Kotkin/aug23/mark1st/mike2nd

The tsunami of venture capital pouring into Los Angeles represents what could be a critical turning point for the region and in the evolution of the high-technology industry itself. After barely accounting for 15 percent of Southern California venture monies in 1993, Los Angeles has gobbled up more than half the total for the first half of 1999, according to the most recent PricewaterhouseCoopers report.

This is even more impressive considering that venture funding in the Southern California region has increased dramatically over that same period, from $191 million to more than $1.1 billion. Once a relative venture capital backwater, the Santa Barbara-to-San Diego high-tech megalopolis has now emerged as the third largest destination for venture money, right after the Bay Area and New England.

For all of Southern California, this is welcome news and a sign that, at long last, the venture capital "community," as this group of self-styled visionaries likes to call itself, has begun to set aside its long-term antipathy for the region, particularly Los Angeles. Not long ago, for example, one prominent venture capitalist, Mike Moritz of Sequoia Capital, told me that simply locating a company in Southern California was a "pejorative."

Fortunately, the success of the high-technology industry here ranging from Broadcom in Orange County to eToys, CitySearch, GeoCities and iMall has begun to dispel such prejudices. Although the national media continues largely to ignore Southern California's sprawling technopolis, which ranks somewhere between first and third in the country, the area has become too Godzilla-like to be ignored by the money changers.

Perhaps even more intriguing has been the shift of capital flows within the region. Until the last three or four years, venture capital here and elsewhere was dispensed predominately to the "nerdistans" high-tech regions like Irvine that are on the edge of the megapolitan sprawl. Yet as the digital economy has evolved, the tide is shifting close to the creative core of the region Los Angeles and its immediate environs.

In a sense, this reflects a shift in the paradigm from what may be called "hard" technology to "soft." As early as the 1970s, the development of science-based industries most provocatively described by sociologist Daniel Bell suggested the emergence of a high-tech society where information supplants energy and conventional manufacturing as the critical sources of wealth.

At first, the result of this shift seemed distinctly hostile to the very idea of traditional cities, which had been the locus of most pre-information-age industries. By contrast, science-based industry created a new paradigm in economic development, shifting emphasis from the traditional urban center's ports, railroads and large pools of manual labor to those places where concentrations of educated workers could be lured and harnessed. Anchored by complex organizations with vast research and development capabilities, these "nerdistans" included Raleigh-Durham, N.C., the Santa Clara Valley, Orange County, Massachusetts' Route 128 area and northeastern New Jersey.

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