OC Loses Ground in Southland Funding Derby
By RAJIV VYAS
That San Diego companies get more venture funding than their Orange County counterparts isn’t new. But the scope of the gap in the past five years is eye-catching.
From 1997 to the first quarter, San Diego companies got 44% more venture funding than those in OC, $6.1 billion vs. $4.24 billion, according to the MoneyTree Survey done by PricewaterhouseCoopers LLC, Venture Economics and the National Venture Capital Association.
During the same period, Los Angeles companies got $10.3 billion in venture funding, two and a half times more than what OC companies got. But with an economy three times the size of OC’s, the higher total for Los Angeles isn’t surprising.
But San Diego is more closely aligned with OC in terms of population and its economy. Not when it comes to venture capital, though: the gap between the neighboring counties is widening.
In 1997, San Diego received only $481 million, or 37% of the venture money in Southern California. In the first quarter, San Diego grabbed $327 million in venture funding, or 43% of Southern California’s total.
San Diego startups received more than $5.2 billion,or a yearly average of $1.4 billion,from 1998 to 2001. OC, on the other hand, saw its share of the region’s venture pie shrink. In 1997, OC had 26% of the Southland’s venture total. In the first quarter, it had only 10%. OC companies raised $76.3 million in the first quarter, or less than a third of what San Diego startups did.
“It is not surprising that San Diego gets more venture money than OC,” said Murray Rudin, a partner at Los Angeles-based private equity firm Riordan, Lewis & Haden and head of its Irvine office.
San Diego has a stronger base of early- to mid-stage companies than OC, Rudin said. And most of San Diego’s money goes to biotechnology,a magnet for venture money.
“The business mix is not as diverse in San Diego as it is in OC,” Rudin said.
OC, on the other hand, counts more computer and medical device makers,less sexy, tried-and-true areas for venture capitalists.
“You have a well established entrepreneurial network in San Diego,” said Randy Lunn, partner at Palomar Venture, which has offices in Los Angeles and Irvine. “They have had a little more momentum than OC and over the years they have taken advantage of that.”
Los Angeles, too, has seen its share pie for venture money grow.
In 1997, Los Angeles attracted $468 million, less than what San Diego received in 1997. In the next three years, Los Angeles saw a big surge of money into Internet, media and video game companies. In 2000, Los Angeles companies got $4.8 billion of venture money. The county’s share of the regional venture pie rose from 36% in 1997 to 47% in the first quarter of this year.
Venture capitalists said the lower total for OC isn’t necessarily a negative. The county’s economy is different than that of its neighbors with a high degree of big companies. And companies here also rely on private financing and equity investments.
“I don’t think it is easy to summarize,” the lower VC funding in OC, said Lunn. “San Diego is more broad based (when it comes to startups) and they have enjoyed more long-term success,” he said. “But I am a big believer and supporter of OC entrepreneurship.”
