, head of insights for CB Insights. “Everyone recognizes the promise, and ... no one wants to miss out on the promise.”
Globally, $121 billion of venture capital was raised in the first quarter, with 20% of the deals received by AI companies — the highest amount ever, according to CB Insights. Nationally, $90.5 billion in venture capital was raised last quarter, with the bulk of the money going toward startups in Silicon Valley, which brought in $58.9 billion, the research firm said.
San Francisco has experienced a surge in AI startups expanding or opening up offices, drawn to the city’s swath of talent and the Bay Area’s universities. AI leaders including OpenAI and Anthropic also are based there.
OpenAI said it would use the money raised in the first quarter toward building its tools and investing in talent.
“People understand that this is a transformative technology,” said Chris Lehane, OpenAI’s vice president of global affairs in an interview. “It’s going to permeate virtually every aspect of life.”
Silicon Valley remains the far leader in venture capital AI investments, but other cities such as New York have attracted AI funding. There’s also global competition from countries such as China. As legislators weigh whether to introduce laws that could regulate AI, some tech lobbying groups have raised concerns on how those bills could affect innovation in the state.
Suster said he doesn’t think venture capital dollars will leave California.
“The opportunity set is so great here,” Suster said. “Do we occasionally get backwards-looking bills that try to overregulate how industry works in California? Of course, we do. We find ways to work around them.”
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