Snapchat IPO

What Snap's IPO means for the tech scene in Los Angeles

Evan Spiegel, Snapchat
Getty Images

Snap's IPO will be the biggest to come out of Los Angeles, and could be a game-changer not only for the "Silicon Beach" start-up ecosystem, but also for richly valued start-ups all around the country.

Investors and entrepreneurs are looking for signs that the IPO market is turning around after a rough 2016. Last year's IPO market brought in the lowest proceeds since 2003 and the fewest number of deals since 2009. The 105 public offerings last year were a 38% decline from 2015 and a 62% decline from 2014, according to Renaissance Capital. That decline is in part due to market volatility through the first half of 2016 — on economic uncertainty due to Brexit and the like — and the fact that companies that went public in 2015 largely underperformed the market.

If Snap's IPO goes well, that bodes well for a number of highly-valued start-ups in the pipeline such as Spotify, Pinterest, and Dropbox — not to mention AirBNB and of course eventually Uber. And there are a range of companies watching to see whether the IPO window will open: CB Insights annual IPO Pipeline report highlights 86 companies that have raised funds at valuations of at least $1 billion.

And Snap's IPO is certainly a watershed for Los Angeles after a number of big acquisitions. After Oculus sold to Facebook for $1 billion and Dollar Shave to Unilever for $2 billion, this IPO tells a different story of companies building an independent future.

Los Angeles Mayor Eric Garcetti says it puts the city's tech scene on the global map. "Folks will have the capital to spin off from Snap their own ideas and their own companies," Garcetti said in an interview with CNBC last month at the LA Tech Summit. "It will also be that anchor that shows that for a long time the buzz about LA was you start a company here, get acquired, instead of starting a company that would really become a pillar and become that lynchpin for future activity."

Social media showdown ahead?

As soon as Snap employees' 150-day lockup period expires we could see dozens of new millionaires invest in — or start — companies in Snap's backyard. LA already ranks third on the Kauffman Index of Startup Activity — ahead of San Francisco. And a successful IPO putting money into the hands of engineers could propel it even further.