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THE CUTTING EDGE: FOCUS ON TECHNOLOGY | CALIFORNIA
DEALIN' / Financing the State's Emerging Companies

New Funds for 'Old Economy'

Venture Capitalists See Advantages in Backing Lower-Tech Firms

November 13, 2000|DEBORA VRANA | TIMES STAFF WRITER

Ed Jaeger runs a Santa Monica company that makes gloves for roofers and plumbers--not exactly the kind of business you'd expect to attract venture capitalists.

These days, however, some venture investors are taking another look at business ideas in the "old economy."

Though cutting-edge technology companies still got the vast majority of the $1.94 billion in venture-capital dollars invested in Southern California firms in the third quarter, venture funds also funneled some of their money into companies like Jaeger's.

Some venture capitalists say privately that non-technology businesses run by veteran management teams offer a refreshing change in terms of funding ideas, given the volatility in technology--and the often untested managements in that sector.

Here are a few of the more traditional Southland businesses that received venture funding in the third quarter, according to a survey by accounting giant PricewaterhouseCoopers:

* Jaeger's firm, Ironclad Performance Wear Inc., produces gloves for the professional construction industry, incorporating materials and methods used in gloves made for the sports industry.

The company expects sales of $4 million nationwide this year and to post a profit. Its gloves, made in China, are priced from $24.95 to $26.95 and come in various sizes. A special glove for female workers was recently put on the market.

"It's brass tacks," Jaeger, 39, says of the company he founded a year ago. "It's not high-tech, but we use high-tech methods. We all have cell phones, laptops and we order over the Internet. But what we do has been around forever."

Colorado Venture Partners, a Boulder-based investment firm that primarily funds software companies, has put $1 million into Ironclad this year, some of it in the third quarter. Colorado Venture has been joined in its funding by Northern Rockies Venture Fund.

Ironclad also has raised money from family, friends and angel investors so far. It expects to raise money in additional rounds of financing.

"They make their [financial target] numbers every quarter," said Gary Bloomer, a partner with Colorado Venture, who said he was attracted to the firm's management team and culture. Ironclad's performance, he said, contrasts with many software firms, where "numbers get missed all the time."

Ironclad, which has a distribution center near the Santa Monica airport, has been taking up more space in its building as "dot-com" companies scale back or go under, said Jaeger.

* Applause Holding Corp., a Woodland Hills-based specialty gift and toy maker created in 1966 by Wallace Berrie, took in $3 million in venture funds in the third quarter from Frontenac Co., a Chicago-based private equity fund.

Frontenac had made a previous investment of more than $10 million in the company in 1997, taking a majority ownership stake.

"We're spending a lot more time in Southern California," said Rodney Goldstein, a managing partner of Frontenac, which has four investments in Southland firms.

"All of our investments have one thing in common: We look for a proven executive team," he said.

Applause, with 450 employees, makes stuffed animals and other toys focused on children for 35,000 specialty retail and gift stores. Annual sales are more than $100 million.

The company's toys include such characters as Roli Polie Olie, a computer-animated series from the Disney Channel, and characters from Pokemon and Powerpuff Girls.

"We are using the capital to continue to grow," said Jonathan Mather, chief executive of Applause. In 1995, the company acquired Dakin, a maker of small, velveteen stuffed animals, including high-end collectible items sold primarily to adult women.

"Grandmothers buy these to pass on to their children," said Mather. "We plan to grow this line."

* 101Communications, a Chatsworth-based company that publishes trade magazines and organizes conferences for the technology industry, received $17 million in financing during the quarter, in its second round of venture investment.

Founded in 1998, the 320-employee firm has grown via acquisitions to 15 magazines and 25 Web sites, besides running 20 trade shows in the U.S. and Europe.

Its publications include Java Report, ASP Insights, Enterprise Linux Magazine and Federal Computer Week.

While 101Communications' products target workers in the tech area, its basic business is publishing--and it is already profitable, its executives say.

"Although we are in the tech space, we are a whole different type of investment" from most tech companies, said Jeffrey S. Klein, president and chief operating officer of the firm.

Klein is a former lawyer and held several senior management positions with the Los Angeles Times, including senior vice president. Curt Hessler, chairman and chief executive of 101Communications, is a past executive vice president of the former Times Mirror Co.

The company's venture investors include Frontenac.

Frontenac's Goldstein said the trade-publication industry is growing but also is fragmented, which provides 101Communications the opportunity to be a consolidator through acquisitions.

"We can grow this business," he said.

*

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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