Venture capital funding in Orange County companies nearly tripled to a record $303 million in the second quarter vs. the first three months of the year, according to a report due out Monday from Pricewaterhouse-Coopers LLP. “Orange County had a red-hot quarter,” said Richard Withey, a global technology partner for PricewaterhouseCoopers and its chief technology officer for Southern California. “It’s reflective of the national picture, which had a record $19 billion. There’s a lot of money flooding into these markets.”
The amount invested is the highest recorded for a quarter in OC, beating the previous high of $212 million in the third quarter of 1999. The stepped up funding also helped OC rebound from a relatively poor first quarter showing of $106 million and more than doubled last year’s second quarter funding of $148 million.
The second quarter figure puts OC on track to break 1999’s record of $540 million in total venture funding. In all, there were 25 deals in the second quarter. Three of those resulted in nearly half of the investments: $84 million in second-round financing for Flashcom Inc. of Huntington Beach; $40 million for third-round financing of IPNet Solutions Inc. of Newport Beach; and $25.5 million for second-round financing of PrintNation.com Inc. of Irvine.
The report backs up comments by OC executives and venture capitalists who said they began to see a pickup of venture activity in the second quarter, particularly around the end of May. The PricewaterhouseCoopers report follows a recent survey from the National Venture Capital Association that showed 29 OC companies received $368 million in the second quarter, up from $247 million during the second quarter last year.
The National Venture Capital’s numbers are higher than Pricewaterhouse-Coopers’ because the former in cludes funding besides traditional venture capital, including leveraged or subordinated debt, recapitalizations, secondary purchases and investments intended for acquisitions. Nationally, the PricewaterhouseCoopers survey showed that venture funding continued to increase, despite the spring correction in technology stocks. It grew to $19.6 billion, exceeding the previous record of $17.1 billion set in the first quarter of 2000. Los Angeles posted a solid second quarter gain to $729 million, up from $599 million in the first quarter and $360 million in the year-ago period of 1999. Interestingly, with only 30% of the population of Los Angeles, OC’s second quarter venture capital funding was 42% of its larger neighbor’s total.
San Diego cooled off slightly, reporting $331 million for the second quarter, down from $412 million in the first quarter but still above the $199 million of the second quarter of 1999. The three counties totaled $1.4 billion, which placed Southern California among the top four regions. Silicon Valley, as usual, topped the list at $6.8 billion, followed by New England, with $2.6 billion and the Southeast, which include North Carolina’s Research Triangle, at $1.5 billion. Other top regions include Washington, D.C., New York, and Texas, each at $1.1 billion. Most of the investments in OC went to companies in telecommunications, retailing and distribution, business services and healthcare services. None of the investments went to companies identified as business-to-consumer Internet players.
But there were a handful of placements in business-to-business Web sites, such as the PrintNation funding, $20 million for Buyproduce.com of Irvine and $16 million for Dental X Change.com Inc., also of Irvine. Many of the investments in OC were in second-round and third-round financing.
“The venture capitalists seem to be focused on businesses that are up and running and have a proven business model and are taking those to market,” Withey said.
With the spring downturn in tech stocks, some observers thought venture capital funding would dry up for the near term. What’s happened, though, is venture capitalists are seeing the spring correction as a blip and are looking at two- to five-year incubation periods for their investments. Venture capitalists also are moving away from business-to-consumer Internet companies into other segments.
“There is so much money out there, quite frankly it had to go somewhere,” Withey said.
With the market’s cooling toward initial public offerings, more companies are going for second and third round funding. Withey predicted more companies will launch IPOs later this year or early next year when market conditions are expected to become more favorable. The PricewaterhouseCoopers survey is a tally of 661 venture capital firms. Some firms don’t report figures. For instance, Crosspoint Venture Partners, a Silicon Valley firm with an Irvine office, invested $18 million in EnABLE Solutions Inc. of Irvine. But this figure isn’t included in the PricewaterhouseCoopers report. n
