BENJAMIN MARK COLE
The largest venture capital firm in the greater Los Angeles area remains El Segundo-based Chase Capital Partners, the West Coast venture branch of mighty New York-based bank holding company Chase Manhattan Corp., according to The List.
Chase has ramped up its investing in the last two years, increasing its total investments portfolio by $300 million in 1995, followed by a hefty $750 million worth of investments in 1996. This year may eclipse last year, said David Ferguson, general partner.
Chase has been the financier behind several local businesses, including the House of Blues Inc. nightclub chain, based in Hollywood; Agoura Hills-based Guitar Center Inc., a musical instrument retail chain, soon going public; and Westside-based Wild Oats Inc., a natural food retailer.
Like many others in the venture capital game, Ferguson said there is a lot of money chasing the available deals. Yet he expects to invest even more in 1997 than 1996.
“We invested $700 million last year, in a difficult market (because of competition). There are still opportunities out there in a market like this,” said Ferguson.
While there may be plenty of other willing investors, Chase is still looking for a 30 percent annual return on its investments. “That can vary with the amount of risk we think the investment has,” he said.
As with many venture capitalists, Chase typically invests with existing management, and keeps executives on board, but incentivized with bonuses tied to the profits of operating or ultimately selling the company.
Although Chase looks for deals nationwide and even in foreign countries, the firm sank $100 milion into local companies last year. “There’s not an industry we don’t invest in. We find many Southern California companies are better growth companies that we are happy to finance,” said Ferguson, a Wharton School graduate.
Chase prefers the “second round” of venture capital financing the stage in which a company is off the ground, but needs capital to fuel an ascent.
The second-largest venture capital operation in Southern California is run by the Simon family, as in William E. Simon, former U.S. Treasurer.
Unlike Chase, William E. Simon & Sons LLC prefers to buy companies in later stages of development, and stays away from exotic high-tech or bio-tech situations.
Coming in at No. 3 was Brentwood Venture Capital, followed by Crosspoint Venture Partners.
While the current market is hot, the investment opportunities are excellent because of emerging industries in communications, the Internet, computers and the like, said Robert Hoff, general partner at Irvine-based Crosspoint.
“I have never seen so many interesting investment opportunities as are here now although the entrepreneur has leverage like never before also,” said Hoff.
Hoff manages money on behalf of institutional investors, such as penion funds. Such large investors have shifted their mix of investments in the last five years, and now are allocating more money to venture capital outfits.
It is possible that the large institutional investors fueled by the savings of the aging baby boom population will fund venture capitalists even more heavily in coming years, said Hoff. In that case, the “hot” venture capital market of today might be only the first wave of a near-permanent flood. “Well, I certainly hope that’s the case,” said Hoff.
Crosspoint is an early-stage investor, and thus takes major risks, said Hoff. That being the case, it looks for a 10-fold return on its money over a five-year time frame. “You have to shoot for that to make up for the investments in which you make zero,” he said.