Venture Capitalists Feeding Southland Firms at Record Pace
Fledgling Southland companies received record amounts of venture capital dollars from April through June, reflecting a growing sentiment among investors that some of the hottest new firms in the country are springing up in Orange County, the Los Angeles area and San Diego County.
Venture capitalists pumped a total of $712.4 million into 90 Southern California businesses in the second quarter, the highest quarterly total since the accounting firm PricewaterhouseCoopers began tracking such funding in 1993.
According to the survey, the investments more than doubled the $291.9 million that young companies received during the same period last year and dwarfed the previous record, $424.5 million, in the first quarter this year. The survey is scheduled to be released today.
“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.
In Orange County, 21 companies received a record $147.4 million in the second quarter, up 41% from the $104.2 million invested a year ago. In the first six months of this year, venture capitalists poured $198.2 million into Orange County firms, more than they invested in all of 1996.
Although Orange County lagged behind the Los Angeles area and San Diego County, it still fared well, Entekhabi said.
In Orange County, Internet and technology companies received the most venture money, attracting $102.2 million. Non-tech firms took in $45.2 million.
Orange County companies receiving infusions included $30 million for Tickets.com Inc., a Costa Mesa online ticket broker; $16.4 million for Huntington Beach-based FlashCom, an Internet service provider, and $16 million for Beyond Benefits Inc., a health-care company in Irvine.
Throughout the nation, venture capitalists invested $12 billion in the first six months this year, which is 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 one year before, an impressive 103% increase.
Many venture capitalists, flush with cash from a sizzling stock market, are scrambling to fund early-stage companies with potential, especially information and communications technology start-ups.
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.
Venture capitalists plowed $366.4 million into 40 Los Angeles-area businesses during the quarter, nearly four times the $93 million invested during the same period one year earlier.
Recent high-profile public offerings by young firms such as GoTo.com, E-Toys 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 Pasadena venture capital arm of business technology incubator Idealab.
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.
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Venture Capital Investment in Orange County
Venture capitalists poured 41.4% more into fledgling Orange County companies in the second quarter than a year ago. Total quarterly investments and companies receiving the most funds:
1998 (millions)
1st qtr: $52.2
2nd: $104.2
3rd: $53.0
4th: $48.6
1999
1st: $50.8
2nd: $147.4
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Company City Amount (Industry) (million) Tickets.com Inc Costa Mesa $ 30.0 (Consumer) FlashCom Huntington Beach 16.4 (Communications) Beyond Benefits Irvine 16.0 (Health care) ACME Television Santa Ana 15.0 (TV Broadcasting) IPNet Solutions Newport Beach 10.0 (Software/ information) Certus Corp. Irvine 10.0 (Health care) FieldCentrix Irvine 10.0 (Software/ information)
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SOURCE: PricewaterhouseCoopers
