Southland Sees Economy Fatten Venture Capital

The value of venture capital deals in Southern California doubled in the first quarter as the surging economy drew investors to promising communications, software, biotechnology, retail and Internet-related companies, a survey found.

Venture capital firms invested $231.5 million in businesses in the Los Angeles and Orange County region in the first three months of the year, up from $113.8 million in the same period of 1997 and 24% above the fourth-quarter total of $187 million, the accounting firm Price Waterhouse said Monday.

The first-quarter total was only slightly lower than the record reached in the third quarter last year, when venture capitalists poured $250.7 million into local firms.

These investments in the area are still a dribble compared with the flood of funds that goes to Silicon Valley firms, but venture capital activity in Southern California has been growing at a faster clip.

In the first quarter, venture capital investments in the Silicon Valley totaled $821.4 million, up 46% from a year ago but down 16% from the fourth quarter, the accounting firm found.

Venture capitalists have in the past largely ignored Southern California in favor of high-profile Silicon Valley. But they are increasingly looking for deals in this region, said Mike Larrenaga, a partner in Price Waterhouse’s Southern California technology industry group. “The economy is coming back up and people are looking to Los Angeles and Orange County for opportunities,” he said.

The level of funding should continue to grow, he said, in part because venture capital funds are bulging with cash to invest from the soaring stock market. Venture capital investors typically make a profit when a company’s stock is sold to the public.

But many local entrepreneurs are still hungry for cash, Larrenaga said. “There’s a lot of money out there, but there are still a lot of opportunities that are going unfunded,” he said.

Attracting more investment capital is important to the region, he said, because venture capitalists tend to back fast-growth firms that add jobs quickly and help spur the economy.

A total of 36 Southern California firms, including a few in Ventura and Santa Barbara counties, received funding in the first quarter, the survey found. The investments were spread across a variety of industries.

The largest amount, $69 million, went to Fountain View Inc., a Los Angeles nursing home operator. Another big recipient of capital was 3 Day Blinds Inc., an Anaheim maker of window coverings, which raised $30.4 million.

Two Irvine biotechnology firms received funding. Cytovia Inc. raised $10.1 million, and Reprogen got $5.1 million.

College Enterprises Inc., a Woodland Hills retailer that operates The Pulse Copy & Technology Stores on college campuses, received $5.1 million. Culver City-based RDL Commercial Technologies Corp., which makes transmission mechanisms for fiber networks, raised $7.5 million.

Sonoma Systems, a Marina del Rey maker of equipment for automated teller machines, received $9 million. An equal amount went to IndeNet Inc., a Los Angeles firm that is building a network to distribute commercials digitally. Calabasas-based Digital Insight Corp., an Internet banking service provider, raised $8 million.

Nationally, $3.6 billion was funneled into companies by venture capitalists, down slightly from the fourth-quarter record of $3.7 billion but up 55% from the first quarter of 1997.

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Plenty Ventured

Venture capital investments in Southern California doubled in first-quarter 1998 from the same period last year. They also increased 24% from fourth-quarter 1997. The largest share of the money in this year’s first quarter went to health care deals. The trend in deals and amounts, excluding San Diego County:

Amount invested*

1997, 1st qtr. (22 deals) $113.8

1998, 1st qtr. (36 deals) $231.5

Here’s how this year’s first-quarter investments divided:

Health care: 43.4%

Consumer: 14.5%Communications: 11.1%Software & information: 10.0%Biotechnology: 6.6%Industrial: 4.8%Others: 9.6%Source: Price Waterhouse