Local Venture Capital Fundings Fall 40 Percent in First Quarter

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Venture capital activity in Southern California fell 40 percent in the first quarter to $371 million, a sign investors in early-stage companies pulled back funding in the first quarter as the overall economy loses steam.


Venture capitalists invested in just 34 deals in Southern California in the first quarter 13 each in Los Angeles and San Diego and eight in Orange County compared with 51 deals in the first quarter of 2004, according to a report released Monday by accounting firm Ernst & Young and VentureOne, a unit of Dow Jones Newswires.


Several sectors posted significant declines, led by health care companies, with a 39 percent drop in overall funding in Southern California, the report stated.


Nationwide, U.S. venture capital funds invested $4.6 billion in 474 companies in the first quarter, a 16 percent decline from a year ago when 520 companies received nearly $5 billion in seed capital.


Early-stage investments had been on an upward trend last year, with strengths in communications and Internet start-ups. But the report noted that first quarter activity tends to be slow, and has declined every year over the past five years because venture capitalists tend to focus on fund-raising in the first quarter, not investments.


In Los Angeles, three firms received the bulk of funding: semiconductor firm Telasic Communications raised $26 million from investors including IBM, Raytheon and Redpoint Ventures; GoTV Networks Inc., a Sherman Oaks software company, got $15 million; and Business.com, a search engine firm in Santa Monica, got $6 million.

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