Southland Venture Capital Outlay on Rise
Investors, showing continuing faith in the active market for public offerings, risked $103 million on young, promising Southland companies during the first three months this year, more than double the amount in last year’s first quarter.
While high-technology companies gobbled up most of the money statewide and nationwide, more than half the money invested in Southern California in the first quarter went to the House of Blues in West Hollywood, according to a quarterly survey by the Price Waterhouse LLP accounting firm.
The restaurant-nightclub chain, started by Hard Rock Cafe co-founder Isaac Tigrett, raised $55 million from a consortium of venture capital firms. The money will help it expand internationally, boost its record label and three syndicated radio shows, and revive its recently canceled television show, a spokeswoman said. Among the investors are celebrities Dan Aykroyd, Jim Belushi, Carly Simon, Isaac Hayes and John Goodman.
The House of Blues and five other Los Angeles County companies picked up a total of $83.1 million. Six Orange County companies raised a total of $15.9 million while two other companies, one in San Luis Obispo and one in Santa Barbara, received a total of $4.1 million.
Among the Orange County companies, the medical field was king. Medical Data International, an Irvine provider of online health-care services, picked up $4 million; Cornerstone Physicians Group, an Irvine manager of medical groups, got $3 million; and TherOx Inc., a Costa Mesa provider of oxygen delivery systems, got $3 million.
“There continues to be a lot of faith in the public market,” said Thomas E. Darcy, managing partner for Price Waterhouse’s West Coast high-technology group. Darcy said investors are also impressed with the increase in quality products and seasoned management at start-up companies.
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Venture funding is private money that is typically invested in new, young or growing companies. Investors usually take their gains when their companies go public or are sold.
Though venture capital funding in the first quarter far surpassed first-quarter funding last year, it fell short of the $123 million pumped into growing companies during the last three months of 1995, the Price Waterhouse survey found.
The survey also showed that more money was given to fewer companies than in recent three-month periods. Last year, 21 Southland companies on average received funding each quarter. But only 14 caught investors’ eyes in the first quarter this year. Darcy said it was too early to read anything into that figure.
Nevertheless, the latest fundings reflect a trend that started in late 1994 when venture capitalists began to make more money available to entrepreneurs.
Statewide and nationwide, venture funding in the first three months fell off somewhat from the previous quarter but also increased dramatically over last year’s first quarter, the survey showed.
Investors put $680 million into 150 California companies in the first three months of this year, far exceeding the $272.4 million they risked in last year’s first quarter. They invested $2.2 billion in 480 companies nationwide, a 47% increase over $1.5 billion invested a year ago.
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Elsewhere in the state, venture capitalists invested $79 million in San Diego County companies, with 81% of the money placed in the biotech-biomedical industry.
The Silicon Valley led both California and the nation in venture funding, garnering $497.8 million, mostly for software, communications and computer companies. Nationwide, software and communications companies accounted for 44% of all venture investments.
In a separate study, the Coopers & Lybrand LLP accounting firm found that entrepreneurs need 65% more in venture funding today than they needed a decade ago to survive and thrive.
The study said companies need more money to compete for skilled workers, enter international markets quickly and upgrade or replace products more often.
Ten years ago, a venture-backed company needed an average of $7 million to succeed, said Hal Hurwitz, a Coopers & Lybrand partner in Newport Beach. “Today, the same company would need an average of $11.6 million in venture capital to thrive,” he said.
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Capital Boom
Venture capital invested in Southern California firms increased 163% in first quarter 1996 over the same period last year. First-quarter comparison by industry, amounts in millions:
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1995 1996 Biotechnology $12.5 $2.6 Communications 5.7 9.0 Consumer 0.4 55.3 Health care 9.8 3.0 Industrial 0 10.2 Medical instruments & devices 5.2 3.0 Semiconductors/equipment 0 5.5 Software and information 5.6 14.5 Total $39.2 $103.1
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Source: Price Waterhouse LLP; Researched by JANICE L. JONES / Los Angeles Times
