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Venture Capitalists are Banking Highly on Region's Tech Growth

CALIFORNIA DEALIN' / Financing the State's Emerging
Companies

November 06, 2000|DEBORA VRANA | TIMES STAFF WRITER

The latest round of venture capital financing has created a new crop of Southland technology and Internet companies to watch.

Venture money continued to flow freely to area companies in recent months, even as the stock market's gyrations raised questions about the ultimate payoff from many venture bets.

Data reported last week by the National Venture Capital Assn. showed that Southern California companies attracted $1.94 billion in venture funding in the third quarter, up nearly 40% from the third quarter of 1999.

"Los Angeles as a region continues to be very strong" in luring venture dollars, said Richard Withey, managing partner of the technology and entertainment practice for Southern California at accounting giant PricewaterhouseCoopers. "The Los Angeles and Orange County region will break the $3-billion mark this year for the first time," he said.

And though more venture capital firms are hunting for promising young companies in such sectors as biotechnology, new media and computer hardware, Internet-related firms still are getting the lion's share of funding nationwide and in Southern California.

Despite the crash of many established Net companies' stocks this year, venture investors continue to see long-term promise in many new Net-based business ideas.

Here are some of the Southland companies that got venture funding in the quarter, based on a PricewaterhouseCoopers survey expected to be released today:

* EConnections, an El Monte-based business-to-business supply-management company focused on the electronics industry, got a $75-million investment.

Founded in April, the firm's venture backers included Redrock Ventures, SilverLake Partners and Trident Capital.

The company bills itself as a "total supply chain management" company for electronics firms. "We are not just a software company. We provide services the companies need to effectively manage their supply chains," said Jacob Kuryan, an executive vice president.

* Creative Planet, an entertainment-related Web site headquartered in Los Angeles' Miracle Mile, took in $38 million in late-stage financing. The company hopes to go public by the end of next year.

Creative Planet helps movie, video and other types of production companies manage their operations. East River Ventures, Chase Capital Partners and Rustic Canyon were all involved in the latest venture round.

"It was certainly harder to raise the money--it's tougher out there" for Net companies, said Chief Executive Allen DeBevoise.

Even so, he said, the company's latest financing was done as an "up round"--meaning, on the basis that the value of the business still is rising. (By contrast, a "down round" of financing means venture investors demand a bigger stake in a business because they believe its value has declined.)

* Rampt.com, a Hollywood-based broadband media search and products provider for businesses, got $7.1 million in financing from investors including computer chip giant Intel Corp.

* Pasadena-based Internet sweepstakes and promotions firm Jackpot.com received $5 million in venture financing. Now six months old, the company--incubated at Idealab--recently announced it has 2 million members.

The firm's site is free to players, who can win promotional discounts and money. Advertisers on the site include Nabisco, MasterCard and Doubleday.

* A $3.7-million venture investment was made in Ants.com, a Santa Barbara-based business-to-business outsourcing Web site. Venture investors in the firm include Bertelsmann Ventures and Millennium Hanson Internet Partners.

"It took us longer to raise money than we figured it would," said Chief Executive Rick Davis. "But good deals are still getting done, and we think we are an example of that."

Davis said the company picked the name Ants.com because, while an ant alone can't do much, ants working together can achieve a lot. The Web site is designed to allow companies to post project ideas and have qualified service providers bid for the work.

* Edmunds.com, a Santa Monica-based Web site devoted to automotive information, received $68 million in venture funding.

The firm's site includes information on pricing of new and used cars, vehicle reviews, ways to buy cars and a consumer forum.

"The amazing thing is we had people calling us" to invest, said President Jeremy Anwyl. Investors in the latest financing round included Cox Enterprises, AutoLogic Holdings, CNET Networks and General Electric.

The firm was formed in 1966 as Edmunds Publications in New York. The company moved to Los Angeles in the late 1980s and recently changed its name.

* Optical Technology Solutions, a Torrance-based company in the currently hot sector of optical networking and solutions, received a $10.5-million investment.

Smart Technology Ventures, a Beverly Hills-based venture firm, co-led Optical Technology's first financing round.

Overall, "The reason we're still seeing so much [venture] activity is that the pipeline of money is so full," said PricewaterhouseCoopers' Withey.

But he said it isn't clear that the institutional and individual investors who have pumped billions into venture funds in recent years will continue to do so, if they fear that returns will decline.

"It may well be that when they [venture funds] go out to raise more money next year, things will dry up," he warned.

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Debora Vrana, who covers investment banking and the securities industry for The Times, can be reached at debora.vrana@latimes.com or Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012.

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Connect: Check out other California Dealin' columns at http://www.latimes.com/caldeal

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