If venture capital investment were Major League Baseball, Silicon Valley would be the New York Yankees. But there’s a lot of competition for the title of runner-up, which is one reason why interest over the data on venture money has never been higher.
A slew of reports released over the past week confirm that Southern California is attracting more venture capital than ever, thanks to the belief that a harmonic convergence of technology and content is taking place here that will fuel the Internet market for years to come.
But the money is also going other places: New England, New York, Seattle, Texas and Washington, D.C., among others. And the data highlighting the trends are garnering heightened attention in various regions.
More Than Ego Boost
Having data to show that an area is on the rise is cause for more than inflated egos: It can help attract more money to a city or state, not to mention fuel the hopes of entrepreneurs.
“It never used to be this way,” said Tony Hung of DynaFund Ventures. “But it makes for interesting reading. Everyone knows that Silicon Valley is No. 1. But the numbers are good for the other regions because they can say, ‘We’re No. 2 or No. 3,’ or ‘We’re down and we need to do something about it.’ ”
Even local venture capitalists who say they don’t really pay much attention to the figures become animated when discussing them, because the numbers showing all the activity in Los Angeles validate the bets they have made here.
“Don’t you love it?” said Zone Ventures partner David Cremin. “You always see and hear about how hot Silicon Valley and New England are. We’re neck-and-neck with New England.”
Indeed, that’s the conclusion of the newest data from PricewaterhouseCoopers. The amount of venture capital invested in the LA area (including Santa Barbara and Ventura) skyrocketed to $895.4 million in the last three months of 1999, up a staggering 785% from the like period of 1998, according to the accounting firm’s study released last week. OC pulled in $126.8 million, a 161% increase over the prior fourth quarter. All of Southern California saw $1.4 billion in venture money in the fourth quarter of the year, a 535% rise year-to-year.
Southern California trailed only New England, with a quarterly take of $1.6 billion, and Northern California, with an otherworldly $5.7 billion, in attracting venture money.
Of course, these numbers come as no surprise to the venture capitalists themselves or to the companies they are investing in. But the data are an important marketing tool for any region that wants to demonstrate its vitality.
The numbers “are a major feature of selling Los Angeles. It gives us a very, very powerful story,” said Jack Kyser, chief economist for the Los Angeles Economic Development Corp. “It’s more grist for our mill.”
Money Attracts Money
Kyser, who is charged with pointing out the benefits of doing business in LA, will work the data into speeches he gives to executives and comments he makes to the national press. Literature put out by his group to attract businesses, academics and students to Los Angeles will cite them to prove that LA is a hotbed of entrepreneurship and opportunity. Around the country, others use the numbers for much the same reason.
“Everyone’s out there beating the drums,” is how Kyser puts it.
After all, what better way to attract money than by demonstrating that others have successfully paved the way?
No longer is regional economic health judged only by dry statistics like unemployment. More regions are judged by their ability to attract talent and fresh ideas for the information age. The venture numbers are one indication of this.
Accumulating the numbers isn’t easy, because some venture capitalists are unwilling to disclose how much they’ve invested or where. And the numbers don’t always agree. Along with PwC, San Francisco research firm VentureOne Inc., and Venture Economics, a division of Thomson Financial Securities Data, put out studies last week on venture activity. While the trends were largely the same, the numbers were different, because they used different definitions of venture activity.
Venture Economics includes corporate venture money in its data, so its final 1999 number of $3.9 billion (which differs from the preliminary $4.2 billion that some media outlets reported) for Southern California is a bit higher than PwC’s 1999 number of $3.3 billion.
“Having different points of reference is healthy,” said Massoud Entekhabi, who headed up the Southern California part of the PwC report. “But, having said that, we’ve got to figure out how to continually improve our polling practices, and how we tabulate and verify the data.”
Promoters Pick and Choose
There were also differences in the way the differing organizations divided up the country. For example, PwC separates New England and New York, but Venture Economics puts them both together in the Northeast. Such discrepancies mean that the numbers can be skewed various ways to suit those wanting to promote themselves.
“You can imagine what people do with these numbers,” said George Clute, a partner in Olympic Venture Partners near Seattle. “Everyone seems to have an edge or ax to grind with them.”
Yet in the next breath he gives a pitch for the booming activity in the Pacific Northwest, which reaped $622 million in venture capital in the fourth quarter of 1999.
“This has become without question one of the most heavily courted and hotly invested places in the world,” Clute said. “I use to think Southern California would probably be the next great place for risk investment. But this place has absolutely taken off.” n
Brinsley is a staff reporter at the Los Angeles Business Journal.
