In recent months, some start-up technology companies have died or gone into comas after running out of money, a possible early sign that the resurgence in venture investment may be coming to an end.
File123 is counting its days. Edgeio was edged out. TripUp has fallen. BrightSpot went dark. Firebrand flamed out and Ezmo is no more.
Industry analysts say this year will bring a big wave of start-up deaths as the credit crisis gripping the financial markets makes investors cautious in other areas.
"This is the first time since the Internet bubble burst that Internet companies are facing serious challenges," said Jessica Canning, global research director for Dow Jones VentureSource.
The slowdown will affect Los Angeles, which has become a technology center for companies that put entertainment and advertising on the Web. Now such companies are frequently given months, not years, to prove concepts, with wary venture capitalists pickier about where they invest.
"It's more cutthroat now," said Adeo Ressi, an entrepreneur who runs thefunded.com, a site that tracks venture firms. "If you don't show hockey-stick growth, you don't make it in this market." The chart pattern Ressi referred to signals impressive growth at a fast pace.
In the last quarter of 2007, venture capital investments in Southern California companies fell 25%. Los Angeles-based information services companies, which include online entertainment and advertising ventures, attracted 13% less funding than the same time a year earlier.
Only one technology company had an initial public offering in the first quarter of this year, down from nine the same time last year, according to an April 1 report by the National Venture Capital Assn. The group also found a slide in mergers and acquisitions.
Matt Dusig, who sold online survey operation GoZing for $30 million three years ago, needs $500,000 to keep his Encino company, File123, alive. He has a chief executive ready to take charge but nobody interested in betting on the Web-based file storage manager. "We don't want to see it die out," Dusig said.
The investment slowdown comes after the biggest start-up funding boom since the Internet bust. Venture funds raised $35 billion in 2007, the biggest hoard since 2001.
