Without a doubt, the spring tech sell-off sent a jolt through the Los Angeles investment community. Just how did it change the landscape, and what does the future hold? The Business Journal asked prominent local financiers for their take.

John G. Mavredakis

Managing Director

Houlihan Lokey

Howard & Zukin

Everyone is smarter today than they were a year ago. I think everyone was on a learning curve, and one thing about the Internet is you learn at lightning speed.

Basic fundamentals are a big issue now. Everyone is taking a good hard look at the business model and wanting to know how that company can be profitable.

We’ve seen a real pickup in our Internet mergers-and-acquisitions business. More dot-coms are merging to create viable entities, both on the business-to-business and business-to-consumer side. And a lot of off-line companies are either using joint ventures or acquiring Internet entities in order to get online. There will be a blending of Old and New Economy companies as manufacturing or other off-line sorts of businesses become Internet-enabled.

Over the next six months you will see money being invested in more-rational economic profiles. Clearly, we haven’t seen a slowdown with wireless or broadband. That whole telecommunications area will continue to be one of the top areas for venture capital.

Gregory P. Range

Duff & Phelps LLC

In some ways the dot-com world was almost a parallel economy. Everybody looked, but not everybody reached in and became a part of it. Our client base is mainly traditional companies, so for them the bursting of the tech bubble didn’t have much direct impact.

Now capital is getting reallocated to things that look more like traditional investments. Even if they’re in the Internet economy, they have near-term profitability prospects instead of pie-in-the-sky expectations.

I think we’re going to look back at the Internet bubble as just that, a bubble that popped. The funding and stock market uproar around it was a one-time thing, even though the Internet itself will continue to be a huge factor in all our lives.

Frank Baxter

Chairman and Chief

Executive

Jefferies Group

I think the sell-off has resulted in a return to reality. I don’t want to comment on how that’s going to affect specific local dot-coms, but it’s definitely going to require more earnings visibility to get financing.

There’s a lot of money around. It’s going to old economies, and it’s going to more precise parts of the dot-com sector, mostly wireless. But the flow is more company-specific than industry-specific money is going to companies with earnings visibility.

I’m pretty sanguine about the outlook over the next six months. I think election years are usually good for the economy, courtesy of the Federal Reserve, and I think conditions will be favorable.

Alison S. Ressler

Partner

Sullivan & Cromwell

I think the primary change is that there’s a flight to quality. It will take some time before investor confidence returns. There is greater selectivity from an investor perspective, and (investor scrutiny) will be the greatest for the dot-coms. Of those, the companies with specific technologies will have a greater chance of surviving than the content providers.

The impact of the sell-off will be different, depending on where a company is. It’s hardest for those in the initial stages, because now investors are looking for companies that are a little further along. For the companies that are more established, especially those with a public float, lowered stock prices mean the value of their acquisition currency is down. This means there will be a slowing of acquisitions.

Michael Montgomery

Managing Director

Digital Coast Partners

There was a lot of activity in consumer-based dot-coms here in L.A. They’re the ones that have been affected the most, as far as their ability to get another round of financing. Their business premise was to build a brand through investing and marketing, and there is almost no capital available now under that premise.

The technologies that people want to invest in now are products that are truly unique, products that are based on a specific technology. There’s still a good market for engineering and software companies. And that bodes well for L.A. because there’s a phenomenal body of tech and scientific talent here, what with UCLA, Caltech and USC.

You’re going to see money going to true technology plays, instead of to dot-coms, which were more marketing plays. There will be continued strong investment in wireless and broadband applications, as well as in related services like packaging, hosting, and the delivering of digital content.

Frank R. Kline

Managing Partner

Kline Hawkes & Co.

I think that anyone trying to raise money for a dot-com will find that people are more reticent about writing a check. You have to do your homework now. All the incubators with dot-coms in their portfolios are being looked at very hard by both current investors and potentials.

In a stiff wind, even turkeys fly. Now we’re going to see Darwinism at its best the companies that should get funded, will, and the ones that shouldn’t, won’t. Some of these very narrow portals that got funded aren’t going to survive. They may get merged in, but even if you have raised a huge valuation you can suffer tremendous losses with a merger. It’s a roll-up game now.

That easy-money mentality is gone. The markets have gelled down to the basics: what are these things really worth? You can’t think about doing a (Web) site where you need $50 million just to establish a brand.

Ken Deemer

President and Investor

Tech Coast Angels

When the public appetites diminish and the IPO window closes, it affects everyone on the food chain from the large institutional players to the venture capitalists and individual angel investors.

The good news is that there’s an unprecedented amount of capital to be invested. We’ll see a lot fewer fringe and lower-quality types of deals done.

I don’t think anyone is running away from tech. It’s one of the key drivers of the economy and will be for the foreseeable future. L.A has emerged as a powerhouse center of technology and innovation and that’s being acknowledged by all the money that’s being invested here.