Venture Funding Grows at Record Pace in L.A.
Led by Southern California’s growing tech industry, venture investments in companies here more than doubled to a record $4.2 billion last year, according to a data firm.
“The growth overall in the venture industry is unparalleled and Southern California is keeping track very well,” said Jesse Reyes, head of Venture Economics, a division of Thomson Financial/Securities Data. “It’s the content end of the Internet game that’s driving this investment flow into Southern California. People are saying, ‘We think there’s a gold mine there.’ ”
Although it’s still early in 2000, local venture capitalists and analysts said Monday that they expect investments to continue at a record pace this year, given the amount of money already raised in existing funds and the strong stock market fueling new public offerings.
Venture capitalists raise money from institutional and other major investors and then buy stakes in fast-growing start-ups, sometimes taking an active role in the company. A vibrant market for initial public offerings, or IPOs, is allowing many companies to go public at high valuations, which means strong returns for venture capitalists.
The record investments in Southern California are part of a nationwide trend. Nationwide in 1999, venture investments more than doubled to $48.2 billion from $19.3 billion the previous year, according to figures to be officially released today by Venture Economics.
In the Southland, venture investment totaled $4.2 billion for 1999, compared with $1.9 billion the previous year, the data firm found.
That makes Southern California the third-biggest region nationwide for venture capital, behind Northern California and the Northeast. All segments of Southern California had venture increases. Orange County, for example, received slightly more than $1 billion in 1999, compared with $402 million the previous year.
In Los Angeles, venture investment rose to $1.5 billion from $865 million the previous year, according to Venture Economics.
“It confirms that Los Angeles is on the radar screen of venture capitalists, many of them in Northern California,” said Ross DeVol, director of regional studies of the Milken Institute in Santa Monica. “It’s indicative of how vibrant the technology screen is on the Westside, and this convergence of entertainment and technology.”
The area’s biggest venture deals of last year included: CarsDirect.com of Culver City, which got $308.3 million; Buy.com of Aliso Viejo, $256.9 million; EMachines Inc. of Irvine, $155 million; and House of Blues of Hollywood, $150 million.
The entrepreneurial rush has more venture capitalists opening firms in Los Angeles.
“Los Angeles has become a venture capital destination point,” said Frank R. Kline, managing partner with Kline Hawkes & Co., a new venture fund in Los Angeles now raising a $350-million fund, originally targeted at $250 million. Many funds are surpassing their original targets, or at least reaching them more quickly than ever.
“There’s no question that this is going to continue this year,” he said.
Pension funds are increasingly looking to invest in Southern California, Kline said.
“When I came to Los Angeles 10 years ago, everyone was in defense or aerospace, but that has all changed,” he said. “There are so many new pockets of activity, like Santa Monica, Culver City and the Thousand Oaks area.”
Despite the dramatic increase in total money invested, the number of companies in Southern California getting funding is rising more modestly. Venture Economics said 318 companies got funding in 1999, compared with 283 companies the previous year.
That means venture capitalists are making bigger bets, of course.
“Companies that once would do several rounds of funding are just getting one big funding, and that’s riskier,” Reyes said. “There’s no checking in on the status of how they are going.”
* TELECOM POWERHOUSE DEAL
Ortel has agreed to be acquired by Lucent Technologies for $3 billion. A1
