$217 Million Invested in L.A. Start-Ups in 1st Quarter

In a strong signal for the Southern California economy, a record amount of money was invested in start-up firms here during the first three months of 1999, according to data expected to be released today.

A total of $217 million was invested in Los Angeles-area businesses during the first quarter, more than double the $96.3 million invested during the same period of 1998, according to a survey by PricewaterhouseCoopers.

Internet companies drove the increase. More than half the investment funds--$138 million--went to Net firms, and $65.9 million went to other technology-related firms, meaning that only about $13 million went to non-tech companies during the quarter, the study found.

“Los Angeles has always been the sleeping giant,” said Massoud Entekhabi, managing partner with PricewaterhouseCoopers’ L.A. high-tech group. “But now there is a lot of money coming here. A lot of people who would have never dreamed of leaving their jobs four years ago to start a company are doing it now. This giant has heard the wake-up call.”

A record $404.5 million of venture capital was invested in Southern California during the quarter, a 44% increase over the $281.7 million invested during the same time last year.

After nearly a decade as a venture capital laggard, the Los Angeles area--which includes Santa Barbara and Ventura counties--has surpassed Orange and San Diego counties in total investment for the third straight quarter. In the first quarter, Orange County received $50.8 million while San Diego received $136 million, according to the survey.

Los Angeles-area investments in the quarter include $11.5 million for NetZero, a Westlake Village Internet services firm; $30 million for Accelerated Networks Inc., a Moorpark computer-networking firm; $16 million for Cooking.com, a Santa Monica seller of cooking products on the Internet; and $2 million for LivHome of Los Angeles, which provides in-home care for the elderly.

The average venture capital investment increased 27% in the first quarter to $6.5 million from $5.1 million the same time last year, the study found.

Economists consider regional venture capital flows an indicator of future economic growth.

“We have been discovered by the venture capital community,” said Jack Kyser, chief economist for the Economic Development Corp. of Los Angeles County.

“This tells you we have a healthy economic base and these firms are going to expand. The important thing is these are good-paying jobs,” he said. “Technology in Los Angeles is richer than most people imagine. We’re going to see more of this trend in the future.”

Many venture capitalists--flush with cash after seeing other investments pay off in the rising stock market--are scrambling to finance early-stage companies. Lured by returns that can average 50% or more annually, they are eagerly eyeing start-ups.

The venture capitalists that made the most investments in Southern California during the quarter include Newport Beach-based Enterprise Partners, with seven deals; Los Angeles-based Brentwood Venture Capital, with five; and Alta Partners/Burr Egan Deleage & Co., with four.

Idealab Capital Partners, the Pasadena venture capital arm of business technology incubator Idealab, did not participate in the first-quarter survey because it was too new, although some of its partners in three deals reported ICP’s participation.

“Frankly, I give a lot of the credit for the renewed interest here to Idealab Capital Partners for helping the entrepreneurs get out of the garage,” Entekhabi said.

Average investors need to keep in mind that these venture capital investments are not for the small or risk-averse.

Venture capitalists raise money from wealthy individuals and institutions, then invest in fast-growing, cutting-edge businesses, many of which are risky start-ups with a high chance of failure. However, there is a potential for large profits once the firms go public or are sold or merged.

Many of the firms that received funding during the first quarter, such as Stamps.com, the Santa Monica online stamps retailer, and GoTo.com, the Pasadena search engine, are expected to go public through an initial offering, or IPO, this year. Both companies were started with the help of Idealab.

In other IPO news, NetObjects Inc., a Redwood City-based Internet site developer, went public at $12 a share and AdForce Inc., a Cupertino-based firm that provides advertising management and delivery services on the Internet, went public at $15 a share. While NetObjects was hovering only about 5% above its IPO price last week, AdForce was one of the best-performing IPOs this year, up 236% to about $50.

In coming weeks, watch for IPOs from:

* EToys, the Santa Monica Internet retailer. The $90.2-million deal is underwritten by Goldman Sachs.

* Seminis, based in Saticoy, the largest developer of fruit and vegetable seeds in the world. Its $215-million deal also is led by Goldman Sachs.

* DirectChef, a Culver City-based distributor of food service and restaurant supplies. The $68.8-million deal is underwritten by BancBoston Robertson Stephens.

*

Remember that initial public offerings are highly speculative and not suitable for all investors. Debora Vrana covers investment banking and the securities industry for The Times. She can be reached at debora.vrana@latimes.com or at Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053.

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An Upswing for L.A.

Venture capital investments in the Los Angeles area, including Santa Barbara and Ventura counties, increased dramatically during the first quarter of 1999, according to data expected to be released today by PricewaterhouseCoopers in millions:

Los Angeles Area

Q1/99: $217 million

*

San Diego County:

Q1/99: $136.7 million

*

Orange County

Q1/99: $50.8 million

Venture Influx in Southern California

A record amount of venture capital flowed into Southern California during the first quarter, the most invested since the early 1990s when PricewaterhouseCoopers began tracking data. In millions:

First-quarter 1990: $404.5 million

Source: Pricewaterhousecoopers