Venture capital activity bouncing back with 'Web 2.0'.

Venture capital investment in L.A. firms bounced back in 2006 and companies such as Beverly Hills-based BiggerBoat.com are a big part of the reason why.

BiggerBoat.com combines a Web-based search engine for entertainment information with online comparison shopping for digital media products. It represents the nexus between the digital world and the entertainment industry focus of the "Web 2.0" companies that have sprouted up all over Los Angeles.

Four months ago, BiggerBoat.com, then known as OnMeta Inc., received $2.5 million in a second-round venture capital investment from Zone Ventures and its parent Draper Fisher Jurveston, along with First Round Capital.

"Last year was a very good year for venture capital, especially here in Los Angeles, the area of intersection between technology and entertainment," said Adam Lilling, co-founder and chief executive of BiggerBoat.com.

Two venture capital reports released last week bear this out. Both show that L.A. posted its best year for venture capital investment since the end of the dot-com bubble in 2000-01, with more than $1 billion in investments.

One report from Ernst & Young LLP/Venture One showed 98 venture capital investments in L.A. firms worth $1.26 billion, up 43 percent from 2005. The other report from PricewaterhouseCoopers/National Venture Capital Association showed $1.1 billion in Venture capital investments in Southern California firms, up 24 percent from 2005.

"We've seen signs of the venture capital comeback for the past couple years, but 2006 was the year venture capital investment really bounced back in Southern California," said Randy Churchill, director of business development with the Southern California region technology practice of Pricewaterhouse-Coopers. "And the biggest reason for this comeback has been the Web 2.0 phenomenon."

Churchill said the local venture capital scene last year was somewhat reminiscent of 1997-98 as the Internet bubble gathered steam, with some major differences. This time around, "People are finally figuring out how to monetize advertising over the Internet and how to marry content with the technology," he said.

Besides BiggerBoat.com, other digital media firms receiving venture capital investments during the fourth quarter included: West Hollywood-based Fanlib Inc., which provides fans of movies and television shows a site to write their own scripts; Santa Clarita-based SodaHead Inc., a social networking Web site; and Los Angeles-base Buzznet Inc., a multimedia social networking site.

While flashy web-based entertainment companies grabbed the local venture capital headlines in 2006, the L.A. region also saw increased investment in biomedical companies, with deals like the $34 million investment in Monrovia-based Xencor Inc. and $7 million in ProLacta BioSciences Inc., also in Monrovia. However, the local biomedical sector still trails behind firms in the Bay Area and San Diego in their ability to attract venture capital dollars.

Another reason for the increase in funding was the huge amount of private equity buyout dollars and an uptick in initial public offerings, which provide venture capitalists a way to cash out. "Venture capital investors think in terms of exit strategies," said Michael Schoenfeld, venture capital advisory group leader for the Pacific Southwest area for Ernst & Young.

HOWARD FINE 

Staff Reporter