The gods of venture capital finally appear to be smiling on Los Angeles.

Blessed with a growing number of Internet, software and communication firms, L.A., once seen as a poor relative to Orange County and San Diego in terms of venture capital investment, it now receiving as much, if not more of the precious investment capital that its neighbors.

That's good news for local high-tech industries, which could get the financial boost they need to eventually compete against the giants of Silicon Valley.

"The fruits of the labor of the last few years are finally coming to fruition," said Massoud Entekhabi, partner at PriceWaterhouseCoopers LLP, who produced the latest venture capital figures. "In the past we didn't have the infrastructure of academia, successful high-tech firms that are spinning out talent, and a network of venture capital groups. But all that is now starting to come together."

"It is a case of the chicken and the egg," said Wesley Hein, vice president at Glendale-based digital-media firm Synctrix Inc. and a member of the Acorn Group, a VC fund established this year with the intention on investing in local media-technology startups. "There have to be the opportunities before the investment capital arrives. In the case of L.A., there are now so many unique opportunities that it has become fertile ground for venture capital."

In the third quarter of this year, Los Angeles, Ventura and Santa Barbara Counties took in $236.7 million worth of venture capital. L.A. County accounted for $155 million, or 66 percent of the total. That ratio has remained relatively constant throughout the year, PriceWaterhouseCoopers said.

By comparison, Orange County, which until the mid 1990's outpaced L.A. in terms of VC inflow saw investment of $53 million in the third quarter. While San Diego, which has dominated venture capital investment in southern California since the start of the decade, took in $70 million.

Since the start of the year, the L.A. area has taken in $448.5 million, compared with $197.2 million for Orange County and $295.7 for San Diego.

If the trend continues, Los Angeles County, even without the aid of Ventura and Santa Barbara, could be the biggest recipient of venture capital in Southern California this year, the first time that has happened since PriceWaterhouseCoopers began compiling its VC figures in 1993.

So why is L.A. now starting to hold its own in terms of VC investment?


For reprint and licensing requests for this article, CLICK HERE.