Web Business Services a Magnet for Capital
Half of all venture investments in the Los Angeles area during the third quarter went to companies that help other businesses tap the Internet, according to a new survey expected to be released today by PricewaterhouseCoopers.
Of the total $328 million invested in the Los Angeles area during the last three months, $163 million went to companies that specialize in “business services” such as designing Web pages and helping retailers expand into e-commerce, the study found. That compares with 19.8% for the second quarter of 1999 and 5.9% for the first quarter.
“When you look at the types of companies getting funding, it shows the maturation of the Internet as a business medium,” said Massoud Entekhabi, a partner in the global technology group at PricewaterhouseCoopers in Woodland Hills. “This is a national--really a global--trend.”
Technology companies continued to receive the vast majority of venture capital investments in Southern California. Only $27 million, or 8%, went to non-Internet firms, the study found.
“There are so many opportunities in Southern California right now. There’s a lot of business-to-business funding going on,” said Andy Chedrick, chief financial officer of Enterprise Partners in La Jolla, which funded 13 of the 36 deals in Southern California during the quarter.
In the biggest deal, Online Retail Partners got $62 million from a group of investors, including Comcast Interactive Capital, Liberty Advisors, Global Retail Partners, Oak Investment Partners and others. It was the first venture investment for the company, which helps retailers develop their online divisions as separate entities that can be spun off.
“We believe that established [offline] brands have a significant advantage over pure plays,” at least with less Net-savvy consumers, said Henry Nasella, chairman and chief executive of Online Retail.
“We want to be their equity partner in helping them make their e-commerce business a huge success. Most consumers like the integration of bricks and clicks. We think investors will as well,” said Nasella, the former president of Staples.
In its first venture, Online Retail assisted Zainy Brainy, a Pennsylvania-based toy and book retailer, in developing ZainyBrainy.com, which went public in June. Online Retail is in discussions with 12 other retailers to set up e-commerce sites, Nasella said.
The company, which was formed in June in Los Angeles, recently moved to New York. Online Retail, with 75 employees, plans to “incubate” the e-commerce businesses for about six months, while it develops business plans, hires online staff and arranges funding.
Other area firms that received substantial financing included Alhambra-based Propertyfirst.com, an electronic listing service for commercial real estate that got $42.2 million, and Lightspan Partnership, a Santa Monica firm that provides education programming for the digital video marketplace, which got $32 million.
While business-to-business has emerged as the dominant theme, consumer-oriented Internet ventures are still getting a big slice of the capital. Beneficiaries included two Santa Monica-based companies: Cooking.com, a culinary site that got $27.6 million, and Dunk.net, an online retailer of athletic footwear that got $10 million.
For the first nine months of this year, $925 million was invested in the Los Angeles area, which includes Ventura and Santa Barbara counties, according to the study. That’s an increase of 75% over the $527 million invested here during the same time last year.
For the first three quarters, Orange County companies got $410 million and San Diego County companies got $553 million. Through Sept. 30, nearly $1.9 billion was invested in Southern California, a 73% increase from the same time last year.
Santa Monica-based L90, which received $12.9 million, exemplifies the business-to-business trend.
The firm, with 102 workers, helps other companies develop Internet advertising strategies. Microsoft, Ford and Procter & Gamble are clients, said Chief Executive John Bohan. The firm recently filed with the Securities and Exchange Commission to go public with a $69-million stock offering.
“We don’t think banner advertising works as well as innovative solutions,” such as online sweepstakes, he said. The company picked its former name, Latitude90, because it means the end of the Earth, implying global reach.
Though there’s no disputing the Internet’s global nature, one of the more unusual “dot-com” start-ups getting funding has a distinctly Southern California flavor. IAm.com, a Santa Monica online talent firm formerly called WhyNotU.com, caters to actors, screenwriters, musicians and others in the entertainment industry.
“This really plays into all the things that L.A. is about,” Entekhabi said.
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Where the Money’s Flowing
The largest venture capital investments in Los Angeles-area companies during the third quarter, ranked by investment size:
Online Retail Partners, formerly of Los Angeles (now New York), $62 million. Investors: Comcast Interactive Capital, Liberty Advisors, Global Retail Partners, Oak Investment Parnters and others. Business: Provides retailers with venture capital management infrastructure and helps them execute e-commerce strategies.
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Propertyfirst.com of Alhambra, $42.2 million. Investors: Brentwood Venture Capital, Oak Investment Partners, Times Mirror, Windward Ventures. Business: Provides an electronic listing service for the commercial real estate industry.
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The Lightspan Partnership of Santa Monica, $32 million. Investors: Accel Partners, Comcast Interactive Capital, Kleiner Perkins Caufield & Byers, Nassau Capital. Business: Interactive online educational programming for digital video marketplace.
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Cooking.com of Santa Monica, $27.6 million. Investors: DynaFund Ventures, Eagle New Media, Idealab Capital Partners, Times Mirror, Mellon Ventures. Business: Developer of online cooking site for shopping, advice and recipes.
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Assuresat of El Segundo, $14 million. Investors: Ampersand Ventures, SpaceVest Fund. Business: Provider of rental satellites already in orbit as backup for existing ones.
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L90 of Santa Monica, $12.9 million. Investors: Dime Capital Partners, Keystone Venture Capital Management. Business: Provider of Internet advertising solutions.
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IAm.com of Santa Monica, $12.1 million. Investors: Adler & Co., Sierra Ventures, Lehman Bros., Enterprise Partners and others. Online talent agency.
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InternetConnect of Los Angeles, $10 million. Investors: Crosspoint Venture Partners, Spectrum Equity Investors. Business: Internet solutions for small and medium-sized businesses.
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Dunk.net of Santa Monica, $10 million. Investor: Technology Crossover Ventures. Business: Online retailer of athletic footwear.
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Virtualis Systems of Studio City, $8.8 million. Investors: Adobe Venture, Hambrecht & Quist Venture Associates. Business: Provider of Internet services including web hosting and support. *
What’s Hot Now of Los Angeles, $8 million. Investors: Comcast Interactive Capital, Dawntreader and others. Business: Designer of Web pages and managing e-commerce for sports and entertainment firms.
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Nomadix of Westlake Village, $8 million. Investors: Avalon Technology Ventures, BancBoston Capital and Ventures, Encore Venture Partners and others. Business: Develops hardware and software for networking.
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Source: PriceWaterhouseCoopers
Where the Money’s Flowing, Los Angeles Times
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Times staff writer Debora Vrana can be reached by e-mail at debora.vrana@latimes.com.
