L.A. Venture Action Falls Amid Gloom.Mirroring a national trend, venture funding for Los Angeles-area companies plummeted to $198.6 million in the second quarter, an 82.5 percent. decline from, the like quarter a year ago, according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. Thomson Financial/Venture Economics, a New York-based research firm. The drop was even more precipitous than the 61 percent national collapse, and the 66 percent Bay Area crash. Just 21 L.A. companies received funding during the. quarter ended June June: see month. 30; down from 68 in the year-earlier quarter. The collapse is largely attributed to entrepreneurs' short-term Short-term Any investments with a maturity of one year or less. short-term 1. Of or relating to a gain or loss on the value of an asset that has been held less than a specified period of time. unwillingness to accept the new, much-lower valuations on their startups. "It's it's 1. Contraction of it is. 2. Contraction of it has. See Usage Note at its. it's it is or it has it's be ~have entrepreneur entrepreneur (än'trəprənûr`) [Fr.,=one who undertakes], person who assumes the organization, management, and risks of a business enterprise. shellshock," said Stephen Levy, director of the Center for the Continuing Study of the California California (kăl'ĭfôr`nyə), most populous state in the United States, located in the Far West; bordered by Oregon (N), Nevada and, across the Colorado River, Arizona (E), Mexico (S), and the Pacific Ocean (W). Economy. The new environment is a far cry from a year ago, when entrepreneurs: were in the catbird seat catbird seat n. A position of power or prominence. , subjecting eager VCs to interviews to determine which one would be given the' privilege of supplying capital. Over the past 12 months, valuations on early-stage businesses have tumbled 50 to 60 percent, causing a dramatic role reversal In psychodrama, role reversal is a technique where the protagonist is asked, by the psychodrama director, to exchange roles with another person (an auxiliary ego) on the psychodrama stage. The former assumes as many of the roles of the other as possible and vice versa. that entrepreneurs have not yet adjusted to. "Entrepreneurs still, have an over-inflated sense of the worth of their, companies; and VCs are just saying no and walking away," said Jess jesse, jess a leather strap placed around each shank of a hawk used for hunting, for the attachment of a leash. Reyes, global product manager for Thomson Financial/Venture Economics. Local VCs stay busy these days by nurturing their current portfolio companies. But venture capitalists Venture Capitalist An investor who provides capital to either start-up ventures or support small companies who wish to expand but do not have access to public funding. Notes: Venture capitalists usually expect higher returns for the additional risks taken. have huge amounts of money at the ready, and remain eager to invest when the right deal comes along at the right price. "Right now is the perfect time (to invest)," said David Cremin, a partner at Zone Ventures, a Los Angeles Los Angeles (lôs ăn`jələs, lŏs, ăn`jəlēz'), city (1990 pop. 3,485,398), seat of Los Angeles co., S Calif.; inc. 1850. venture shop. "Down cycles are when you get the best valuations, and there's not tons of competition to get into the best deals." Bigger deals returning While far fewer deals are getting funded these days, the ones that to get money tend to be for larger amounts and larger equity stakes. VCs generally prefer to buy stakes of at least 30 to 40 percent, but entrepreneurs until recently had been only willing to sell much smaller stakes. "In 1999 and 2000 you had companies saying, 'We're worth $18 million and we're going to raise $2 million for a 10 percent stake.' If you tried to negotiate, there would be readily available capital from another source, said Cremin, whose firm has yet to invest $60 million of the $100 million fund it April 2000. Today, companies are becoming more willing to sell larger stakes, or they're not getting funded. Once entrepreneurs get over their lower-valuation shellshock, the level of venture funding is expected to resume climbing. But the rebound rebound (rē´bownd), n/v 1. a recovery from illness. n 2. an outbreak of fresh reflex activity after withdrawal of a stimulus rebound adjective isn't expected to materialize ma·te·ri·al·ize v. ma·te·ri·al·ized, ma·te·ri·al·iz·ing, ma·te·ri·al·iz·es v.tr. 1. To cause to become real or actual: By building the house, we materialized a dream. until early next year. "It looks like we're in for a bumpy bump·y adj. bump·i·er, bump·i·est 1. Covered with or full of bumps: a bumpy country road. 2. Marked by bumps and jolts; rough: a bumpy flight. six months," economist Levy said. And don't expect L.A. funding levels to reach anywhere near the $1 billion-plus quarterly amounts invested during late 999 and early 2000. "That was a one-time Bacchanalia," said Reyes. "I think Los Angeles can expect between $500 million and $700 million (in venture funding per quarter). That's probably sustainable." One L.A. sector that will likely be a major magnet: health care. "The future of L.A. is biotech bi·o·tech n. Informal Biotechnology. biotech Noun short for biotechnology Noun 1. and health care services - those are the places where L.A. will be leading the pack,' Reyes said. "The area's population creates a huge demand for health care services, and there is a fairly big biotech research enclave enclave /en·clave/ (en´klav) tissue detached from its normal connection and enclosed within another organ. en·clave n. A detached mass of tissue enclosed in tissue of another kind. ." Cremin added that Zone Ventures is seeing a lot of "great technology" coming out of aerospace/defense subcontractors, which is being adapted to various consumer and business applications. Second-quarter champ As for the second-quarter activity, the largest L.A. recipient of venture capital was RealEnergy Corp., a Woodland Hills supplier of on-site power generators. It received $50 million, accounting for more than one-fourth of L.A. County's total. Upon learning that his company was L.A.'s top recipient, RealEnergy Chairman and Chief Executive Dan Cashdan said, "I had no idea. Our noses are so stuck on this grindstone grindstone or grind common metaphor for industriousness. [Pop. Culture: Misc.] See : Industriousness that we don't come up for air." With the proceeds, RealEnergy plans to buy more "micro power plants," which the company installs in the basements or rooftops of commercial buildings, including three buildings in L.A. so far. The natural gas-powered generators produce electric and thermal energy thermal energy Internal energy of a system in thermodynamic equilibrium (see thermodynamics) by virtue of its temperature. A hot body has more thermal energy than a similar cold body, but a large tub of cold water may have more thermal energy than a cup of boiling , supplying 50 to 60 percent of the buildings' total needs. "Energy infrastructure is a very capital-intensive Capital-intensive Used to describe industries that require large investments in capital assets to produce their goods, such as the automobile industry. These firms require large profit margins and/or low costs of borrowing to survive. business," Cashdan said. "Fifty million dollars is a drop in the bucket A reserved amount of memory that holds a single item or multiple items of data. Bucket is somewhat synonymous to "buffer," although buffers are usually memory locations for incoming data records, while buckets tend to be smaller holding areas for calculations. See hash table, buffer and variable. compared with what we'll need over the next 10 years, but it's a healthy drop." Despite the dot-com (1) Refers to the period (dot) followed by the abbreviation of the commercial domain (.com) at the end of an Internet address. Since the .com domain is so widely used, the Internet became known as the "dot-com" world, and dot-com companies are those formed to offer services or meltdown meltdown Occurrence in which a huge amount of thermal energy and radiation is released as a result of an uncontrolled chain reaction in a nuclear power reactor. The chain reaction that occurs in the reactor's core must be carefully regulated by control rods, which absorb , the Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the sector received more second-quarter venture funding than any other local sector. Nine of the 21 recipients are Internet outfits, which received a combined $81.9 million, more than 40 percent of L.A.'s second-quarter total. "It's just like when the PC sector became overbought Overbought A technical analysis term describing a situation where a security has risen to such a price, usually on high volume, that an oscillator has reached its upper bound. in the mid-'80s," Reyes said. "The Internet is still an important component. It's still No. 1 in New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of , being important to the finance and advertising industries, and in L.A. it's part of the entertainment business." North-south comparison As for the-drop-off in second-quarter funding, the impact on the L.A. economy has been nowhere near as severe as the chill cast over the Bay Area. While the percentage drop in L.A. was greater, the dollar amount in Northern California Northern California, sometimes referred to as NorCal, is the northern portion of the U.S. state of California. The region contains the San Francisco Bay Area, the state capital, Sacramento; as well as the substantial natural beauty of the redwood forests, the northern was much larger. Also, that area's heavy concentration of large public tech companies (HewlettPackard Co., Sun Microsystems Sun Microsystems, Inc. (NASDAQ: JAVA[3]) is an American vendor of computers, computer components, computer software, and information-technology services, founded on 24 February 1982. , Apple Computer Inc., Cisco Systems “Cisco” redirects here. For other uses, see Cisco (disambiguation). Cisco System,Inc. (NASDAQ: CSCO, HKSE: 4333 ) is an American multinational corporation with 54,000 employees and annual revenue of US $28.48 billion as of 2006. , etc.) have suffered big earnings drops and undertaken major layoffs. "The valuations on Southern California Southern California, also colloquially known as SoCal, is the southern portion of the U.S. state of California. Centered on the cities of Los Angeles and San Diego, Southern California is home to nearly 24 million people and is the nation's second most populated region, companies never went up that much, so they didn't have as far to fall," said Reyes. "Down there (in L.A.), the general malaise malaise /mal·aise/ (mal-az´) a vague feeling of discomfort. mal·aise n. A vague feeling of bodily discomfort, as at the beginning of an illness. , depression, panic - the need for prozac Prozac, trade name for fluoxetine hydrochloride. See antidepressant. Prozac First of the class of antidepressant drugs called selective serotonin reuptake inhibitors (SSRIs), generic name fluoxetine hydrochloride. - is nowhere near what I see here in Northern California." Much of that pain comes from the Bay Area's lack of economic diversity, which L.A. suffered through when it was heavily dependent on aerospace/defense. "The very synergies that made Silicon Valley so successful are now causing the bad news," Reyes said. "It's a micro economy that depends on the company down the street buying components being made up the street."
L.A. Recipients of Venture Funding in 2nd Quarter
Recipient, HQ City Amt. Received (millions)
Jamdat Mobile, Los Angeles $12.0
USBX Inc. (US Business Exchange), 8.0
Santa Monica
Health Integration Strategies, 9.0
Pasadena
DemoGraFX, Santa Monica 10.0
Tunable Photonics Corp., Altadena 7.0
TheBrain Technologies Corp., Santa 16.0
Monica
Codexa, Pasadena 1.0
RealEnergy, Woodland Hills 50.0
eMind.com LLC, Los Angeles 7.0
Quisic (formerly University Access 9.5
Inc)., Los Angeles
Be Here Corp., Westwood 5.4
ProcessClaims, Redondo Beach 13.2
Malibu Networks Inc., Woodland 2.55
Hills
Assuresat Inc., El Segundo 0.25
Justwin Technologies, Beverly Hills 1.7
Line56, Westwood 7.0
Codegrok, Pasadena 0.175
LightCross Inc., Monterey Park 13.0
US Search.com Inc., Los Angeles 22.0
OccMed Inc., La Puente 2.7
DSD Communications, Los Angeles 7.5
Recipient, HQ City Date of Funding
Jamdat Mobile, Los Angeles April 6
USBX Inc. (US Business Exchange), April 16
Santa Monica
Health Integration Strategies, April 17
Pasadena
DemoGraFX, Santa Monica April 20
Tunable Photonics Corp., Altadena April 24
TheBrain Technologies Corp., Santa April 25
Monica
Codexa, Pasadena April 26
RealEnergy, Woodland Hills May 3
eMind.com LLC, Los Angeles May 9
Quisic (formerly University Access May 10
Inc)., Los Angeles
Be Here Corp., Westwood May 23
ProcessClaims, Redondo Beach June 13
Malibu Networks Inc., Woodland June 15
Hills
Assuresat Inc., El Segundo May 22
Justwin Technologies, Beverly Hills June 30
Line56, Westwood April 23
Codegrok, Pasadena May 22
LightCross Inc., Monterey Park June 1
US Search.com Inc., Los Angeles June 6
OccMed Inc., La Puente May 7
DSD Communications, Los Angeles June 1
Recipient, HQ City Core Business
Jamdat Mobile, Los Angeles communications and media
USBX Inc. (US Business Exchange), Internet specific
Santa Monica
Health Integration Strategies, computer software
Pasadena
DemoGraFX, Santa Monica semiconductors, other
electronics
Tunable Photonics Corp., Altadena semiconductors, other
electronics
TheBrain Technologies Corp., Santa Internet specific
Monica
Codexa, Pasadena Internet specific
RealEnergy, Woodland Hills industrial, energy
eMind.com LLC, Los Angeles Internet specific
Quisic (formerly University Access Internet specific
Inc)., Los Angeles
Be Here Corp., Westwood semiconductors/other
electronics
ProcessClaims, Redondo Beach Internet specific
Malibu Networks Inc., Woodland Internet specific
Hills
Assuresat Inc., El Segundo communications and media
Justwin Technologies, Beverly Hills computer software
Line56, Westwood business services
Codegrok, Pasadena biotechnology
LightCross Inc., Monterey Park computer hardware,
communications, media
US Search.com Inc., Los Angeles Internet specific
OccMed Inc., La Puente Internet specific
DSD Communications, Los Angeles business services
Recipient, HQ City Investor(s)
Jamdat Mobile, Los Angeles Patricof & Co. Ventures Inc.,
Intel Corp., Sun Microsystems Inc.,
Qualcomm Ventures
USBX Inc. (US Business Exchange), Carlyle Group L.P., TopSpin
Santa Monica Partners, undisclosed venture firm
Health Integration Strategies, Delphi Ventures, St. Paul Venture
Pasadena Capital Inc., Validus Partners LP
DemoGraFX, Santa Monica Baker Capital Corp.
Tunable Photonics Corp., Altadena Forrest Binkley & Brown, Blueprint
Ventures LLC, undisclosed corporate
investor
TheBrain Technologies Corp., Santa Thomas H. Lee Putnam, GE Equity
Monica (formerly GE Capital Equity Capital
Group), Accenture Technology
Ventures (formerly AC Ventures),
angel investors, LP, Ridgestone
Corp., undisclosed investor
Codexa, Pasadena individuals
RealEnergy, Woodland Hills CSFB Private Equity (Credit Suissee
First Boston), California Public
Employees' Retirement System
(CalPERS), Global Innovation
Partners LLC, undisclosed investor,
individuals
eMind.com LLC, Los Angeles Rader Reinfrank & Co., LLC
(formerly Coldstream Capital LLC),
undisclosed investor
Quisic (formerly University Access Leeds Weld & Co. (formerly Leeds
Inc)., Los Angeles Equity Advisors), Investor AB,
undisclosed venture firm
Be Here Corp., Westwood Eastman Kodak Co Inc., Wasserstein
Ventures (formerly Wasserstein &
Co:), Enterprise Partners, Intel
Corp., Royal Philips Electronics,
Snider Capital, L.P., undisclosed
venture firm
ProcessClaims, Redondo Beach meVC.com Draper Fisher Jurvetson,
individuals, undisclosed venture
firm
Malibu Networks Inc., Woodland ARCH Venture Partners, Polaris
Hills Venture Partners
Assuresat Inc., El Segundo SpaceVest
Justwin Technologies, Beverly Hills Bluestem Capital Partners,
undisclosed venture firm
Line56, Westwood Individuals, undisclosed investor
Codegrok, Pasadena ABS Ventures
LightCross Inc., Monterey Park ComVentures (AKA: Communications
Ventures)
US Search.com Inc., Los Angeles Pequot Capital Management Inc.
OccMed Inc., La Puente Welsh, Carson, Anderson & Stowe
DSD Communications, Los Angeles Alta Communications, undisclosed
venture firm
Source: Thomson Financial Securities Data
[Graph omitted] [Graph omitted] |
|
||||||||||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion