Tech Coast Came of Age in ’99

Multibillion-dollar mergers, highflying IPOs, companies on the cutting edge of electronic commerce--it all sounds so Silicon Valley. Except that in 1999, it was happening in Southern California.

Just in time for the start of the new millennium, the Tech Coast matured into a technology center in its own right. Southland companies such as MP3.com, EToys, Buy.com and Stamps.com helped raise the region’s profile with innovative products, creative business models and brisk stock market performances.

“There’s no question that 1999 was a turning point,” said Richard Koffler, chief executive of Koffler Ventures, a consulting firm in Pacific Palisades. “The high-tech industry in Southern California is for real, not just an opportunistic fluke or a bunch of wackos.”

Some of the earliest recognition last year came from the technology industry itself. In January, no less an Internet titan than Yahoo struck a $3-billion deal to acquire GeoCities, the Marina del Rey company that pioneered the business of building online communities. About a month later, French telecommunications giant Alcatel agreed to spend $2 billion to buy Xylan, a Calabasas company that makes the sort of computer networking switches that have become a red-hot item thanks to an explosion of Net traffic.

As the year drew to a close, Sandpiper Networks of Thousand Oaks inked a $2.6-billion deal to merge with San Francisco-based Digital Island to create a global computer network designed specifically for electronic commerce applications.

Businesses weren’t the only ones looking for a piece of the action. Investor enthusiasm for all things Internet propelled some stunning initial public offerings of Southland firms. Santa Monica-based online toy retailer EToys saw its shares rocket 283% in its first day of trading in May, from $20 to $76.56. (The company’s stock is trading much lower after well-publicized snafus during the critical holiday shopping season and closed Friday at $26.25 on Nasdaq.) MP3.com, the San Diego firm that offers free music on its Web site, gained 126% in its first day of trading in July.

Plenty of other Tech Coast companies made impressive debuts last year. NetZero, the Westlake Village firm that pioneered free Internet access, shot up 82% when it went public in September. Irvine-based Autobytel.com, which sells cars over the Net, rose 75% the day it went public in March. Online ticket seller Tickets.com of Costa Mesa jumped 54% on the November day that it offered its shares to the public for the first time. GoTo.com, the Pasadena Internet search engine firm, gained 49% when it went public in June in the midst of a Net stock slump.

The IPO success stories are “a testament to how far we’ve come in Southern California,” said Molly Lavik, executive director of Lawnmower, a new-media networking group in Culver City.

Such performances helped fuel a record year for venture capital investment in Southern California companies. They also encouraged the formation of several new home-grown venture capital funds. Los Angeles-based retirement savings giant SunAmerica earmarked $500 million for venture capital investments, for instance. Funds linked to Internet business incubators were also popular, including Pasadena-based Idealab Capital Partners’ $364-million fund and Santa Monica-based ECompanies’ $130-million fund.

At the heart of the boom is a new wave of entrepreneurs. Some belong to the “dot-com” stereotype of Generation Xers starting companies while still in school. Five UCLA undergraduates started Scour.net, a multimedia search engine company based in Beverly Hills that attracted a $4-million investment from Hollywood super-agent Michael Ovitz and Yucaipa Cos., the investment company of supermarket mogul Ron Burkle. Three students at UCLA’s Anderson School launched Stamps.com, the Santa Monica firm that sells postage over the Internet, which went public in June at $17.50 a share and closed Friday at $41.63.

The lure of Internet wealth has also made entrepreneurs out of executives from companies such as management consulting firm McKinsey & Co. and investment banks such as Goldman Sachs. Walt Disney Co. alone has lost executives to EToys, ECompanies and to e-commerce start-ups such as Los Angeles-based EStyle and Santa Monica-based Cooking.com, among other firms.

“The level of entrepreneurial activity, as well as the quality of entrepreneurial activity, is much more advanced even compared to last year, and certainly compared to a decade ago,” said Cliff Numark, chief operating officer of the Los Angeles Regional Technology Alliance. “Southern California entrepreneurs are really moving up the curve. There are now people on their second or third start-up. That was unheard of five years ago.”

Electronic commerce firms helped put the Tech Coast on the map in 1999. Southern California’s historical strengths in technology and consumer marketing helped seed many e-commerce start-ups selling everything from computer gear (Buy.com) to concert tickets (Ticketmaster Online-CitySearch, Tickets.com) to real estate (Home-store.com).

The Southland has also spawned companies that cater to e-commerce companies. Westwood-based PeopleSupport, for instance, specializes in online customer service. Shipper.com in Industry offers same-day delivery to selected cities of items purchased on the Internet.

Another Tech Coast specialty--entertainment--made big strides in 1999. Disney’s Buena Vista Internet Group in North Hollywood completed its merger with Infoseek, and shares of the resulting Go Network were offered as a Disney tracking stock in November. Warner Bros. launched its Entertaindom Web site in November, and DreamWorks SKG announced plans in October to produce and broadcast shows exclusively for the Web with partners Imagine Entertainment and Microsoft co-founder Paul Allen.

Even Irvine-based Broadcom got into the entertainment game last fall. The company, which makes computer chips that blend Internet access with television broadcasts, formed a new-media firm with surf-wear maker Gotcha International.

The big players were challenged by a host of start-ups such as Intertainer, an interactive-TV firm in Culver City that rolled out its service in a few cities this fall; Launch Media, the Santa Monica Internet music company; and Wirebreak Entertainment of Venice.

Southern California’s biotechnology industry also made progress last year. After five years of planning, the so-called Pasadena Corridor of biotech firms linked to Caltech, NASA’s Jet Propulsion Laboratory and Huntington Memorial Hospital got a boost when a developer revealed plans to build a four-story laboratory in the area. Medical products firm Baxter International said it would expand its Hyland Immuno division in Glendale, creating hundreds of new jobs over the next few years.

The combined impact of all these developments, Koffler said, is Tech Coast pride.

“We’re starting to get over our inferiority complex,” he said. “People no longer believe that if they want to start a company they have to go to Silicon Valley.”

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Karen Kaplan can be reached at karen.kaplan@latimes.com.