Venture Capital Remains Flush for O.C. Firms
Fresh cash poured into young and growing companies in Orange and Los Angeles counties during the third quarter at the same torrid pace that set a record in the second quarter, according to a survey released Monday.
Venture capitalists invested $84.6 million during the third quarter in Southland companies, except those in San Diego County, compared with $86.2 million in the previous three months and $52.1 million in last year’s third quarter, according to the survey by Price Waterhouse LLP accounting firm.
Venture funding, money given to entrepreneurs who can’t get conventional loans, is seen as a sign of confidence in the economy. Most of the money is collected by firms from pension funds and other institutions.
Statewide, investments fell to $477 million from the second quarter’s $768 million, but the amount was still 51% ahead of last year’s third-quarter investments. Nationally, funding fell to $1.6 billion from the previous quarter but remained 64% ahead of last year’s third quarter.
“If we were to see two or three quarters of declines like this, I’d worry about a trend,” said L. Michael Larrenaga, managing partner of Price Waterhouse’s Southern California technology group. “But this is the second highest of the five quarters we’ve tracked, so I’m still very encouraged by the numbers.”
Industry experts attributed the general decline in investments to seasonal slowdown and a fallback from a hot second quarter. In addition, uncertainties over the national budget and worries about public reaction to the economy kept some players on the sidelines.
“In spite of everything the Feds are telling us, there’s still an underlying belief that the economy is not all that it’s cracked up to be right now,” said Neil Rodberg, director of operations at Massachusetts Institute of Technology’s Technology Capital Network.
Even so, “the fundamentals of the venture business are very strong,” said David Gleba, chairman of VentureOne Corp., a San Francisco investment-research company.
He predicted the industry will invest a record $6 billion or more this year.
“There already has been an enormous amount of capital put into venture capital firms,” Gleba said, “so the supply for entrepreneurs is locked in for a year or so.”
The problem is whether venture firms can obtain decent returns on their investments. So far, most returns are ranging from 8% to 13%, far from the 20% plus earned in the hectic 1980s, Rodberg said.
“We still have a lot of venture companies chasing after not enough good deals,” he said.
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Something Ventured
Companies in Orange and Los Angeles counties raised $84.6million in venture capital in the third quarter--slightly less than the previous quarter but 62% more than last year’s third quarter. The trend, with amounts in millions:
1995
3rd qtr: $84.6
Hot Spots
Two areas dominated third-quarter venture capital investment. Business services and medical devices received nearly half, 42%, of the money raised. Amounts in millions:
Business services: $19.0
Medical devices: $17.0
Consumer: $13.1
Entertainment: $12.0
Distribution/retailing: $7.8
Industrial: $6.0
Software: $6.0
Health care: $3.0
Communications: $0.6
Electronics: $0.1
Source: Price Waterhouse LLP
