O.C. Firms on Top as Venture Funding Surges in Southland

Investors, loaded with cash and spurred by an active market for public offerings, risked $123 million on young, promising Southland companies during last year’s final quarter, more money than they have invested in recent periods.

The amount is nearly twice the $62.2 million put into Southland companies in the last quarter of 1994, according to a quarterly survey by the Price Waterhouse LLP accounting firm.

Most of the venture capital went to 14 Orange County companies, which accounted for 75% of the funds invested in companies in Los Angeles, Orange and Ventura counties, the survey found.

The latest results reflect a trend that started in late 1994 as venture capitalists began to make more money available to entrepreneurs.

Statewide and nationwide, more venture capital was pumped into growing companies in the final quarter than in any of the last six quarters for which Price Waterhouse has conducted its survey.

Investors put $874 million into California companies in the final three months last year, up from $525.6 million in the fourth quarter of 1994. They invested $2.34 billion nationwide, up from $1.5 billion a year ago.

Venture funding is private money that is typically invested in new, young or growing companies. It also is used sometimes to finance corporate buyouts and to invest in underpriced public companies.

Most venture capital went to high-technology and biomedical companies. The investments “highlight the significant role of high-technology companies in the future of American business,” said Donald A. McGovern, who chairs Price Waterhouse’s high-technology group.

Silicon Valley and its high-tech entrepreneurs took the biggest chunk of the money nationally as 103 firms there collected $617 million, or 23% of the total amount of venture capital invested.

In Southern California, food was king. Venture capitalists provided $44 million, in part to finance an investment group’s purchase of hamburger chain Johnny Rockets Group Inc. in Irvine. They invested $15 million in Wolfgang Puck Food Co. in Los Angeles.

In San Diego, venture funding reached $101.2 million in the fourth quarter, short of the $117.4-million peak during the second quarter but far ahead of the $79 million invested in 1994’s final quarter.

“The results reflect extraordinary confidence in the economy and in entrepreneurs,” McGovern said.

The availability of cash and the hot market for initial public offerings have primed the entrepreneurial pump, venture capitalists say.

“What this survey shows is that entrepreneurship is alive and well and thriving,” said Charles Martin of Enterprise Partners in Newport Beach. “The process of creating new companies is more robust than I have ever seen it.”

Robert A. Hoff, director of Crosspoint Venture Partners in Newport Beach, said many investors are jumping into the market for high-technology companies that offer Internet-related products and services.

“I remember investing back in the 1980s in the personal computer market,” Hoff said. “It took five to seven years for that market to get where this market is in two years.”

He noted the high returns for Raptor Systems Inc., a Waltham, Mass., company that lost $2.6 million last year on sales of only $3.9 million. The software company, which makes security products for the Internet and related networks, priced its initial public offering two weeks ago at $15 a share and saw it open on the Nasdaq market system at $22.75 a share. It closed Wednesday at $30.625.

“And there are at least 10 examples like Raptor,” Hoff said.

Martin pointed out that investors aren’t much interested in fixed-rate funds, real estate or oil and gas deals because returns have been “dismally low.” So they have turned to venture funds, he said.

For all of last year, more than 1,500 companies nationwide picked up nearly $7.6 billion in venture funding. In California, 487 companies received $2.35 billion last year, including 84 in Los Angeles and Orange counties that picked up $337.2 million.