Southland Awash in Venture Capital Wave
In one of the strongest signs yet that Southern California is home to some of the fastest-growing tech companies, venture capital investments in the region rose sharply in the third quarter, a data firm reported Tuesday. At the same time, investments in Northern California increased in volume but fell slightly when measured as a percentage of all U.S. venture capital.
Venture investments in Southern California companies increased 78% to $710 million during the third quarter from the same time last year, according to VentureOne, a San Francisco-based research firm. Technology companies received the bulk of the funding, particularly those in the online services, business services and electronic-commerce industries.
“It’s not so much that venture activity is dropping in the Bay Area--it’s just rising so much and so quickly in other areas, particularly in Southern California,” said Tamar Zemel, a spokeswoman for VentureOne.
In fact, $3.5 billion, or about 35% of all venture money invested nationwide, flowed to Northern California during the quarter. Typically the Bay Area soaks up about 40% of venture investment nationwide, the data firm said.
The amount of venture capital investment moving into Southern California companies was hailed as a strong economic indicator.
“It’s phenomenal how far we’ve come,” said Cliff Numark, program director of the Los Angeles Regional Technology Alliance, a private nonprofit organization funded in part by the state of California. “We’ve been looking at venture funding since 1993, when I think there were just 12 start-up deals.”
VentureOne did not break down local deals by number or reveal company names, but with $710 million invested locally, it’s clear an increasing number of companies are receiving financing.
“We’re just starting to get the respect we deserve,” said Jack Kyser, chief economist with the Los Angeles County Economic Development Corp. “What you are seeing is a stampede of venture capital into this region.”
Venture capitalists take a chance on start-up companies by investing millions of dollars to get the firms off the ground. Venture capitalists--usually wealthy individuals and institutions--often get their initial investment back plus a hefty return when the companies they finance go public or are acquired.
“People are finally catching on to what is going on down here,” said Tim Cooley, a venture capitalist and managing director for Tech Coast Partners in Irvine, who on Monday unveiled the formation of several new funds targeting early-stage investments in technology companies. “Some of these established funds are just having money thrown at them.”
One of Cooley’s new funds, dubbed Tech Coast Superfund, is intended as a $400-million fund to finance other venture funds. These include the newly formed Tech Coast Innovation Lab, a seed fund and technology incubator, and Tech Coast/University Partners, which will fund technologies developed at universities.
Venture capital tends to be highly parochial, so a higher concentration of firms and funds here would naturally mean big bucks for some fast-growing local businesses, analysts say.
Some of the largest venture capital firms in Southern California include Crosspoint Venture Partners of Irvine, Brentwood Venture Capital of Los Angeles, Domain Associates of Laguna Niguel, East-West Capital Associates of Los Angeles, Enterprise Partners of Newport Beach, Kline Hawkes California of Los Angeles and Pittsburgh-based Mellon Ventures’ Los Angeles office. Some of the newer, more successful local firms include Los Angeles-based Zone Ventures, Costa Mesa-based Innocal and Pasadena-based Idealab Capital Partners.
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Local Capital
Venture capital investments in Southern California rose to $710 million in the third quarter, a 78% jump from the year-ago period. Quarterly figures, in millions, since 1998:
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Third quarter 1999: $710 million
