L.A.’s Venture Capital Soars; O.C.’s Doesn’t, Still Hits Record

Venture capital investments in Los Angeles-area companies nearly doubled last year from the previous year, sending a strong signal that businesses here in cutting-edge industries are growing and creating jobs, according to a nationwide survey expected to be released today by PricewaterhouseCoopers.

In Orange County, $265.9 million was invested last year, compared with $252.3 million the year before, according to the survey. Over five years, investments fell once, to $172.4 million in 1996, before resuming their climb to 1998’s all-time high.

“It’s been a banner year for us here in Southern California, and I think that 1999 is going to be even better,” said Massoud Entekhabi, managing partner for PricewaterhouseCoopers’ Los Angeles high-tech group. “We’re getting more of our fair share here.”

San Diego County was the only Southern California area to see a downturn in investments, with $372.2 million invested last year, compared with $428.5 million the year before.

The 92% increase in venture capital to the Los Angeles area surpassed the rise in venture capital investments nationwide. In the U.S., $14.3 billion was invested in 1998 compared with $11.7 billion the previous year--a solid 22% increase in itself.

Venture investments in all of Southern California totaled $1.2 billion, up from $955 million the year before but still far less than the $4.6 billion Northern California got in 1998. Statewide, venture capital investments totaled $5.8 billion, a 26% increase from the year before, when investments totaled $4.6 billion, the accounting firm found.

Many venture capitalists, flush with cash from record highs in the stock market, are scrambling to finance early-stage companies with potential. Also fueling the growth are pension funds and major corporate investors rushing into the venture market, lured by returns that can hit 50% or more annually.

Economists closely watch the volume of venture capital flowing to a region because it signals whether that area will be a leader in the future.

That’s why the increase in venture investments in the Los Angeles area is seen as such a good sign for Southern California. An estimated $527.2 million was invested in the area, which includes Ventura and Santa Barbara counties, up from the $274.8 million the year before.

The Los Angeles area is intriguing because of the diverse types of companies being funded, Entekhabi said. In fact, during the fourth quarter, 34% of local companies that received funding were non-tech-related firms, while nationwide only 24% were non-tech, he said.

“At last the venture capitalists are discovering what is happening in Southern California, especially Los Angeles,” said Jack Kyser, chief economist for the Economic Development Corp. of Los Angeles County. “It bodes well for the economic health of the region.”

Venture capital firms are not for small or conservative investors. They raise money from the wealthiest individuals or institutions, then plow the funds into fast-growing, cutting-edge businesses. While these are risky companies that have a high rate of failure, there is also the potential for big profits once the firms go public or are sold or merged.

Many Southern California-area venture capitalists view Los Angeles as a better investment than ever, said Entekhabi, noting successful initial public offerings by local firms such as GeoCities, the Marina del Rey Internet company.

“We’ve invested a lot more in Southern California than we have in the past,” said G. Bradford Jones, general partner at Brentwood Venture Capital, which recently raised $300 million in its latest fund. “A few years back, we might have only invested in a handful of firms, [but] last year we invested in nearly 10.”

Jones cited Southern California’s growing strength in Internet, enterprise software and communications, and health-care companies.

Los Angeles-area companies receiving the most venture capital investments last year included Somera Communications, a Santa Barbara-based communications firm that received $51.8 million; Real Select, a Westlake Village software firm that received $50 million; Transtar Metals, a Los Angeles industrial firm that received $43 million; and GoTo Technology, a Pasadena software firm that received $31.3 million.

Debora Vrana covers investment banking and the securities industry for The Times. She can be reached by e-mail at debora.vrana@latimes.com.

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Venturing Forth

Venture capital investments in the Los Angeles area nearly doubled last year and investments in Southern California as a whole also rose, according to data from PricewaterhouseCoopers. San Diego County was the only one to show a year-to-year decrease.

Los Angeles Area*

1998: $527.2 million

Orange County

1998: $265.9 million

San Diego County

1998: $372.2 million

Southern California

1998: $1.2 billion

* Includes Ventura and Santa Barbara counties

Source: PricewaterhouseCoopers

The Biggest Boosts

The 10 largest venture capital amounts raised by Los Angeles-area companies in 1998:

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$ raised, Company City in millions Industry Somera Communications Santa Barbara $51.8 Communications Real Select Westlake Village 50.0 Software Transtar Metals Los Angeles 43.0 Industrial GoTo Technology Pasadena 31.3 Software Sonoma Systems Marina del Rey 23.7 Communications Protocare Santa Monica 23.5 Health care Aspen Youth Services Cerritos 22.5 Health care Thrifty Lavanderia Los Angeles 18.0 Retail Medical Analysis Systems Camarillo 18.0 Health care Long Term Care Group El Segundo 15.0 Health care

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Source: PricewaterhouseCoopers