Venture capital upswing is seen
Southern California is starting to muscle out New England for second place behind Silicon Valley as a magnet for venture capital.
A report scheduled to be released today by research and consulting firms Ernst & Young and Dow Jones VentureOne underscores Southern California’s attractiveness, especially to financiers of the healthcare and biotechnology industries in San Diego County and information technology firms in Los Angeles.
“I think it’s Southern California’s strength,” said Mike Schoenfeld, Ernst & Young’s director of venture capital advisory group for the Pacific Southwest. “You have a very strong healthcare market. And in L.A., there’s an industry group that’s different than anywhere else -- information technology, media and entertainment.”
In the first quarter of 2007, Southern California companies received $1.1 billion of investment, a 23% increase over the same quarter last year. It was the second consecutive quarter in which Southern California edged out New England.
Companies that received money include Los Angeles-based Geni.com, which enables its users to build a family tree. It brought in $10 million in second-round financing.
Another Southern California company, Sherman Oaks-based GoTV Networks Inc., a made-for-mobile television network, received $12 million from Motorola Inc. and Qualcomm Inc. And Vantage Media Corp., a Venice firm that provides Internet search marketing services, received $70 million in its first round of funding.
Founded five years ago, Vantage Media’s software analyzes search engines to match clients with potential customers. For example, schools and colleges pay Vantage Media for leads on potential students. With 65 employees, the company plans to use its investment to enter other industries such as financial services, said Mark DiPaola, founder and president of Vantage Media.
In San Diego, CardioNet Inc., which makes mobile technology to monitor cardiac patients, received $110 million in later-stage funding.
Nationwide, venture investment climbed 8.4% to $6.9 billion. Of that, $3.12 billion was pumped into information technology, more than in any quarter since the dot-com crash of 2000. There were 584 deals nationwide in the quarter, down 31 from a year earlier, with Southern California up by six to 66.
Overall, California companies received $3.32 billion, a 12.5% increase in the amount of investments compared with the first quarter of 2006. San Francisco Bay Area companies took in $2.2 billion, up 10%. New England firms took in $927.8 million, a 13% decrease from the same quarter last year.
Since Ernst & Young began tracking venture spending in the early 1990s, New England has always held the No. 2 spot. But last year, Southern California surpassed New England in the amount of venture capital invested annually, thanks to a strong fourth quarter. The region continued the trend in the first three months of this year.
Although most national and Southern California investments went to healthcare companies, particularly pharmaceutical device manufacturers, most of the venture capital invested in Los Angeles -- $350 million out of $401 million -- was for information technology firms.
In San Diego, $533 million out of $606 million was invested in healthcare companies, with 10 deals of more than $20 million each and five of more than $40 million. In Orange County, $85 million of the $96 million invested was to healthcare firms.
Nationally, investments in the healthcare sector increased the most, to $2.88 billion, up 64% from the same quarter last year. EUSA Pharma, a biotechnology company, in King of Prussia, Penn., swept up $175 million in its second round of financing, the largest amount given to any company in the first quarter.
In general, investors were spending more money on the very early stages of companies, Schoenfeld said. In the first quarter of 2007, firms took $1.57 billion in their first round of financing, a 22.7% jump from the comparable quarter in 2006. And 37% of all invested money was for the seed or early stage investment, he said.
“There’s a strong amount of confidence in early stage companies and their management,” Schoenfeld said. With more initial public offerings and acquisitions, investors are confident that they will get their investment back, he added. “There are clear exits on the horizon.”
