Venture Capital Investments Up in Region

In an indication of the growing interest in promising start-ups in the area, venture capital investments in Orange and Los Angeles counties rose 22% to $197.2 million in the second quarter from $162.2 million a year earlier, a new survey found.

The second-quarter total was up 34% from the $147 million invested in local companies in the first quarter, the accounting firm PricewaterhouseCoopers said Monday in releasing the results of its quarterly survey of the venture capital community.

But the investment level in the most recent quarter fell below the record $238.7 million pumped into firms in the third quarter last year.

Venture capital activity, while accounting for a small percentage of the total financing received by early-stage companies, is nevertheless considered an important barometer of entrepreneurs’ access to start-up funds.

Businesses in Los Angeles and Orange counties have traditionally lagged other regions such as Silicon Valley in venture capital investment, but the level of investment in local firms has generally been increasing.

Investments in local businesses in the second quarter accounted for 5.3% of the nationwide total of $3.7 billion.

For the entire state, venture capital investments surged to $1.54 billion in the second quarter, up 15% from $1.34 billion a year before and 36% higher than the first quarter’s $1.14 billion. The bulk of the funding went to Silicon Valley, where 224 firms received a record $1.25 billion in the three months.

Even so, experts said the trend in Southern California is favorable.

“It was a great quarter, the second best on record,” said Luis Puncel, a PricewaterhouseCoopers partner in Newport Beach. “All in all, the pace of growth is good.”

So far this year, he noted, total venture capital investments have exceeded those in the first half of 1997 by 30%. He expects investments for the entire year to set a record for the Los Angeles-Orange County region.

Forty companies received financing in the April-June period, the survey found, including 14 software and information firms, seven communications-related businesses and six companies in the health care field.

Among the biggest recipients of funds were Paragon Acceptance Corp., a Mission Viejo auto financing firm that raised $14 million; Epoch Networks, an Irvine provider of Internet services that received $25 million; Accelerated Networks Inc. in Westlake Village, a maker of telecommunications products that got $14.5 million; and LifeMasters Supported SelfCare Inc., a Newport Beach provider of outpatient health care services that raised $12 million.

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Venture Capital Trend

Second-quarter venture capital investment in Los Angeles and Orange counties increased 22% to $197 million from the same period a year ago. Venture capital investment, in millions:

1997

1st qtr. $103

2nd qtr. 162

3rd qtr. 239

4th qtr. 172

1998

1st qtr. 147

2nd qtr. 197

Investment by Industry

Software and information technology companies received the most investments, followed by communications. Second-quarter Los Angeles/Orange counties venture capital investment, by industry:

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Industry Amount (in millions) Deals Software and information technology $58.8 14 Communications $42.6 7 Health care $31.0 6 Medical instruments and devices $22.7 5 Computers and peripherals $14.5 1 Business services $14.0 1 Other* $13.6 6

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*Includes biotechnology, consumer and industrial companies

Source: PricewaterhouseCoopers LLP