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California and the West

Region is No. 2 after surge in venture capital

Santa Monica's Amp'd Mobile gets a deal for $150 million. The Bay Area still is the biggest money magnet.

January 23, 2007|E. Scott Reckard | Times Staff Writer

Venture capital investment in Southern California surged 25% last year, dwarfing an 8% national gain and propelling the region past New England for the first time in five years, according to a study released Monday.

Investors especially favored healthcare and information services firms in the area from San Diego to Santa Barbara, according to the report, produced by Dow Jones VentureOne for accounting firm Ernst & Young.

Venture capitalists buy stakes in new businesses and help manage their growth, hoping to cash in when they are sold to larger firms or go public through initial public offerings of stock.

Such investors were well aware that last year was the biggest for IPOs since 2000 -- a trend that made them optimistic about eventually selling their stakes, said Ernst & Young partner Michael Schoenfeld.

"Those strong markets bode well for venture capital investment this year," Schoenfeld said.

The survey showed Southern California in second place behind the San Francisco Bay Area in total venture capital investment. In the past, New England frequently had held the No. 2 position, finishing ahead of Southern California in every year since 2001, Schoenfeld said.

One large contributor to the Southern California total was a $150-million, second-round investment by a group of venture capital outfits in Amp'd Mobile Inc., a Santa Monica-based wireless company whose handsets deliver multimedia to the youth market.

It was the largest venture capital investment in the nation last year, Schoenfeld said.

Peter Adderton, Amp'd Mobile's founder and chief executive, said subscribers were downloading content from his firm at more than four times the industry average, convincing investors "that Amp'd Mobile is quickly changing the way the world amuses itself."

With 1,082 deals and $12.36 billion invested, California accounted for almost half of all U.S. investments in 2006. The San Francisco area recorded 811 deals in 2006, about the same as 2005, and $9.05 billion invested, up 7%.

Southern California venture investments edged up from 231 deals to 239 deals. Capital invested rose from $2.49 billion to $3.11 billion.

The deal count nationally was 2,454, slightly ahead of 2005. Investment totaled $25.75 billion, the highest level in five years.

Stephen Harmston, director of research for VentureOne, said investors were focusing "on companies that affect our health, the way we communicate and the environment."

That is reflected, he said, in significant interest in growing industries such as online information services, medical devices and alternative energy.

Southern California's history as a military research center also was reflected in some of the investments, such as the $28 million that Oak Investment Partners committed to Wavestream Corp. of San Dimas.

The company makes compact, highly efficient power amplifiers used for satellite links, radar and other military and civil applications.

The initial technology was developed at Caltech and UC Santa Barbara in the 1990s by researchers using $9 million from the Army, said Wavestream Chief Executive Chris Branscum.

Wavestream's founders left Caltech early this decade to establish the company, which hired mainly from the regional workforce as it grew to its current 40 employees in Southern California, he said.

"The key researchers were all based here," he said. "They were already taking a big chance with their careers and they weren't going to complicate things further by moving to Raleigh, N.C., or Silicon Valley."

Wavestream contributed to a more than 40% jump in venture funding in Los Angeles County, the hottest arena for such investment in Southern California last year, the study found.

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scott.reckard@latimes.com

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