Biotech and consumer product companies join funding mix.

Los Angeles-area companies receiving venture capital funding in the fourth quarter included the usual stew of telecommunications and computer-related firms, livened with smatterings of investments in promising biotech and consumer product firms.

More than two dozen companies in Los Angeles, Ventura and Santa Barbara counties, received $109.6 million in funding in the quarter, according to the latest MoneyTree Survey by PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association.

Funding for the quarter was down 57 percent from the same period a year ago, which back then was boosted by a rare $110 million capital infusion to a single company. But funding for the entire year was up 34 percent from 2004, with 107 companies receiving $801 million.

"With IPOs still less likely to occur in this environment, VCs are continuing to fund good companies in their portfolio while waiting for the right exit strategy," said Randy Churchill, director of business development at PricewaterhouseCoopers' Los Angeles office.

An example of that is Arcadia-based Simpel Inc., which makes optical components for phone handsets, laptops, and micro-cameras. It received $21 million in eighth-stage funding, instead of going public as it might in the past.

The largest local investment in the October-December period went to Beverly Hills-based Ampd Mobile Inc. which received $43 million in second-round funding to expand its entertainment services for broadband wireless systems.

In the only local drug development deal, Monrovia-based Xencor Inc. received another $20 million from its longtime Chicago-based backer, Zen Investments LLC. The third-round funding will help the California Institute of Technology spin-out initiate clinical trials for its two leading drug candidates, one treating rheumatoid arthritis and the other lymphoma.

"It's a long, long road for a biotech drug, you have to have patient investors," said Dr. Bassil Dyat, founder and chief executive of Xencor, which has raised $86 million in private funding since the company was founded in 1997.

The company plans to seek Food and Drug Administration approval to begin the trials later this year and will start considering development partnerships with larger drug companies if the trials turn out positive, Dyat said.

Another venture recipient in the quarter began selling products less than six months ago, but already has generated plenty of media and industry buzz. LandRoller Inc., which closed its first round of funding totaling $1.3 million from family and friends to launch its innovative roller skate line, is about to launch a second round to fund expansion, said Lance Stuart, chief operating officer.

Investors in the Hermosa Beach-based company, whose skates were named 2005 Sports Product of the Year by the U.S. Sporting Goods Manufacturer's Association, included individual members of the Tech Coast Angels investment organization, which enables wealthy individuals to pool resources and invest in early-stage companies from Santa Barbara to San Diego.

The Los Angeles network of Tech Coast Angels as a group funded another company on MoneyTree's list, a Santa Barbara-based computer services company called Make It Work Inc., which needed $1 million to fund expansion into Los Angeles County.

Make It Work specializes in onsite support for home computer users, with its technicians making their rounds in distinctive Mini Cooper cars.

The MoneyTree survey recently began tracking Tech Coast Angels in addition to traditional funds. The 270-member group, which reported eight deals in the quarter, has become an increasingly important source of early stage funding for a company that a traditional VC fund can't devote as much time to nurturing.

"Our sweet spot is between half a million to a million dollars, though we have gone north of $2 million on occasion," said Richard Morganstern, Tech Coast's L.A. network president. "With some frequency we're investing in the A (first) stage alongside VC funds. We've even participated in a few B rounds in the last year."

Nationally, venture capitalists matched 2004 by investing $21.7 billion in 2,939 deals in 2005, according to MoneyTree, slightly higher than the $21.6 billion recorded in 2004. Funding for later stage companies rose markedly to $9.7 billion, while the number of companies getting venture capital for the first time increased to 901, continuing a steady year-over-year rise. Both figures were four-year highs.

The MoneyTree survey doesn't detail which venture firm made a particular investment. It primarily surveys professional venture capital practitioners about their cash-for-equity investments, with some VCs providing only partial information on a deal for proprietary reasons.

A separate survey using different criteria, conducted by Venture One and Ernst & Young LLP, also recorded a significant drop in the total value of Los Angeles-area deals in the quarter for the same reason as the MoneyTree survey. In the fourth quarter, $137.6 million in commitments were given to companies compared to $248.1 million committed to 20 companies in the same period a year ago. That brought total 2005 commitments to $704.4 million, up just 0.4 percent from 2004.

Raising Money

Top 10 local venture capital transactions in the fourth quarter.

                                                                Amt.
                                                               Raised
Company (location)                   Business                (millions)

Ampd Mobile Inc.
  (Beverly Hills)         wireless entertainment service       $43.0
Simpel Inc. (Arcadia)           optical components             $21.0
Xencor Inc. (Monrovia)       biotech drug development          $20.0
Touchdown Technologies
  Inc. (Baldwin Park)        semiconductor components          $13.0
INPHI Corp. (Westlake
  Village)                 telecommunications components       $12.0
Strix Systems Inc.
  (Calabasas Park)       wireless communications equipment     $12.0
Catalytic Solutions
  Inc. (Oxnard)            catalytic converter products        $10.1
iSold It LLC
  (Pasadena)                   eBay drop off stores             $7.3
PureVideo Inc.
  (El Segundo)              video content distribution          $5.6
Xirrus Inc.
  (Westlake Village)        enterprise wireless systems         $5.5

Source: PricewaterhouseCoopers, Venture Economics, National Venture
Capital Association Money Tree survey.