Region’s Venture Investments Surge in Quarter
Venture capital investment in Southern California picked up dramatically during the fourth quarter to nearly match the record growth rate of both the nation and Northern California.
Southern California companies received $338 million in venture investments for the period, up from $206 million the previous quarter but lagging the $1.2 billion invested in Northern California enterprises during the same period, according to data released Tuesday by accounting firm Coopers & Lybrand.
For the year, venture capital investment reached $956 million in Southern California, a 13% increase over the previous year. That makes Southern California one of the best-funded regions in the country, approaching the level of the state of Massachusetts, which raised $1.2 billion.
“If we ignore Northern California, we’re doing pretty good here. Our trend is going up,” said Massoud Entekhabi, managing partner for Coopers & Lybrand’s Southern California high-tech group. “When you talk to the [venture capitalists], more and more are venturing down from San Francisco and taking a look at what’s here.”
Nationwide, $3.6 billion was invested in the fourth quarter, bringing 1997’s total to a record $12.2 billion, Coopers said. That tops the previous year’s record of $10.1 billion and almost doubles the $6.6 billion invested in 1995.
Economists closely watch the volume of venture capital flowing to a region because it signals whether that area will be a leader in the future.
“We’re making some progress here in Southern California, but we still have a long way to go,” said Jack Kyser, chief economist for the Economic Development Corp. of Los Angeles County. “We need to let the world know that we have a huge base of growing companies.”
Although Los Angeles County is in the midst of a small-business boom, it has historically had trouble attracting venture capital because of its sheer size. In addition, some local industries, such as entertainment, have their own network of funding sources.
Nationwide, venture investment is on the upswing because funds are flush with cash from investors who have made money in the stock market. Also fueling the growth, pension funds and major corporate investors are rushing into the venture market, lured by returns that can hit 50% or more annually.
In Southern California last year, San Diego County received the most venture capital, $428 million or 45% of the total. It was followed by the Los Angeles area, with $275 million or 29% of the total, and Orange County, with $252 million or 26% of the total, Coopers found.
Southland companies receiving the most money were GeoCities, a Santa Monica-based Internet firm, $25 million; Diversa Corp., a San Diego biotech company, $21 million, and Auto-by-Tel, an Irvine Internet company, $13 million.
While Northern California is the state’s technology center and received $3.6 billion in venture investment during 1997, some local areas are emerging as hotbeds of young high-tech companies, including the “101 Corridor” from Westlake Village to Santa Barbara.
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Venture Venues
Venture capital investments by industry in Southern California* in fourth quarter 1997, in millions of dollars.
Communications: $83.0
Biotech/med. tech: $67.3
Software: $41.8
Electronics: $38.4
Health care: $11.9
Consumer**: $3.7
Radio/TV: $0.8
Other: $91.1
*Includes Los Angeles, Orange, San Diego, Ventura and Santa Barbara counties.
**Consumer products manufacturers.
Source: Coopers & Lybrand
