Start-Up Companies Pitch Woo for Venture Capital : Entrepreneurs: 34 firms at conference get five minutes each to convince investors they deserve money.
Like fly fishermen casting for the big one, 34 start-up companies began making their best presentations to catch investors Wednesday.
The two-day investor conference at Le Meridien Hotel, which continues today, aims at putting investors and venture capitalists together with the cash-starved entrepreneurs of Southern California’s fast-growing private companies. Companies making presentations get five minutes to convince attendees that they deserve money.
Several chief executives this year touted the opportunities of “interactive media,” which includes everything from video games played by cable TV to an electronic fantasy sports league.
Among the companies seeking funds in the interactive market were Quadra Interactive in Carlsbad, which is making games such as a compact disc game based on “Saturday Night Live”; Fantasports in Irvine, which runs a fantasy football league, where hobbyists trade players and play games long distance, by touch-tone telephone network; and Edge Interactive Media, a Pasadena company that wowed the audience with a demonstration of its three-dimensional graphics for video games on CDs.
Another company entering the game market had its origins in the aerospace industry.
Last year, when Hughes Microelectronics moved from Rancho Santa Margarita to Carlsbad and decided to abandon its non-core aerospace markets, it shut down a sound laboratory known as Arnold’s Sandbox. Hughes had invested $4 million in the technology.
Inventor Arnold Klayman, who sold his 3-D sound technology to Hughes in the 1980s, put a group together and repurchased the patented technology from Hughes in June and set up SRS Labs, based in Newport Beach.
Stephen Sedmak, president of SRS, said the company has signed license agreements with Sony Corp. and RCA. But the real potential is in taking Klayman’s sound technology and shifting it from the highly competitive consumer electronics market to growing markets such as video games.
The company’s product enhances sound for two-speaker stereos to make it seem as if the sound comes from all directions. It eliminates any “sweet spot,” or a spot in the room where highest sound quality can be heard, giving superior sound quality anywhere in a room, as in a movie theater.
“Sound sells,” Sedmak crooned from the podium. “Could you imagine ‘Jurassic Park’ without the sound of the dinosaur’s steps?”
Not all the investors there were ready to dive into the interactive games market. Some were lookers.
“We tried that before and we were too visionary,” said James R. Bergman, general partner at DSV Partners, a Newport Beach venture capital firm that has invested about $10 million in new companies in the past year.
Bergman was among the more popular people at the conference, as was John Ulrich, who heads the Innocal venture capital firm in Costa Mesa. Innocal, funded by the state teachers retirement system, raised $75 million in April and pledged to invest 75% of its money in California companies.
“We’ve looked at hundreds of companies but haven’t made an investment yet, though we made our first offer last week,” Ulrich said. “We’ll be selective, making maybe two dozen equity investments in the next five years.”
For the first eight months of the year, venture capitalists invested $12 million in Orange County companies, according to Ernst & Young’s accounting office in Irvine.
That compares to $28 million in 1992 and $41 million in 1991. More than half the 1993 amount went to medical, health-care and biotechnology businesses.
Among the newcomers for the entrepreneurial rite of passage was Chris Nunez, who founded Information Indexing Inc. in a garage in Garden Grove with his brother Robert. The company has designed software to convert engineering and parts manuals into electronic databases on compact disks.
“We’ve been at it five years but we’re really just getting going,” Nunez said. “We’re technical people and we need to find a chief executive.”
Not all the young companies in attendance were neophytes, though.
Sol Zechter, chief executive of CaseWare Inc. in Irvine, sought $3 million in funding for his latest business, which provides tools for software designers.
With his partner, Fred Cox, Zechter spent most of the 1980s building one of Orange County’s larger high-tech companies. Cox, co-founder of Costa Mesa-based Emulex Corp., saw his company grow to $160 million in sales and remains its chairman. CaseWare lost $1.4 million on revenues of $2.1 million for 1992, but its officials say they aren’t discouraged.
“We bought a majority interest in this company and we’re growing fast,” Zechter said. “We’ve got 50 people.”
And Allan Wolfe, president of Voxel, a Laguna Hills company that is developing holographic technology that can be used to produce 3-D X-rays, is a former venture capitalist.
Now the tables are turned and today he’ll be one of 18 remaining company executives casting out their lines to venture capitalists and investors for their money.
The event is sponsored annually by investment bank Cruttenden & Co. in Irvine, accounting firm Ernst & Young and law firm Stradling, Yocca, Carlson & Rauth in Newport Beach.
About 200 people are expected to attend the conference, but one executive complained that it appeared there were more presenters than investors on Wednesday.
“It’s a sign of the times,” he said.
