VC rebound?

Venture capital appears to be on the rebound in Los Angeles, though appearances can be deceiving.

Startups received the largest increase in funding, up 130 percent in the first quarter, than they have in two years.

A total of $199 million was invested in 18 companies, compared with $86 million it] 12 companies for the like period a year earlier, according to the quarterly venture capitol report from Ernst & Young and VentureOne, a unit of Dow Jones & Co.

But the results are murky because bigger deals dominated the quarter and a few of the investments were second, third or fourth rounds of funding from backers seeking to turn around original investments.

"There's still a lot of interest in staying focused on star]ups and a pipeline of star]up transactions," said Donald Williams, Ernst & Young's venture capital group leader for the Pacific Southwest. "A lot of the financings are tied to IPOs with a mezzanine round of financings used to dress up the balance sheet before an IPO."

A good example is HOB Entertainment, owners of House of Blues clubs and nearly a dozen amphitheaters, including Universal Amphitheater.

Ares Management, the large private equity fund in L.A., invested $35 million in HOB Entertainment, which already has the backing of J.P. Morgan Partners. The company had to be recapitalized to the tune of $110 million with a new bank credit facility from Banc of America Securities.

Other big deals in Los Angeles included 5Square Systems, of Westlake Village, a software management firm for auto dealerships. It raised $12.3 million from two Palo Alto firms, Norwest Venture Partners and Storm Ventures. MicroFabrica Inc., a manufacturing technology firm in Burbank, received $15 million in a second round of financing from WK Technology Fund of Taiwan.