Capital Ideas : L.A. Forum Will Help Small Firms Attract Investors

Gene Russell, owner of an Irvine cellular phone firm, wrapped up his pitch for $5 million and waited for criticism from a panel of experts. It came fast.

“I have a problem with what is the product,” complained one.

“Who’s participating with you, and who is competitive?” asked another.

“I don’t understand the economic model of the business. What’s your payback?” said yet another.

The rapid-fire critique session was a dress rehearsal for the third Los Angeles Technology Venture Forum on Wednesday. The annual event, sponsored by the Los Angeles Regional Technology Alliance, or LARTA, displays high-technology companies before venture capitalists who want to invest in the next Microsoft, Intel or Amgen.

The idea is to jump-start Southern California’s languishing venture capital environment, which lost ground in the 1980s and now trails far behind Northern California and even Boston’s Route 128 technology corridor.

Modeled after a successful Salt Lake City program, the Los Angeles venture forum is part of a growing movement nationwide to mentor and groom small companies so that they attract life-giving capital. Southern California Edison also sponsors venture capital forums, as does the Los Angeles Venture Assn., or LAVA.

“If we can get five companies funded, each one is likely to spin off other companies and we’ll get a multiplier effect,” said Brent Rider, a venture capitalist affiliated with the Los Angeles forum. “There could be hundreds of companies, like what happened in the Silicon Valley.”

Venture forums--where professional investors meet company owners seeking capital--are nothing new. They peaked in the early 1980s, when as many as 50 proliferated nationwide “like rabbits,” said Brad Bertoch, president of Wayne Brown Institute, whose venture forum is the model for the event in Los Angeles.

But the forums disappeared after investors lost money on fledgling companies, capital gains taxes increased and interest rates climbed, Bertoch said.

Now, with big pension funds looking to invest money, venture forums are reemerging. But this time, some are taking a more measured approach, providing marketing help to small companies to increase their odds of getting funded.

In Los Angeles, for example, businesses participating in the LARTA forum were asked to do more than simply pay a fee and present their pitches to venture capitalists. Instead, 17 companies were screened and chosen from among 50 applicants. Then they met regularly with mentor teams, who provided information on how to focus and promote the companies’ products. Most of the companies are small, with three to seven employees, and are seeking $2 million to $6 million.

Kevin Klingler, president of a three-employee Chatsworth firm, Sonic Desktop Software, is appearing for a second time at the forum. The sessions help gear his pitch to investors, he said.

“They teach how to slant toward investor language, to push the hot buttons for these professional investors,” Klingler said.

But he warned that the forums are not for every type of company. Most focus on high-technology firms because returns are highest there.

“Venture capitalists take a lot of risk and fund a lot of companies, so they are looking for a 30% to 40% return on their investment,” Klingler said, a statement backed up by those in the venture forum community.

Klingler’s company was one of 20 firms that received funding after participating in previous LARTA forums. The 20 companies, whose funding came to $20 million, represent half of the companies that have participated so far.

The mentoring provided by the LARTA forum follows the Salt Lake City model, duplicated in Phoenix and Austin, Texas, and expected to spread to six more cities, Bertoch said.

Meanwhile, about 30 older-style venture forums, with little or no mentoring, have sprung up nationwide.

Since 1995, Southern California Edison has sponsored forums with limited mentoring outside Los Angeles. Unlike LARTA, the utility company accepts nontechnology companies, such as Los Angeles-based Latino magazine Si and Dresden Building Systems, an Upland manufacturer of small steel buildings.

Meanwhile, LAVA sponsors an educational forum that attracts about 700 people, including representatives from companies seeking capital and other investors. The LAVA forums are the flip side of the mentoring forums, said Michael Donahue, a former LAVA president.

Venture capitalists, investment bankers, financial consultants, business owners and attorneys present information on how to get capital and the types of deals being funded.

“The amount of capital available to emerging companies is enormous,” Donahue said.

But getting a piece of that money is difficult, especially for companies in Los Angeles, said Rohit Shukla, LARTA director.

While California gets more than a third of the nation’s venture capital dollars, about $478 million of that goes to Northern California, compared with only $16 million to Los Angeles, Shukla said.

Part of the reason is that venture capital firms pulled out of the region when the aerospace industry began to slide. Up to 18 venture capital firms and investment bank divisions existed here in the early 1980s.

Now, only six remain, said Rider, who also heads the Southland Venture Alliance, a venture capitalist organization here.

In addition, the close-knit technology community in Northern California, with its more than 50 venture capital firms, allows investors to keep close tabs on their money and companies, Shukla said. By comparison, Los Angeles companies sprawl throughout the region, stymieing a hands-on approach to investing, he said.

Finally, success breeds success, Shukla said. Venture capitalists who have made money in Northern California stay there to invest in promising spinoff companies that, in turn, create spinoffs of their own and more investments.

The L.A. forums are an attempt to bring attention to such successes here, Shukla said. Southern California has its own concentrations of companies, such as biomedical firms in Ventura County, telecommunication entrepreneurs in the South Bay and Internet companies in Santa Monica and the Westside.

“There are companies here that are every bit as capable of nurturing and growing an economic base as those in Northern California,” Shukla said.

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Venture Forum Schedule for 1997

Among Southern California’s venture forums in 1997 are those sponsored by Southern California Edison, the Los Angeles Regional Technology Alliance and the Los Angeles Venture Assn. The dates are as follows:

* Wednesday: Los Angeles Technology Venture Forum, Biltmore Hotel, Los Angeles (LARTA).

* April 22: Enterprise Development Center Forum, North Ranch Country Club, Thousand Oaks (Edison).

* April 30: 1997 Investment Capital Conference, Westin Bonaventure Hotel, Los Angeles (LAVA).

* May 7: California Venture Forum, Claremont McKenna College, Claremont (Edison).

* June 4: Antelope Venture Forum, Lancaster Performing Arts Center, Lancaster (Edison).

* Oct. 9: Diamond Venture Forum, the Historic Mission Inn, Riverside (Edison).

* Nov. 5: California Venture Forum, Claremont McKenna College, Clarement (Edison).

* For information:

LARTA, (213) 622-4300

LAVA, (310) 450-9544

Southern California Edison, (800) 3-EDISON