Southland Venture Firms Seeing More Cash
In a sign that Southern California is becoming more attractive to venture capital investors, partners at several local funds said they are raising record amounts of cash to invest in new businesses here.
At Brentwood Venture Partners in Santa Monica, managing partner G. Bradford Jones says the firm already has commitments for about $600 million for its latest fund, but plans to cap the fund at $300 million and will limit the amount that people can invest.
“We don’t want to take more money than we think we can invest. There are certainly enough companies to invest in, but for a firm our size, we can properly invest about $300 million,” Jones said, adding that the Brentwood Associates IX LP fund will close in mid-October and that a large portion of its cash--perhaps as much as 40%, or $120 million--could be invested here. That’s up significantly from five years ago, when about 25% of Brentwood’s funds were invested here, Jones said.
“I’m not sure why it’s picked up so much in Southern California, but it sure has,” Jones said. “We’re seeing some high-quality opportunities, especially in software and Internet companies.”
Firms Brentwood has invested in include Calabasas-based computer networking company Xylan; Irvine-based health-care company Biopsys Medical; WebTV Networks, which was purchased by Microsoft last year; and Fremont-based chip company Cirrus Logic. Last week, Brentwood made its largest investment ever, $11 million, in Long Beach-based CIMvision, a privately held and profitable software company, it said.
Venture capital firms are not for small or conservative investors. They raise money from wealthy individuals and institutions, then plow the funds into new, fast-growing, cutting-edge businesses. While these are risky companies that have a high chance of failure, there is also the potential for big profits once the firms go public or are sold or merged.
Analysts say venture capital can be a good economic indicator of growth in a region because small, growing businesses create jobs and can become regional economic powerhouses.
Northern California, especially Silicon Valley, has historically captured the bulk of California’s venture capital money. Indeed, there are 150 venture funds in the northern half of the state, compared with about 20 in Southern California.
But interest here is growing rapidly. For the first half of 1998, $547 million was invested in Southern California, compared with $411 million for the same period of ‘97, according to the accounting giant PricewaterhouseCoopers. In Los Angeles County alone, about $200 million was invested, almost double the tally from the same period a year ago. Nationwide, $6.9 billion was invested through the end of June, compared with $5.6 billion for the first half of last year, the accounting firm said.
“It’s going to be a record year” for venture capital nationwide, said Massoud Entekhabi, a partner in the technology group of PricewaterhouseCoopers. “Southern California is a great place to be doing business--there are a lot of deals getting done here and a lot of money coming into the area.”
Brentwood, which was founded in 1972, focuses on investing in the health-care and technology industries. Its new fund is one of several it has launched. Brentwood created a $50-million fund in 1989, an $80-million fund in 1993, a $115-million fund in 1995 and a $160-million fund in 1997.
Investment returns for venture capital partners are a complex matter.
The “internal rate of return” to limited-partner investors in the Brentwood funds has ranged from about 39% to about 91%, the company said. But this is a complicated rate calculated on the basis of an investor constantly reinvesting his or her earnings on the original investment and covers the period from the inception of the funds until 1998, rather than being an annualized number, the company said.
Several other local venture funds are also in the process of creating funds.
AmerScan Ventures in Westlake, which invests about 40% of its money in Los Angeles County and Santa Barbara County tech companies and the rest in Scandinavian firms, recently started raising $100 million for its latest fund.
“I see nothing but quality deals. We have no shortage locally,” said Marty Albert, managing partner of AmerScan. “I know people say there is too much money chasing too few deals, but there is a lot of opportunity out there in the high-tech area, from Calabasas to Camarillo.”
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Debora Vrana covers investment banking for The Times. She can be reached by e-mail at debora.vrana@latimes.com.
