Venturing Close to Home

The fast-talking venture capitalist had backed a string of successful technology companies across Southern California. But by 2002, his projects were disintegrating, laying off workers and going bankrupt.

"I felt I didn't understand this business at all," said Armstrong, 38, a partner at Clearstone Ventures in Santa Monica. "I needed to talk to someone who's been in this business for a long time, who could be a mentor."

Over breakfast at Uncle Bill's Pancake House in Manhattan Beach with Ted Alexander, a partner at Mission Ventures, Armstrong cooked up a plan: Gather the region's top venture capitalists so they could swap stories and expertise. With the help of a dozen other firms, the Southern California Venture Capitalist Assn. was born.

Two years later, the group is working to raise the profile of homegrown venture capital, long overshadowed by the tightknit, well-organized and heavily funded investors along Silicon Valley's famed Sand Hill Road.

Entrepreneurs in Southern California "don't have to fly to San Jose to get money," Armstrong said. "There's money local."

The association isn't altruistic. Members figure that if they can attract the brightest entrepreneurs and make the region more hospitable for start-ups, they'll attract more viable proposals and, in turn, make more money themselves.

There would seem to be ample opportunity. Southern California ranks third in the amount of venture capital its companies take in -- after the Bay Area and Boston. But much of that funding comes from elsewhere.

Local entrepreneurs regularly catch Southwest Airlines' "nerd bird" flights to Silicon Valley to plead for backing from the 258 venture capital firms based there. That's about four times the number of firms in Los Angeles, Orange and San Diego counties, according to a recent count by Ernst & Young.

Southern California "is viewed as a bit of a backwater when it comes to venture capital," said Anthony B. Perkins, editor of a website for technology entrepreneurs and investors.

Among the first to try to change that image was EC2, an incubator founded in 1995 that was headed by University of Southern California professor and private investor Jon Goodman and sponsored by USC. But funding from the university dried up, and EC2 shuttered in 2002. Another group, Just Upwardly Mobile Professionals, or JUMP, cropped up in 1999 only to vanish in the technology bust.