The much hyped convergence of content, Internet technology and wireless communications may have finally arrived in L.A., if the latest venture capital funding figures are any indication.
Technology companies, especially those involving the Internet, comprised a major share of the venture capital funding deals in L.A. during the third quarter, along with a smattering of bioscience companies.
“We really are seeing the emergence of Web 2.0 companies with consumer-oriented Internet media,” said Kevin Jacques, partner with Palomar Ventures in Santa Monica.
The figures are drawn from two separate reports: one by Big Four accounting firm PriceWaterhouseCoopers LLP and the National Venture Capital Association, and another by Ernst & Young LLP and Dow Jones VentureOne.
Of the 30 L.A.-area deals tracked by PriceWaterhouse Coopers and its partner, 18 were technology-related, with 11 aimed at consumer and/or wireless markets. They totaled $188 million, up from the 22 deals in the third quarter of 2005 that totaled $173 million.
Likewise, of the 25 deals worth $252 million tracked by rival Big Four firm Ernst & Young and VentureOne, 17 were technology-related, with 10 aimed at consumer and wireless markets. In comparison, there were 19 deals worth $184 million in the third quarter of 2005.
The latest deals included two headline-grabbers: $65 million in fourth-round venture funding for Santa Monica-based Boingo Wireless Inc., which provides wireless broadband Internet access, and $32 million in second-round funding for Ripe Digital Entertainment Inc., which distributes on-demand television programming on digital platforms.
But most of the deals were much smaller, with many aimed at early-stage companies. Indeed, in both third quarter reports, the number of deals was up substantially from previous years, with smaller corresponding increases in the total dollar volume.
“We’re seeing an increase in venture capital firms raising funds specifically aimed at smaller, early-stage deals, both here in Los Angeles and nationally,” said Randy Churchill, director of business development for PriceWaterhouseCoopers.
This is good news for recent technology start-ups in L.A.
Take Santa Monica-based Teleflip Inc., which developed a technology to allow computer users to send e-mails as text messages to mobile phones.
After about a six-month search for funding, Teleflip struck a deal with a consortium of investors, including Century City-based GRP Partners for a reported $1.56 million in funding. (The company would not confirm the amount of funding, saying it was confidential.)
“We’re part of a whole new generation of Web companies that have started up in the last few years. Both investors and management are a lot more mature now than in the 1990s when a lot of smart people made miscalculations,” said Tony Davis, chief executive of Teleflip. “There’s much more clarity now in what investors are looking for in a company.”
That said, Davis concedes there’s still an element of timing and luck in securing venture funding. “Mobile marketing is really hot right now,” he said.
Luck also played a role in Teleflip’s funding: two years ago Steven Dietz of GRP Partners inadvertently came across Teleflip’s service and actually reached out to company founder Guy Botham about investing in the company.
For most companies, however, securing venture capital funding remains an arduous task, made all the more difficult in Los Angeles by the dearth of venture capital firms compared to Silicon Valley, where young companies garnered more than $2 billion in funding during the quarter.
“Overall, I would say the process as a whole was quite difficult especially for a small company with limited resources,” said Alex Nocifera, president of Manhattan Beach-based ActiveMaps Inc., which develops and deploys home-based digital networks. “It really drains your time having to travel, present, and constantly be involved with choosing the right partner.”
After a search of several months, the company received $5 million in first-round financing from Trinity Ventures and Draper Fisher Jurvetson, both of Menlo Park in Silicon Valley.
But Nocifera said the process did push the company to refine its plans for growth; the additional funds will be used for hiring of additional sales, support and distribution staff.
While technology firms dominated the venture deals, there were also several deals in the bioscience arena. One of the larger deals involved $6.5 million going to Monrovia-based ProLacta BioSciences Inc. from a consortium of investors, including Draper Fisher Jurvetson and Los Angeles-based Arcturus Capital.
“There are a lot of later stage health science investors, but finding early stage investors has been a challenge,” said Frank Foster, executive chairman of ProLacta, which developed a technology to process human breast milk and into specialty formulations for underweight and ill infants.
Foster said the chief concern of potential investors was whether the company could actually do what it promised with its technology, since it had not been previously attempted. Only after initial results were favorable did the investors agree to put money in for more extensive clinical trials.
The other major L.A. bioscience company to receive funding in the third quarter was Arcadia-based StemCyte Inc., a stem cell research company that received $9 million in follow-on, fifth round funding.
“Until recently, life sciences did not have a tremendous investment based in L.A.,” said Don Williams, a partner in the venture capital advisory group of Ernst & Young. “Now, though, we’ve seen several successful companies in this space. Venture capital firms are now finding the right management teams in Southern California.”
