Record Volume of Venture Capital Flows Into Region
Entrepreneurial companies in the Southland received record amounts of venture capital from April through June, reflecting a growing sentiment among investors that some of the hottest new firms in the country are springing up in the Los Angeles area and Orange and San Diego counties.
Venture capitalists pumped $712.4 million into 90 Southern California-area businesses in the second quarter, the highest quarterly total since accounting firm PricewaterhouseCoopers began tracking such funding in 1993.
The investments more than doubled the $291.9 million that fledgling companies received during the same period last year and dwarfed the previous record, $424.5 million, in the first quarter this year, according to the survey to be released today.
For the fourth consecutive quarter, the Los Angeles area, which includes Ventura and Santa Barbara counties, outpaced both Orange and San Diego counties. But all three regions received more venture money than in any previous three-month period.
The young companies received an average $7.9 million in the quarter, up 80% from $4.4 million for the same three months last year, the survey found. The majority of the venture capital went to Internet and other technology companies.
“The venture capital community is discovering there are a lot of good high-tech firms in Southern California, especially in L.A.,” said Jack Kyser, chief economist for the Economic Development Corp. of Los Angeles County. “And it’s not just technology. There’s this huge smorgasbord of companies out there.”
Southern California, once largely overlooked by venture capitalists, has finally captured their attention, said Massoud Entekhabi, managing partner with PricewaterhouseCoopers’ L.A. high-tech group.
“The sleeping giant has awakened, and the smart money is looking at the opportunities here,” he said. “We’re doing extremely well. Other parts of the world don’t come close to what we’re doing. We raise more money than some countries’ gross national product.”
In the U.S., only Northern California and New England attract more venture capital than Southern California, he added.
Throughout the nation, venture capitalists invested $12 billion in the first six months this year, closing in on the $14.3 billion they invested for all of 1998, according to the report.
In the second quarter alone, $7.7 billion was invested versus $3.8 billion a year before, an impressive 103% increase.
Many venture capitalists, flush with cash from a sizzling stock market, have been scrambling to fund early-stage companies with potential, especially information and communications technology start-ups.
In Southern California, venture capitalists were particularly drawn to the Los Angeles area, plowing $366.4 million into 40 businesses in the region in the quarter, nearly four times the $93 million invested during the same period a year earlier.
Internet companies proved the most popular recipients in the Los Angeles area. More than three-quarters of investment funds, or $279.6 million, went to Net firms. Another $54.2 million was earmarked for other technology companies, leaving $32.6 million for non-tech firms.
The largest single infusion--$33.3 million--went to NetZero, a free Internet service provider in Westlake Village.
Also receiving major funding: CarsDirect.com, a Sherman Oaks online auto-selling service, $26 million; Santa Monica-based Digital Entertainment Network, an Internet entertainment network for teen and young adults, $26 million, and Bizrate.com, a Los Angeles-based company that provides consumers with information about online businesses, $20 million.
Recent high-profile public offerings by firms such as GoTo.com, EToys and Stamps.com have helped make Los Angeles popular among venture capitalists, PricewaterhouseCooper’s Entekhabi said.
“We’re blown away by what we’re seeing,” said Jim Armstrong of Idealab Capital Partners, the venture capital arm of business technology incubator Idealab.
In Orange County, 21 companies received $147.4 million in the second quarter, up 41% from the $104.2 million invested a year ago. A total of $198.6 million was invested in 29 companies in San Diego County, more than double the $94.7 million received in the second quarter last year, the report said.
The venture capitalists that made the most investments in Southern California during the quarter are Brentwood Venture Capital in Los Angeles, with seven deals; Pasadena-based Idealab Capital Partners, also with seven, and Mission Ventures of San Diego, with six.
