By SARA FISHER
Staff Reporter
L.A.’s tech industry has long been known for its sexy side makers of online games, Internet content providers and, of course, anything related to digital Hollywood.
But that’s starting to change. Venture capitalists are increasingly focusing on the unglamorous companies developing arcane technologies that make the sexy features work.
So-called “enabler” technologies are especially attractive to venture capitalists because their success helps determine the success of creative content.
In short, the more an enabler technology succeeds, the more the content-provider “enabled” by that technology succeeds.
“Venture money is moving away from content providers and is now funding more companies working on such technologies as networking solutions, electronic commerce issues and data management,” said Massoud Entekhabi, managing partner of Coopers & Lybrand’s technology unit. “Right now, Southern California technology companies that create these (types of) technologies are doing especially well and will continue to do so.”
For the most part, these so-called “enabling” companies are so new that no hard numbers are available on how many of them are in L.A. Also, many have yet to officially release their products, which range from mechanisms to quickly transmit large amounts of information online to database management systems used to organize animated feature films.
“Most venture capital companies are shying away from CD-ROM or game developers, which are hit-and-miss investments,” said Jonathan Funk, general partner of Media Technology Ventures, a 6-month-old L.A.-based venture firm. “We’re paying attention to the companies that develop means to better deliver the showy technologies.”
Media Technology’s first investment was in Sandpiper Networks, a Westlake Village software designer. Sandpiper is developing a means to speed up content delivery online.
East-West Capital Associates, a venture capital firm founded by Hollywood power player Merv Adelson, has invested in Altamira Group Inc., a Burbank-based software company developing commercial applications for graphics; Synctrix Inc., a hardware developer in Glendale creating new means to digitally transmit video at high speeds; and West Los Angeles-based Cinebase Software Inc., a developer of a digital media management system.
“Behind every one of our investments is a solid technology that also has a Hollywood application,” said Paul Nadel, president of East-West Capital. “Southern California is the capital of creative content, and as sophisticated content emerges, the supporting technology has to grow more sophisticated as well.”
Other enabler companies that have attracted venture capital include Xylan Corp., a Calabasas company backed by Brentwood Venture Capital to create networking hardware that allows computers to connect at high speeds; and Westlake Village-based Troika Design, which received funding from Torrance venture capital firm DynaFund Ventures LLC to develop technology that links server computers.
“We consider each company that we invest in to be an enabler technology,” said Tony Hung, vice president of DynaFund.
Of these companies, Xylan and Cinebase are comparatively mature, having been around for several years and grown steadily. Of the start-ups that have yet to launch their products, Synctrix is considered to be especially promising.
As a Cinebase spin-off, it is a “second-generation” company that represents the maturation of L.A.’s technology market.
Synctrix began to develop its intellectual property under Cinebase’s roof. Its product, called the Fiberhydrant, allows video to be transmitted across the same backbone networks that phone companies use.
“Spin-off technology companies are attractive since they typically come from a financially successful company already familiar with the industry,” said John Walecka, general partner for Brentwood Venture Capital.
These sorts of new companies could bring more venture money into Southern California, which has struggled to gain attention in the technology sector.
Still, the going is likely to be slow. Southern California attracted $1 in venture capital for every $4.50 going to Northern California in the third quarter of 1997, the most recent period available.
And Synctrix is not the norm. According to local venture firms, L.A. is brimming with entrepreneurs who have solid ideas but not the management experience necessary to attract venture capital.
“Venture capitalists are saying that Southern California has great entrepreneurs but only some infrastructure,” Coopers & Lybrand’s Entekhabi said. “As L.A. companies evolve from entrepreneurial models to successful business models and maybe even nurture spin-off companies, more capital will be invested. Right now, there are a lot of very attractive start-up technology companies in L.A. that have yet to get to that point.”
