Venture Spigot Tightens as Values Fall.Looking for Looking for In the context of general equities, this describing a buy interest in which a dealer is asked to offer stock, often involving a capital commitment. Antithesis of in touch with. money to launch that great entrepreneurial idea of yours? Good luck - you'll need it. 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. and angel investors An individual who invests his or her own money in a private company, which is typically a startup. An angel investor is not an employee or member of a bank, venture capital firm or other financial institution that normally makes such investments. - who less than a year ago were throwing money at even harebrained hare·brained adj. Foolish; flighty: a harebrained scheme. Usage Note: The first use of harebrained dates to 1548. ideas - have almost completely shut off their cash spigots. They're no longer spending their days and nights poring over business plans. Instead, VCs are busy steering their pre-existing investments away from the rocks, and angels, well, many have returned to their "day jobs." "The days of, 'If you build it, they will come' are over," said Paul Nadel, managing partner with East West Venture Group. Still smarting from the dot-com collapse, L.A.-area venture capitalists are now shifting to patentable technologies that have a clear short-term path to profitability. "If you're not hitting milestones, executing well, getting the proper traction, you're not getting money," said Jeff Anderson, managing director of Mellon Ventures Inc. Of course, the number of startups achieving all that is miniscule min·is·cule adj. Variant of minuscule. Adj. 1. miniscule - very small; "a minuscule kitchen"; "a minuscule amount of rain fell" minuscule . The firms getting the attention these days are those that boast sexy, potentially groundbreaking and - most importantly Adv. 1. most importantly - above and beyond all other consideration; "above all, you must be independent" above all, most especially - patentable technologies. "I'd say there's been a move towards harder, more intellectual property-rich companies," said Anderson. "Deals that are getting done now are bulletproof Refers to extremely stable hardware and/or software that cannot be brought down no matter what unusual conditions arise. See industrial strength. bulletproof - Used of an algorithm or implementation considered extremely robust; lossage-resistant; capable of correctly ." One company with patentable technologies is Photobit Corp. of Pasadena, which has licensed patents from NASA's Jet Propulsion Laboratory “JPL” redirects here. For other uses, see JPL (disambiguation). Jet Propulsion Laboratory (JPL) is a NASA research center located in the cities of Pasadena and La Cañada Flintridge, near Los Angeles, California, USA. . It just completed a $25.6 million capital infusion Capital infusion Often refers to the cross-subsidization of divisions within a firm. When one division is not doing well, it might benefit from an infusion of new funds from the more successful divisions. led by Basler AG, Hitachi Ltd. and Intel Corp. Photobit supplies complementary metaloxide semiconductor (CMOS (Complementary Metal Oxide Semiconductor) Pronounced "c-moss." The most widely used integrated circuit design. It is found in almost every electronic product from handheld devices to mainframes. ) image sensors An image sensor is a device that converts a visual image to an electric signal. It is used chiefly in digital cameras and other imaging devices. It is usually an array of charge-coupled devices (CCD) or CMOS sensors such as active-pixel sensors. , which are used in the PC video camera market, in dental technology and in the automotive industry The automotive industry is the industry involved in the design, development, manufacture, marketing, and sale of motor vehicles. In 2006, more than 69 million motor vehicles, including cars and commercial vehicles were produced worldwide. . "We've always had a straightforward business model, and it hasn't changed at all," said Sabrina Kemeny, chief executive of Photobit. "What has changed is that now it's in vogue." Others agree. Core technology gets hot "There's definitely a focus on how unique and protectable the technology is," said Brad Jones This article is about the racing driver. For the football goalkeeper, see Bradley Jones. Bradley Jones also known as Brad (born 2 April 1960) is an Australian racing driver formerly competing in the V8 Supercars. , managing director at Redpoint Ventures. "You can analyze a core-technology business, figure out how much money it will save the customer and determine how big the market will be. With non-core-technology businesses, the analysis is more difficult because you can't objectively analyze (those factors)." For core-technology businesses, the current environment may even be favorable than the recent past because there are now far fewer companies that are deemed worthy of consideration by VC firms. "If anything, it probably would have been more competitive (to get funding) a few months ago," said Gerard Casale, chief executive of X-Laboratories LLC (Logical Link Control) See "LANs" under data link protocol. LLC - Logical Link Control , a technology operating company operating company A business that engages in transactions with outsiders. that closed a $1.5 million seed round in December. The L.A.-based company, currently in the process of negotiating a $2.5 million round with undisclosed investors, makes equity investments in "protectable" (but not yet patented) technologies. Essentially, it mines fresh ideas from affiliate research-and-development facilities with the hopes of spinning new technologies off into separate companies, in which it would maintain a stake. Even companies, like X-Laboratories and Photobit, that succeed in getting venture backing, still have a much tougher road ahead than their predecessors did. A tech company working on the next new thing may take about 18 months in product development to get a device or application to market and gain initial customer traction. If all goes well -- no small feat in a slowing economy -- it would take at least another two years before it's ready for an initial public stock offering, said Dave Lavinsky, president of Growthink Inc., a Los Angeles-based think tank that tracks the venture market. Just as well, because it may be that long before Wall Street regains its appetite for tech-related IPOs, some industry observers said. Tending the flock As for the venture capitalists, they're spending much more time as hands-on managers of their existing portfolio companies, and far less time conducting due diligence Research; analysis; your homework. This term has caught on in all industries, because it sounds so "wired." Who would want to do analysis or research when they can do due diligence. See wired. for new investments. In fact, many venture firms in 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, haven't made any new investments since the second quarter of last year. "They are allocating all of their funds to existing portfolio companies and they're not investing in any new companies," said Nadel of East West Venture Group. "These funds need to protect their existing companies that need more capital and are unlikely to receive it from outside sources." Entrepreneurs confirmed that VCs are focusing on shepherding their existing portfolio companies toward profitability, rather than investing in new companies. "You found many of the VCs hadn't made an investment in six months," said Alex Nesbitt, president and chief executive of Sameday, a developer of rapid-response product distribution software, which closed its $20 million third round of funding in mid-December. "Venture capitalists have spent a lot more time with us." Sameday's backers include TH Lee Putnam Internet Partners, IGNITE Group, Accel Partners and Idealab. It's evidence that money is still available, it's just harder to get. "Actually, now is a great time to fund and/or start new technology businesses," said Lavinsky of Growthink. It's a great time for entrepreneurs, assuming their technology is solid, because there are fewer acceptable business plans competing for cash. And it's a great time for new VC funds to enter the market because competing VC firms are so preoccupied tending to troubled earlier investments. More buying power Buying Power The money an investor has available to buy securities. In a margin account, the buying power is the total cash held in the brokerage account plus maximum margin available. Also referred to as "Excess Equity. Also, valuations of VC-recipient companies across the board are much lower now, said Beth Kinsey, manager of the technology group at City National Bank, a division of City National Corp. That means VCs now get a larger equity stake for the same amount of cash. For example, Kinsey said, a $5 million investment today might buy a 40 percent equity stake, whereas eight months ago it might have only bought a 15 percent stake. With further signs of economic decline in 2001, it's not surprising that many local investors are predicting that trend will continue. "The general sense is that the market has not gotten better (for venture capitalists), although I would say that this whole process is positive for the VC industry," said Todd Springer springer a North American term commonly used to describe heifers close to term with their first calf. , a managing director at Trident Capital in 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. . "From 1999 to 2000, there were a lot of marginal-quality deals. ... Those same companies are returning to the market for more funding, but are having difficulties (raising capital)." Most VCs are turning-their noses up at Internet commerce deals, whether business-to-business or business-to-consumer. But the better-established e-commerce outfits have been attracting equity investments from Old Economy corporate investors Noun 1. corporate investor - a company that invests in (acquires control of) other companies company - an institution created to conduct business; "he only invests in large well-established companies"; "he started the company in his garage" that are involved in the same or complementary lines of business. For example, Ford Motor Corp. was among the investors that put $13.5 million into JoeAuto.com Inc., a Houston-based company seeking to open service centers nationwide. Expect to see more such deals in the months ahead, Lavinsky said.
First-Quarter Action
Some local companies that have received
VC funding in recent weeks.
Company/Address Amount
Argoquest $40,000,000
11777 San Vicente Blvd., Suite 550
Los Angeles 90049
Lynx Photonic Networks 30,000,000
21530 Oxnard St.
Woodland Hills 91367
Photobit 25,000,000
135 N. Los Robles Ave., 7th Floor
Pasadena 91101
Cyrano Sciences Inc. 23,000,000
73 N. Vinedo Ave.
Pasadena 91107
Sameday.com 20,000,000
20490 E. Business Parkway
City of Industry 91789
Sierra Monolithics Inc. 14,200,000
103 W. Torrance Blvd., Suite 102
Redondo Beach 90277
Dynamics Direct Inc. $12,500,000
22736 Vanowen St., 3rd Floor
West Hills 91307
MEMGen Corp. 11,300,000
438 Amapola Ave., Suite 200
Torrance 90501
Ifilm 10,000,000
1024 N. Orange Drive
Hollywood 90038
Ondax Inc. 7,500,000
850 E. Duarte Road
Monrovia 91016
X-Laboratories 1,500,000
11755 Wilshire Blvd., 12th Floor
Los Angeles 90025
Pictag 200,000
2447 Pacific Coast Highway
Hermosa Beach 90254
Source: Business Journal Research
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