The Newport Beach securities brokerage and investment bank Roth Capital Partners recently raised $33 million for El Segundo-based Supply Access Inc., and the way they did it may be instructive on the present and future of venture capital raising in Southern California.
"We raised something like $10 million from our base of high-net-worth individuals, and another $23 million from venture funds or strategic partners," said Byron Roth, chairman of Roth Capital.
(Supply Access bills itself as selling e-procurement solutions. It sells information technology software over the Web, and also runs vertical market exchanges. Los Angeles-based TMCT Ventures, the $500 million venture fund established by the Chandler family, is an investor.)
Across the country, brokerage clients who are high-net-worth individuals have been edging up the venture bar, trying to get a few belts in during the investment Happy Hour, before the crowd thickens, and prices rise.
The evolving role of brokerage outfits is one reason Roth this year changed the name of his firm from Cruttenden Roth to Roth Capital Partners an obvious emphasis on raising capital, not traditional investment banking or retail brokerage operations.
Roth is going even further down the route of directly tapping rich folks to invest in venture deals. He has taken a large stake in Orange County-based Freerealtime.com, which is proffering private equity deals online to a subscriber base that Roth says includes "1.2 million registered users."
Roth, who recently acquired small-cap research firm Red Chip Review, said he will merge Red Chip into freerealtime.com.
Jeff Moore, formerly a partner in the Burbank-based Shamrock Holdings Inc. (the investment fund which includes Disney family money, headed up by Stanley Gold), has joined freerealtime as co-chairman, and a new board is being formed, said Roth.
The Westside brokerage Jefferies & Co. is listed on a 10-K filing as providing advice to freerealtime.com, on its recent reverse merger with a public shell company.
Roth last week was coy when asked if Jefferies might funnel some private equity deals through freerealtime.com. "Well, they certainly know about us," he said.
Marina del Rey-based Scheid Vineyards Inc., the wine grape growing outfit with acreage in Northern California, sure looks on paper like another undervalued small cap on Wall Street.
Scheid shares recently have been commanding less than $4 a share, down from its IPO price of $10 back in 1997.
As one Web-chatter posted recently in the Yahoo! room devoted to Scheid, this company arguably owns acreage and assets worth $8.69 a share. Scheid recently turned down a deal at about $15,000 an acre for some of its maturing plants, and owns about 4,400 acres.
The wine grower, however, has been performing sketchily in the profits department, which it blamed on bad weather in 1998 and 1999, due to La Nina, the weather pattern. It has also been spending to cultivate acreage it owns, but which is not yet producing.
Web chatters have a new worry: the infestation in parts of Southern California by the glassy-winged sharpshooter insect, which likes grapevines. They worry that the pests might migrate to Northern California growing regions. Scott Scheid, the wine grower's chief operating officer, agreed that the pest is a threat, but he added that the state and growers in Northern California are being vigilant in their efforts to control infestation.
"The sharpshooter was probably spread to Southern California on nursery plants (possibly shipped from Florida). In the coastal growing region (around Scheid's properties), the nurseries are being checked out very carefully," he said.
Scheid is cautiously optimistic about this year's crops. "It looks like we will produce more than the last two years, but I would not call it a bumper crop," he said.
In a normal year, the company produces enough wine to earn about $1 a share in short, it's another cheap stock on Wall Street, at least if earnings return to the norm.
One thing about Wall Street everybody is equal before the market (without inside information, anyway) and smart people often disagree.
So in the first half of July, we have Hermosa Beach-based RabbittAnalytics.com investment advisory service stating that "an expectation of an economic slowdown is firmly imprinted on the equity landscape."
In the sort of talk that must drive 'em mad on Main Street, Paul Rabbitt of RabbittAnalytics says unless the economy slows, stocks will go down (otherwise, higher interest rates threaten). But even if the economy slows, stocks won't do much, predicted Rabbitt.
"It will merely fulfill" expectations already in the market, said Rabbitt, a frequent commentator on CNNfn, the Street.com and CNBC, and former portfolio manager for Oppenheimer & Co.
From Rabbitt's beachside warrens, drive north about 50 miles until you hit Westlake Village, and you'll find that Larry Katz, editor of Market Summary & Forecast, is expressing a decidedly different view.
"Momentum is beginning to turn positive...the market is in a position to rally," Katz writes in his most recent issue.
A market rally could lift the S & P; 500, a broad index of large-cap stocks, to new highs in late July, Katz predicts.
What's an investor to do? Well, it turns out that Rabbitt is not so bearish after all, nor is Katz so bullish.
Recent earnings figures continue to show strength, a healthy sign that increases in worker productivity are still with us, said Rabbitt. "I would like to see a rally in new leadership, not the old tech stocks," said Rabbitt. "But two things I have learned. Don't fight the tape and don't fight the Fed. And I think the Fed is through raising rates. I am long-term bullish."
Meanwhile, Katz last week said he is short-term bullish, but that a 40 percent correction is looming for Wall Street sometime later this year, "the sort we saw in 1987."
A long, flat ride could follow, he suggested. "It's time to trade in and out, not buy and hold," he said.
Contributing columnist Benjamin Mark Cole writes about the local investment community for the Los Angeles Business Journal. He can be reached at email@example.com.
For reprint and licensing requests for this article, CLICK HERE.