Venture capital association suffers lack of capital; more folks are looking for money than offering it.

Venture capital association suffers lack of capital

More folks are looking for money than offering it

The Los Angeles Venture Association, commonly known as LAVA, has to date failed in its mission of bringing venture capitalists and entrepreneurs together, instead becoming a hunting ground for attorneys, accountants, appraisers, marketers, consultants and other service providers.

"As far as I'm concerned they are a bunch of attorneys and money grabbers; there aren't many with true venture capital," said James E. Franklin, who made a presentation to the group two years ago as president and CEO of Investment News Network, a San Diego-based financial information pay telephone service.

Said Michael I. Goldman, director of acquisitions and divestitures at Santa Monica-based Wickes Cos: "There aren't as many entrepreneurs and venture capital types at the meetings as people trying to sell services or themselves, so to speak."

That is not because of any shortage of venture capitalists in the Southland, with its reputation as a hotbed of entrepreneurial activity. There are at least 10 venture capital firms in Los Angeles and Orange counties with more than $100 million under management, and the largest firm, Warburg Pincus Ventures Inc., has $1.7 billion on its books. Nationally known venture firms based here include Brentwood Associates, Xerox Venture Capital and Oxford Partners.

The problem of attracting people from these firms has not escaped the notice of LAVA's current board. "It's a chicken-and-egg thing; the venture capitalists say they won't come because there are no entrepreneurs, and the entrepreneurs aren't interested if there are no venture capitalists," said Franz von Bradsky of Green Tree Capital, a merger and acquisition shop in North Hollywood and president of LAVA.

The board has made headway in solving the quandary, but "it's a slow building process," von Bradsky said. Among steps taken is an effort to strengthen the program at the monthly breakfast meetings.

Going by recent attendance, the effort has met with some success. From average attendance of 35 two years ago, recent meetings have hovered around 100 people. Besides better programs, that surge may also reflect a change of location to the Bel Air Summit Hotel, which is more accessible to many than the former site, the Beverly Hills Hilton, von Bradsky acknowledged.

Of recent attendees, the percentage of service providers is lower than it once was, von Bradsky asserted.

Going by a recent meeting, more work needs to be done. The biggest turnout came from consultants and accountants, which numbered at least 30. Sixteen of the participants may have been investors, and 12, entrepreneurs. Lawyers accounted for 13 participants. (In many cases it is difficult to determine what category someone belongs to based on their business cards, and some organizations were represented by more than one attendee.)

Among venture outfits, one of the best known regularly represented is Riordan Venture Management, based in downtown Los Angeles. It is one of the few venture firms which has supposedly found a deal through a LAVA meeting. Confirmation could not be obtained from Riordan.

Other than this particular deal, few connections between investors and entrepreneurs are forged at LAVA meetings because "they have no one with sound ideas on how to raise money for upstart companies," Franklin suggested.

Franklin ultimately received a bridge loan of $70,000 from Dr. Edward Dickstein, a private investor, to whom Franklin was introduced by a LAVA board member, but Franklin gives no credit to LAVA and said he knew the board member prior to making his presentation.

The only kind words Franklin had for LAVA was that you can "get a few names and aggressively pursue them."

He compared LAVA unfavorably with similar venture groups he has met and the Regional Investment Bankers Association. Currently there are more than 60 groups like LAVA around the country, von Bradsky estimated.

In its programs, LAVA has strayed somewhat from its original format of letting entrepreneurs present business plans. Only four of its monthly meetings per year are devoted to full fledged business plans. The fall-off may reflect an inadequate flow of business plans submitted to LAVA. That may be a lost opportunity for many would-be entrepreneurs, even if LAVA meetings do not result in financing, because a LAVA committee, free of charge, will help them sharpen their presentations. Among those who have taken advantage are business students from UCLA and USC, whose presentations have been some of the best, von Bradsky said.

From its inception in 1984, LAVA has had its ups and downs in membership and attendance. Besides the greater interest of late, its finances have recently improved from breakeven to a $13,000 surplus.

The board of LAVA is contemplating ways to put that surplus to use. One proposal on the table is the creation of a database.

The database would seek to match investors with projects needing funding. A similar program run by the New England Venture Capital Network put together more than 50 deals worth roughly $23 million last year, von Bradsky said.

The start-up cost for the database would be $70,000, von Bradsky estimated, but he said he would expect no problem raising the difference from banks and the like. After it gets off the ground, such a database should become financially self-sustaining, with fees paid by investors and entrepreneurs, he added.

Whatever LAVA's track record matching venture money with entrepreneurs, job seekers have high hopes they could match up with a future employer at a LAVA breakfast. Explained one attendee, "Many people with substantial experience in Fortune 100 companies have turned over the possibility of moving to a smaller company environment."

Networking is of course one of the stated purposes of LAVA, but according to Franklin, it can get out of hand: "When I got in front of the group, it was like talking to dead fish, who had no interest in what I was saying." However, his comment may no longer apply, judging by the warm reception of one recent speaker who told his success story.