Once known as the "aerospace capital of the world," the South Bay continues to shift its economic focus from defense contracting to the commercial high-tech arena.
There's just one problem: A shortage of capital to fund the transition.
The region has only captured about 4 percent of Southern California's venture capital funding. And in a survey conducted as part of the new study, 70 percent of the CEOs at South Bay technology firms said they worry about getting capital.
"The South Bay kind of falls off the radar screen when you think of 'hot' technology areas," said Cliff Numark, program director of Los Angeles Regional Technology Alliance, which co-authored the report with the South Bay Economic Development Partnership. "But the scope of the area's transformation is remarkable."
The study's findings suggest that the South Bay may be an under-appreciated sector of the area's high-tech economy.
> About one of every eight tech firms in L.A. County is located there. About one of every six high-tech employees work there.
> While the percentage of aerospace and defense workers has fallen as a share of South Bay technology workers, employment in computer services, telecommunications, and research services grew to 53 percent in 1995 (the last year for which figures are available), from 27 percent in 1987.
> The South Bay's aerospace workers aren't as dependent on defense contracts as they used to be. Half of aerospace employees work for companies involved with commercial space, commercial aircraft, or government space projects; the other half work in defense electronics and military space.
In 1988, aerospace and defense firms employed 55 percent of the South Bay's 85,000 technology workers. That share fell to 36 percent by 1995, even as the number of tech workers shrunk.
While many of the South Bay's tech companies are old-line defense contractors that have more recently started developing products for the commercial marketplace, Numark says a number of dot-com firms are springing up in the region.
He cites PeopleMover, a Manhattan Beach-based company that offers human resources software and services online. Others include Gardena-based Web-site firm Affinity Web Hosting and R.B. Zack and Associates, a Web-design company in Rancho Palos Verdes.
While the tech job base is expanding, it continues to lag the numbers from the go-go '80s. In 1988, the region employed 85,000 technology workers; it now employs about 53,000.
Then there's the venture capital problem. The study notes that South Bay tech firms are often too mature to grab the attention of typical venture capitalists looking to finance a hot new dot-com startup. Only about 10 percent of the area's tech firms were founded in the past three years, a striking contrast to what's happening in other parts of Southern California.
Ironically, the companies may also be penalized because they say they don't want much money. Only 22 percent of the firms sought $2 million or more, the typical size of a late-stage venture-capital deal.
Because the companies aren't attracting money from venture capitalists, most (58 percent) said their prime source of equity was the company founder. Another 27 percent cited funding from an outside "angel" investor. Only 3 percent said they got money from a venture capital fund.
Numark says the South Bay's tech corridor has suffered from its anonymity.
"High-tech networking events typically take place in Irvine, Pasadena, or the Westside," Numark said. "A lot of people aren't aware of what is taking place in El Segundo and the rest of the area."
Even though aerospace and defense have declined as a share of the South Bay's economic base, "They will continue to be an anchor for the region," Numark said. The industries continue to employ about 16 percent of the area's workers.
"These companies are starting to move into more commercial areas, like space and satellite communications," he added, citing Hughes' DirecTV as an example. "But we expect that the breadth and depth of their influence on the area won't be as great."
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