Venture Capital Surge Gives 27 Southland Firms a Boost

Venture capital investments in Southern California surged to a record $289.7 million in the third quarter, up 47% from the second-quarter total of $197.2 million and 15% higher than $251.2 million a year earlier, the accounting firm PricewaterhouseCoopers reported.

In the latest quarter, 27 firms received financing in Los Angeles, Orange, Ventura and Santa Barbara counties. The increase in the total dollars invested reflected larger amounts of capital for each company, rather than a higher number of businesses funded, the firm said.

“You do have some big deals in the third quarter,” said Luis Puncel, a partner in PricewaterhouseCoopers’ high-tech group. “The venture capital firms have so much money, they can’t do smaller deals and manage their portfolios effectively. They look for larger deals so they can concentrate their investments and be involved in actively managing the companies.”

That trend has created problems for very young firms that are looking for investments of less than a few million dollars, Puncel said. The gap has been filled in part by the recent formation of some groups of individual investors--called angels--that back start-ups. But, he said, “it’s more difficult today than it was just a few years ago for the early-stage companies.”

In Orange County, Buycomp.com, the world’s largest Internet computer retail outlet, received a $20 million investment from Softbank Corp., Japan’s biggest distributor of computer software. Softbank, which also has an in-house venture capital arm, has since committed an additional $40 million to the Aliso Viejo-based company, raising its stake to about 20%.

Costa Mesa-based Chimeric Therapeutics Inc., which has developed a solution to bone marrow transplant rejection, received $12.1 million from three venture capital firms.

The software and information industry was the largest recipient of venture capital in the third quarter, with eight Southern California firms reaping a total of $69.8 million. Companies in the communications, industrial and health care fields were also major targets of the investment funds.

Two firms accounted for more than one-third of the dollars invested locally in the third quarter.

Somera Communications LLC, a Santa Barbara-based provider of telecommunications infrastructure equipment, raised $51.75 million. Real Select Inc. in Westlake Village, which provides online listings of real estate, received $50 million.

Other companies that received large investments were Los Angeles-based Transtar Metals Inc., a maker of aerospace metals, $43 million; Medical Analysis Systems, a Camarillo supplier of health care devices, $18 million; and Long Term Care Group in El Segundo, a managed care provider, $15 million.

Nationwide, venture capital firms invested $3.78 billion in the third quarter, up slightly from $3.74 billion in the second quarter and 26% higher than the $2.99 billion invested in the same period in 1997.

As usual, Silicon Valley accounted for the largest share of venture capital investment. Firms there reaped $1.25 billion in new financing in the third quarter, about even with the previous quarter and a 28% increase from $972 million a year before.

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Capital Investments

Nearly $290 million of venture capital went to 27 firms in Orange, Los Angeles, Ventura and Santa Barbara counties in the third quarter, a 15% increase from last year’s third-quarter total. Dollar amounts in millions:

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x x % of % Change x Amount Total from 1997 Software & information $69.8 24 +339 Communications 59.3 21 +151 Industrial 47.0 16 -25 Health care 41.7 14 +133 Computers/peripherals 20.0 7 -69 Distribution/retailing 18.0 6 +260 Business services 14.8 5 +54 Biotechnology 14.2 5 -14 Medical instruments/devices 3.6 1 +200 Electronics/instrumentation 1.5 1 -17 Total $289.7 100 +15

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Source: PricewaterhouseCoopers