Seven of the 20 venture capital firms with offices in Orange County took a pass at investing in OC-based companies during the first semester of 2000, according to the Orange County Business Journal’s list of venture capital firms, but the total invested here by the local offices nearly doubled year-to-year.
Leading the way was the Irvine office of Crosspoint Venture Partners, which invested $38 million here during the first six months of 2000.
That was far more than No. 2 Gold Coast Venture Capital of Lake Forest, which invested $6 million during the same period. Topping last year’s list was recently restructured Brentwood Venture Capital, which had invested $10.7 million.
Crosspoint, with headquarters in the Silicon Valley city of Woodside, has made several impressive bets in recent years, including Brocade Communications Systems Inc., Ariba Inc. and Foundry Networks Inc. That’s why Forbes magazine ranked it the No. 1 VC firm in the country for the period 1997-99, based on total return. In Orange County, Crosspoint’s big bet is $18 million invested in April in Irvine-based Access360 Corp., which provides programs that enable a company to manage secure access to its e-business.
Crosspoint’s activity is the main reason that the 20 VC firms on this year’s list reported an aggregate 92% increase in OC fundings to $61.7 million compared with their fundings for the same six months of 1999. That total is 51% higher than the total on last year’s list.
The list doesn’t include VC firms that made big placements in OC companies but don’t have offices here, nor does it tally investments made by the OC offices outside of Orange County.
For all of 1999, the 20 firms reported investing $86.4 million, a 62% increase from their investments in 1998. The company making the biggest investment in 1999 was No. 11 Versant Venture Capital, a Newport Beach healthcare fund that invested $16.6 million for the year. It was followed by: No. 12 Domain Associates of Laguna Niguel, $14 million; Crosspoint, $13 million; No. 5 Healthlink Capital Partners of Tustin, $8 million; and No. 18 Transmeridan Capital Corp. of Newport Beach, $8 million.
In the first six months this year, Crosspoint accounted for the bulk of the investments. Seven companies stayed on the sidelines in the first six months this year and another two firms declined to say whether they invested here.
However, the investors themselves said not to take too much away from this.
Murray Rudin, general partner of the Irvine office of No. 3 Riordan, Lewis & Haden, said VC investing trends are hard to evalutate from snapshot data.
“It’s a lumpy business,” he said.
He added that investors are still actively involved in Orange County. His firm is considering a $10 million investment by October.
One VC firm that didn’t invest in an OC company in the first six months also said not to make too much of it. Ralph Sabin, managing director of the Irvine office of Pacific Venture Group, said he looked at 20 companies based in Orange County during the first six months of 2000.
“None of those 20 rose to the top,” said Sabin, whose firm specializes in healthcare.
But OC companies shouldn’t feel too badly. Pacific Venture Group looked at 400 companies nationwide and invested in six.
“Orange County is an attractive area to invest in, but we just didn’t,” Sabin said. “We’re tracking several Orange County companies for later rounds. Orange County is an area that’s been a developer of strong companies and it continues to be.”
After the spring correction, there was much speculation over whether there might be a corresponding decline in VC capital funding. However, this remains to be seen. Thomson Financial subsidiary Venture Economics told Industry Standard magazine that venture capital funding is up 50% in the second quarter because institutional investors are slow to change their allocations.
Another benchmark, the quarterly PricewaterhouseCoopers survey, will publish its second-quarter survey in the coming weeks. Its first-quarter report showed VC investments continuing at a torrid pace, up nationally to $17.2 billion, far more than the previous record of $14.7 billion in the fourth quarter of 1999.
The 20 local VC offices reported that, company-wide, their funds under management grew 86% to $4.788 billion. The biggest reason was Crosspoint, which saw its funds quadruple to $2 billion. Other big firms were Domain Associates, with $500 million and No. 7 Forrest, Binkley & Brown of Newport Beach, $305 million.
One thing is for sure, while the firms’ investments create jobs, the firms themselves employ few people. The 20 offices reported total employment of 85 , and that was up 25% from last year. Forrest Binkley & Brown had the most employees at 10.
There have been some changes to the list, too. The Irvine office of Brentwood Venture Capital, which topped last year’s list, split apart last year. Three of its partners joined another three partners from Institutional Venture Partners to create Redpoint Ventures, a $600 million fund that concentrates on high tech; Redpoint has offices on Menlo Park’s famous Sand Hill Road and also in Los Angeles. Redpoint, dropped from the list this year because it’s no longer in OC, did make a $20 million investment last fall in Irvine-based Nexgenix Inc.
Meanwhile, Brentwood’s previous general manager, William J. Link, joined with one of Crosspoint’s general partners, Don Milder, and five other VC investors to create the health-industry focused fund Versant. Versant has $250 million under management.
Among the new firms on the list are No. 4 VentureLab of Newport Beach, No. 5 HealthLink Capital Partners of Tustin, No. 6 Pinecreek Capital of Newport Beach, and No. 20 CPI Ventures of Irvine. n
