O.C.’s Venture Capital Declined in 4th Quarter
Venture capital funding to Orange County companies fell sharply in the final three months of last year as the economic slowdown and the sagging stock market took the steam out of an exceptionally strong year for such investments.
Venture capitalists invested $303.4 million last quarter in two dozen fledgling companies in Orange County, down 31% from a peak of $439 million in the third quarter.
That percentage decline was exactly the same for the nation, but the county had a more serious drop-off in funding than the Southern California region at large, according to figures released this week by the National Venture Capital Assn. and Venture Economics.
In Southern California, 130 companies received a total of $1.57 billion in the October-to-December period, down 21% from the previous quarter.
Although stock market woes and dot-com failures are factors, the recent drop in funding was also caused by venture capitalists trying to rescue previous investments, not making new ones, said Bob Holman, a partner in the new Irvine venture capital fund Miramar.
Despite the falloff in the final quarter, venture investments reached record levels over the previous year both nationwide and in Southern California.
Throughout the country, venture capital investments jumped more than 73% last year to $103 billion. About a third went to companies in Northern California, home of Silicon Valley.
In Southern California, the annual venture figure rose to $8.33 billion, up 64% from the $5.08 billion invested the year before. Orange County companies received more than $1.28 billion for all of last year, a 22% increase from the $1.05 billion garnered in 1999.
What distinguished Orange County from the rest of the region is that investments in Southern California peaked during the first quarter of 2000, then declined rather steadily for the rest of the year, whereas funding rose more gradually in Orange County and peaked in the third quarter.
The Southern California region includes Los Angeles, San Diego, Orange, Ventura and Santa Barbara counties.
After the frenetic pace of investment that marked the last two years, venture capitalists in Southern California said they generally considered the recent slowdown to be a good sign.
“I’m still very bullish about Orange County,” said Randall R. Lunn, a general partner at Palomar Ventures in Irvine. “I think we’ve seen valuations come down on deals, which is good for an investor. And we have seen companies be more realistic too in terms of setting their own goals.”
Lunn, who manages $300 million in two investment funds, said his firm expects to announce two investments in Orange County technology companies this quarter for a total of about $10 million.
Bruce Hallett, a partner at Miramar Ventures, said he expects to see a higher number of investments going forward but a relatively lower dollar amount.
“No doubt valuations are down substantially on good companies,” he said.
In the last quarter, computer security technology firm Ethentica Inc. of Aliso Viejo received $40 million in funding--more than any other company in the county and the sixth largest investment in Southern California.
The company, which sells identity authentication services and fingerprint sensor products, drew capital from five sources but only one venture capital fund. Most of the funding came from other technology firms, including up to $15 million from Hewlett-Packard Co. under a convertible debt arrangement, according to company spokeswoman Cara Stewart.
In the fourth quarter, 53 companies in Los Angeles County shared an investment pot of $754.5 million. San Diego County received $433.2 million in venture investments divided among 46 companies.
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Funding Drops
In the last three months of 2000, venture capital to Orange County firms dropped 31% from the previous quarter, while it fell 21% in all of Southern California. A look at quarterly numbers last year:
Source: National Venture Capital Assn.
