Chatsworth manufacturer wins venture capital derby; Plasma and Materials gets $7.3 million in fourth quarter.

Plasma & Materials Technologies Inc., a Chatsworth-based company that makes machines used to etch materials on the surface of computer chips, received more venture capital during the fourth quarter of 1993 than any other Los Angeles County-based company, according to a just-released survey conducted for the Business Journal by the Los Angeles office of Big Six accounting firm Coopers & Lybrand.

Plasma & Materials received $7.3 million from five venture capital sources last November, marking the fourth round of venture capital funds the company has received since 1990. Plasma & Materials has received a combined $11.8 million in venture capital funding in those four rounds.

With its latest round of venture capital in hand, the company is projecting sales of $25 million for the fiscal year that began March 1. That amount would be more than double the sales it posted for the fiscal year ended Feb. 28, 1994, and would be quadruple the previous year's sales.

Plasma & Materials' investors include Brentwood Associates of Los Angeles, St. Paul Venture Capital and Norwest Partners of Minnesota, and Innocal and Forrest Binkley & Brown, both of Orange County.

While the amount of money Plasma & Materials received in the fourth quarter may be impressive, it represents only about 10 percent of the more than $72 million that venture capital firms pumped into Southern California companies in the fourth quarter, Coopers & Lybrand reported.

The survey, which was done quarterly for the first time, questioned 40 California venture capital firms during the period Oct. 1 through Dec. 31, 1993. Survey results also revealed some investment activities of out-of-state venture capitalists, as reported by the California survey respondents.

In the first nine months of the 1993, venture capitalists invested in 34 Southern California companies, meaning an average of about 11 Southland companies received funding each quarter. But in the fourth quarter, 16 Southland companies received venture capital funding, signaling an significant uptick, Siegfried said.

The survey results indicate, and investors themselves said, that venture capital funding coming into Southern California, including L.A. County, is expected to continue increasing in the months to come.

"There's no indication that the money supply is shrinking," said Jim Siegfried, partner in charge of entrepreneurial advisory services at Coopers & Lybrand. "The increase in funds flowing into venture capital is translating into increased funding to individual companies."

The pool of available venture capital funds appears to be growing, which supports contentions that venture capital investments will continue to increase in the months to come. In 1993, venture capital firms nationwide raised $2.5 billion, nearly double the amount they raised in 1992, according to Venture Economics, a New York City-based industry research firm.

Officials at two of the most active venture capital firms in Southern California -- Brentwood Associates and Crosspoint Venture Partners of Irvine -- said they see positive changes happening.

"All the trends are good," said Don Milder, a general partner at Crosspoint, which has more than $191 million under management and raised $65 million in 1993 for future venture capital investments.

Venture capital funds, which went through a shakeout in the early 90s, are on the upswing, Milder said.

"The remaining good (stable) venture capitalists have proven their performance, raised funds and shown that they are going to be active in the community for a long time," he said.

Brad Jones, general partner at Brentwood Associates, said that firm has made seven investments so far this year, totaling $7.8 million.

"We usually make 10 (investments) in a whole year," Jones gushed. "We've certainly seen more attractive opportunities (in 1994 than in previous years)."

The positive trend is good news for small, growing companies, such as Plasma & Materials Technologies, which plans to use its new equity for working capital, sales growth, existing-product enhancement and research and development, said Mike Russell, Plasma & Materials' chief financial officer.

The company, which has no involvement with blood, uses "plasma" to etch patterns onto computer chips. Plasma, in this application, refers to an electrified chlorine gas similar to the conducting gas in the inside of a fluorescent lighting tube. Semiconductor manufacturers use this plasma to engrave the patterns of electrical circuits onto chip surfaces.

The elaborate process requires the use of huge million-dollar machines, which Plasma & Materials makes. But the company has only about 1 percent of the $1 billion worldwide plasma-etching machine market, which is dominated by five large companies.

Russell said, for now, Plasma & Materials can concentrate on grabbing more of that market share.

"We do not believe we need to go out and get any more capital," Russell said. "From an operations standpoint, we expect to go forward and more than double (fiscal 1994 sales in fiscal 1995)."

Plasma & Materials is one of two Los Angeles-area companies that received funding from venture capitalists in the fourth quarter of 1993.

Los Angeles-based Embarcadero Media, a company that acquires and operates radio stations, received $500,000 in funding, according to the survey.

Most venture capital investors concentrated more heavily on Orange County companies, investing $39.8 million there during the fourth quarter, and on San Diego County companies, where they invested $23.8 million, Coopers & Lybrand reported.

Besides Plasma & Materials, the Southern California companies that received large amounts of venture capital in the fourth quarter included:

* Cerplex Group Inc. of Anaheim, a computer repair depot and computer manufacturing company, which received $14 million in its first round of financing;

* Sequana Therapeutics of San Diego, a DNA-based therapeutics company, which received $12 million in its second round of financing;

* Onyx Acceptance Corp. of Irvine, a provider of indirect automobile financing, which received $8.5 million in its first round of financing;

* Depotech Corp. of La Jolla, a lipid-based drug delivery technology company, which received $8 million in its third round of financing.

Industry insiders said San Diego and Orange counties have been able to attract more venture capital investors because they have niches that L.A. doesn't. San Diego has become a bio-tech hub, while Orange County has a high concentration of medical device companies. Both areas are highly supported by local universities and have built-in infrastructures of entrepreneurs.

"L.A. is so spread out," Siegfried said, meaning L.A. industries are not concentrated into distinct geographic pockets as they are in counties to the south.

The Coopers & Lybrand survey showed a high number of second, third and fourth rounds of financing going to Southland companies, which is a healthy indication, Siegfried said. Venture capital financing typically is given in several successive rounds, as the company grows and investors see its potential.

"It's a good sign," Siegfried said. "It means the companies are performing to the expectations of the lead investors, who are willing to commit additional funding."

Venture capital firms, which raise money primarily from pension and retirement funds, have been interested in life sciences-based and technology-based companies because of their growth potential, Siegfried said.

Jones of Brentwood Associates said some of the key factors venture capital firms look for in investment prospects are a top-quality management team, a significant marketing opportunity and a unique technology.

"Southern California is probably growing as an area where venture capital high-technology opportunities are located," he said. "The process is self-perpetuating. As more young technology companies succeed, there's a network of technology companies. That actually causes more people to want to start businesses."