2001 Meltdown Strengthened VC Survivors, Larta Says
Technology
by Christopher Keough
With few exceptions, headlines regarding venture capital activity in Southern California have been dire for some time. But one study finds that the local VC community, while battered, has become more resolute as a result of last year’s buffeting.
That’s the conclusion of Larta, the local technology business think tank on the campus of USC. The group’s recently released Sand Dollar Report declares that the region’s executive talent has matured, investors are more in tune with the area’s resources, and networks created during the dot-com craze have endured and are strengthening.
The work of the VC community has created a healthy environment for nurturing entrepreneurism and investment in it, according to the study.
“Look at where it was before the spike happened and then look at where we are now,” said Victor Hwang, chief operating officer of Larta. “If you consider what’s happened between 1994 and 2001, there’s a lot more going on now than there was before.”
According to the report, which is based on The MoneyTree Survey conducted by PricewaterhouseCoopers, Venture Economics and the National Venture Capital Association, the number of venture investments in Southern California fell 54 percent in 2001 from the year-earlier period. The value of those deals declined 73 percent in the same period. The long view, however, shows a 119 percent gain in the number of deals in 2001 compared to 1995, with a 284 percent increase in valuation.
Venture investment in Southern California (from Santa Barbara to San Diego counties) increased from $127 million in 1994 to $5.6 billion in 2000. Investing plummeted last year to $1.5 billion.
Klaus Koch, principal at West L.A. venture capital firm Kline Hawkes & Co., said the VC community is a tougher bunch having survived 2001. Weaker companies have been weeded out because they spent their money on overpriced investments with low, if any, returns.
“I certainly believe (investment) levels going forward will be above ’94, ’95 levels,” Koch said. “It would not surprise me, however, if levels went down from where they are today. Over the next five years, you’ll still see firms have trouble raising money,” Koch said. “But there’s plenty of opportunity here.”
Back to the Bidders
Having received what he described as two inadequate bids for the intellectual property assets of Internet entertainment failure Digital Entertainment Network, Dino Georgopoulos said he’s assigning minimum bids to each of 42 lots being auctioned. He said he would start making cold calls to solicit new interest.
Georgopoulos hoped to have decent offers to present to the company’s bankruptcy trustee, which hired him last summer to find a buyer for the 6,500 hours of programming, generated at a cost of $30 million to DEN’s investors.
Bidding on the 42 lots closed March 10, but Georgopoulos said the offers were 10 times under what he thought was acceptable. He hopes to have a new group of bidders for the bankruptcy trustee in early April.
The content was marketed at film festivals stateside and in Europe. Included in the offering are 27 different programs, most of which have between 10 and 50 episodes.
Cinemachine
North Hollywood marketing company Virtual Concepts Corp. is pushing a new cashless vending machine to the movie exhibition industry. The so-called Cinemachine would drop DVDs, CDs and video games after the swipe of a credit or debit card.
Virtual Concepts Chief Executive Sheldon Kraft said all that’s needed for the machines to work are an electrical outlet and a phone line. They would be stocked for impulse sales by folks leaving the theater luring those who just screened “Blade II,” for example, to buy a copy of “Blade” on DVD.
Kraft said other potential locations for the machine are airports, hotels and theme parks.
The company hasn’t sold or leased any machines yet, but Kraft has opened a showroom and sales office in Sherman Oaks and says he has 75 “concrete leads” on deals.
He said Virtual Concepts and USA Technologies Inc. of Wayne, Pa., which manufactures cashless vending machines, expect to sell or lease 2,000 machines in the next 18 months. The machines are priced at $3,000 and the inventory would be supplied by Virtual Concepts. Revenue would be split among Virtual Concepts, USA Technologies, the hosting location and the service vendor who fills it up.
Staff reporter Christopher Keough can be reached at (323) 549-5225 ext. 235, or at
[email protected].
