In the 1950s L7 was slang for loser -- or, in the parlance of the day, a square. Square had long been a slang term for a person who is not cool, appearing in the 1940s to refer to an old-fashioned person. L7 purportedly referred to the visual pun:
L7
Well, it's supposed to look like a square. American clarinetist and band leader Artie Shaw claimed that it came specifically from a hand signal: "if you form an L and a 7 with your finger, that's what you get." If that's true, it might possibly be the source of the modern 'loser' hand gesture -- although my money is on coincidence bolstered by humans' love for making cryptic gestures at each other.