Turning on Tap of New Capital to Southland

Southern California entrepreneurs and business leaders have begun to question the lack of venture capital flowing to the area’s many eager small firms. The region abounds in technology, yet ranks behind Northern California’s Silicon Valley, Massachusetts’ Route 128 and even North Carolina’s Research Triangle and Austin, Texas, in the amount of venture investments disbursed to local companies.

But that situation is about to change thanks to a convergence of money, corporate interests, universities, technology start-ups and a number of savvy organizers who might be called facilitators of entrepreneurial business.

In Orange County, Luis Villalobos, consultant and venture capitalist, is forming Tech Coast Angels, a group of 20 seed capital investors for start-up companies that will hold its first meeting Tuesday.

Also, Gary Liebl, chairman of QLogic Corp. in Costa Mesa, and nine other active and retired chief executives have formed the CEO Emeritus Club to help finance and counsel start-up companies.

In Los Angeles, USC’s Annenberg Center for Communications now houses the Media Technology Ventures fund, which has $70 million from major corporations such as GE Capital and NBC, Mattel, Motorola, Hallmark, Fujitsu, Comcast, Sun Microsystems and others to invest in multimedia start-ups.

“Entrepreneurs can call on the managerial and technical resources of our backer companies and of the Annenberg Center’s EC2 Incubator Project,” says Jonathan Funk, the fund’s managing partner.

To top it all, the region is going to get a helping hand from one of its technological pioneers. George Kozmetsky, head of the computer lab at the infant Litton Industries in 1954, later co-founder of Teledyne and organizer of the University of Texas at Austin’s renowned technological and entrepreneurial complex, is going to be working locally with Pepperdine University’s Irvine campus and the Orange County Business Council.

Kozmetsky, an energetic 80 next month, will bring in several fellows from the Innovation, Creativity, Capital Institute he created in Austin. Southern California today needs what it had more than 40 years ago, he says, when bright young people from Litton, Hughes Aircraft, Rand Corp. and other companies would “get together on Thursday nights to trade ideas about high energy physics and the companies we were working for.

“One meeting a week wasn’t enough, so we’d have picnics on the beach at weekends,” Kozmetsky says. What resulted was a cross-fertilization of ideas that helped launch the U.S. space program and the modern electronics industry too.

Still, Northern California became the center of the electronics industry while the aerospace giants of Southern California faded as defense spending declined. Today Southern California is driven by young companies in a great variety of businesses from biomedicine to multimedia to computer software and hardware and a hundred permutations of each.

What can Angels and coaching from retired CEOs do for them? “It can help them to write business plans and qualify for funding,” says Villalobos tersely. One reason this area doesn’t attract venture capital is that it lacks the sophistication of Silicon Valley and Route 128, says Villalobos, who has founded and sold three companies.

“In Silicon Valley you can go out to a few events and a lunch and assemble a pretty good management team. Here we’re making progress, but we’re not there yet,” he says.

“Business plans here predict unrealistic, 96% profits or forecast enormous sales growth but only a 5% rise in costs. The entrepreneurs need help,” says Villalobos, who works with Accelerate, a counseling program funded by the California Trade & Commerce Agency and the federal Small Business Administration and administered by UC Irvine.

Counseling talent in Orange County is impressive. Liebl’s fellow CEO Emeritus Club members include Safi Qureshey and Albert Wong of AST, Isaac “Zak” Kong of NetSoft and Roger Johnson of Western Digital, among others.

And technological possibilities are exciting. Villalobos currently serves as chief executive for two companies being developed out of UC Irvine’s neurosciences department. One, Thuris Corp., has developed mathematical and graphic models that follow precisely the actions of various parts of the brain.

The other, Cerepeutics Corp., serves as a go-between for licensing UC Irvine technologies to large pharmaceutical companies. Villalobos would like to see Irvine develop a technology transfer liaison as successful as the Connect program at UC San Diego.

At USC’s Annenberg Center, the backers of Media Technology Ventures are looking to be kept abreast of the latest developments in multimedia technology, from online entertainment content to electronic commerce.

“We get people coming out of the film studios, setting up their own companies, and we get technological proposals,” Funk explains. The technological proposals tend to be more professional, he says, but the Annenberg Center and Media Technology’s backers want to take a look at all kinds of ventures.

Open five months, the fund invests $1 million to $1.5 million at a time but will go as low as $500,000 to get a look at an idea. It has funded four media technology companies in Northern California. But Funk is currently excited by a local company, Sandpiper Networks Corp. of Westlake Village. It has developed a product to reduce congestion on the Internet that Funk has shown to an approving NBC.

Clearly, ideas and money and management are converging again in Southern California, as they have before. But there’s a difference from the past that Kozmetsky recalls. Capital is available today for entrepreneurs and small companies where back then it could only come from giant institutions like the Defense Department.

And that makes for responsibilities as well as possibilities: Money is available but you have to know how to use it.