High-Tech Investors Put ‘101 Corridor’ in Fast Lane
Investors looking for the next high-tech success story are increasingly focusing on the “101 Corridor” in the west San Fernando Valley and Ventura County where venture capital investment tripled from 1996 to 1998, a new analysis shows.
Venture capitalists last year poured $124.5 million into companies along the Ventura (101) Freeway corridor between Tarzana and Camarillo, according to PriceWaterhouseCoopers LLC, which tracks venture capital spending nationwide.
That’s up from $41.1 million in 1996, and down slightly from 1997’s total of $127.9 million.
The dip in funding from 1997 stems from the relatively small number of deals each year, meaning the timing of one or two major financings can skew numbers on a short-term basis, said Masoud Entekhabi, a partner in PriceWaterhouse’s global technology group.
“But overall, we see a trend of going from $41 million in 1996 to $125 million in 1998--tripling,” Entekhabi said. “That’s a terrific trend, and we expect it to continue. I think in percentage terms it will slow down, but I wouldn’t be surprised if we see a $150 million to $200 million number this year.”
Much of the action is centered in the city of Westlake Village. Over the past two years, venture capitalists poured $125.9 million into high-tech companies in the city of 28,500--including $78.7 million last year alone, according to PriceWaterhouse.
Other nearby communities, including Calabasas, Woodland Hills, Tarzana and Camarillo have become hotbeds for high-tech start-up companies as well, rocketing the 101 Corridor to what some say is now one of the three top spots in Southern California for venture capitalists looking for investment opportunities.
“My partners and I spend a fair amount of time looking at opportunities in that area--Westlake, Calabasas, Camarillo,” said Jay Ferguson, a partner at the Brentwood-based venture capital firm Kline Hawkes & Co. “We’ve probably seen some 20 different opportunities in that area over the last three years, and a lot of that has occurred in the last 18 months.”
Venture capitalists invest money in promising start-up companies in return for part ownership. If successful, they typically cash out their stakes when the companies make a public stock offering.
Kline Hawkes has given $6 million so far to Camarillo-based EOS Corp., a maker of low-cost, low-heat-emitting power supplies for computers.
“I think you’re going to see a lot more investments in that area over the next 12 months,” Ferguson said. “There are a lot of opportunities, and success breeds success.’
Analysts cite a number of reasons for the area’s popularity, including low housing costs, safe neighborhoods and good schools--all important factors for many of the young entrepreneurs behind many of the start-up companies.
Downsizing in the San Fernando Valley’s aerospace industry has also played a role, prompting younger engineers to take know-how from their previous jobs and strike out on their own.
The combination of factors and resulting strong crop of high-tech start-up companies has become a strong magnet for venture capitalists.
Newport Beach-based Enterprise Partners has been one of the area’s strongest investors. In the last 18 months, it put $4.5 million into Westlake Village-based MEM Solutions Inc., which develops low-cost, light-emitting motors for overhead projectors.
Tom Clancy, one of Enterprise’s partners, said the 101 Corridor ranks second as a hunting ground for venture capitalists these days--just behind Santa Monica/West Los Angeles and ahead of Orange County.
“Telecommunications is pretty strong [in the 101 Corridor],” Clancy said. “There is a concentration of semiconductor telecommunications expertise there, and it’s a desirable area to live and work. It’s not a mystery why we’re seeing activity in that area.’
In addition to its investment in MEM solutions, Enterprise Partners plunked $4 million into Stamps.com, a maker of PC-based Internet postage meters that was set up in Westlake Village but recently moved to West Los Angeles.
The 101 Corridor’s growing popularity among backers of fast-growth start-up companies can also be seen in the number of financial organizations that have recently set up new offices in the area or have plans to do so.
Bertelsmann Ventures, one of Germany’s biggest venture capital firms, recently opened a Santa Barbara office that plans to focus on opportunities from there south to Los Angeles County.
Venture capitalists Jim Cole, a longtime Westlake Village resident, co-founded Windward Ventures late last year and recently finished raising a $20-million starter fund. Cole is also a local representative for venture capital powerhouses New Enterprise Associates, which is based in the San Francisco Bay Area.
And Silicon Valley Bank, a business bank that specializes in funding for high-tech growth companies, plans to open a loan production office in Westlake Village, said Terry Bess, manager of L.A., Ventura, Santa Barbara and San Luis Obispo for the bank.
“We are doing a lot of work up there,” said Bess, who estimates Silicon Valley Bank now has about 40 clients in the corridor area. “It’s very likely we’ll have a loan production office up there by mid- year. We’ll be staffing it with people from Northern California as well as L.A.”
In fact, the corridor has been one of the main engines that helped Los Angeles County surpass Orange and San Diego counties for venture capital spending in recent years, Entekhabi said.
In 1993, Los Angeles, Ventura and Santa Barbara counties attracted $29.3 million in venture funds, making it a distant third behind $49.5 million for Orange County and $112.2 million for San Diego County. But by last year, the three-county area had taken over the No. 1 position, attracting $527.2 million, compared with Orange County’s $265.9 million and San Diego County’s $372.2 million.
“It’s one of the main catalysts that’s helped L.A. successfully compete with Orange and San Diego counties for venture capital,” Entekhabi said.
But one problem for many emerging high-tech firms in the corridor has been a lack of formal networks to link venture capitalists with entrepreneurs, said Mike Little, who in 1997 founded MEM Solutions, the company that received $4.5 million from Enterprise Partners.
“There’s not very much here,” Little said. “There’s a network of guys. There’s a fellow down the road who started a company called Comcore, so I talked to him because he started about a year and a half before me. He gave me some advice on how to contact people. From my perspective, there’s a sense of camaraderie of people who are trying to do something with this.”
Others agreed that many of the connections between venture capitalists and entrepreneurs in the corridor happen by word of mouth, with no formal groups or mechanisms to facilitate the process.
To help fill the gap, PriceWaterhouse held its first Venture-IN conference last year in Santa Barbara, where entrepreneurs came to learn about raising venture funds, said Entekhabi.
“We expected 100 people, and got more than 300,” he said. “A lot of them were from the Westlake [Village] area. There were a lot of venture capitalists who also came, just to see who’s there, who’re the entrepreneurs. They came from as far away as Philadelphia and Boston.”
Entekhabi said PriceWaterhouse is expecting more than 350 people to attend the second conference April 29. While networking forums and organizations evolve, one bottleneck that will probably limit the 101 Corridor’s growth is infrastructure, according to venture capitalists and the companies they fund.
The lack of a major airport nearby means busy out-of-town financiers often spend hours traveling to and from the companies they fund. A relative scarcity of other infrastructure such as legal and banking services and large blocks of quality real estate, could also dampen the area’s growth, according to some.
“There is a prejudice or bias among venture capital firms,” said Little of MEM Solutions. “They have to travel to these board meetings, and if you have to travel three or four hours each way,” it makes the investment less desirable.
In fact, the lack of infrastructure was one factor behind Stamps.com’s recent decision to move from the corridor to West Los Angeles, said Brad Jones, a partner at West Los Angeles-based Brentwood Venture Capital, which also invested in Stamps.
Another of Brentwood’s corridor investments, Westlake Village-based Sandpiper Networks Inc., has also had recent difficulty finding suitable office space to accommodate its expansion, Jones said.
Even so, Jones said, “I don’t think [those issues] will stop the area from being successful.”
If anything, he said, the issues of access and office space will simply keep the area from growing at an even greater pace.
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Magnet for Money
A concentration of high-tech start-up companies has made the communities along the Ventura Freeway corridor a target for venture capital investment.
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101 Corridor 1996 1997 1998 Deal volume (In millions) $41.1 $127.9 1124.5 Percentage of L.A. funding 13.5% $46.5% 23.6% Number of deals 10 22 13 Average deal amount (In millions) $4.1 $5.8 $9.6
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County Comparison
Venture capital investment by county and year (In millions)
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County 1993 1994 1995 1996 1997 1998 Los Angeles-Ventura* $29.3 $50.7 $123.7 $304.6 $274.8 $527.2 Orange 49.5 63.4 186.7 172.4 252.3 265.9 San Diego 112.2 158.4 204.3 373.1 428.1 372.2
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*Includes Santa Barbara County.
