VC Firms Split On Forecast Of Activity

Venture capital firms based in the greater San Fernando Valley region are split right now, in terms of investment activity. Some are holding back on committing new capital, while others are bullish about 2010. And that seems to be on par with VC sentiment nationwide. Venture View 2010, a prediction survey conducted by the National Venture Capital Association (NVCA), noted that venture capitalists are cautiously optimistic about the coming year, but realistic that the industry is contracting. “It is readily understood by the venture capital community that our industry is going to contract in size going forward,” said Mark Heesen, president of the NVCA. But fewer firms do not necessarily mean fewer companies will be funded, he added. Survey respondents said the industry will see gradual increases in investment levels and exit transactions in 2010. But the asset class will continue shrinking over the next five years. Areas of optimism include clean technology investing, growth equity and later stage companies, and ongoing opportunities overseas. “There is a great deal of innovation taking place and venture capitalists who have the track record to raise funds will be well positioned to build companies,” said Heesen. “Most venture capitalists agree that a smaller industry is a better one.” Steamboat Ventures in Burbank, a VC firm affiliated with The Walt Disney Company, is a strategic investor in the digital media and consumer technology industries. “We believe 2010 will be a good year for investment in our focus areas and plan to be investing actively on a global basis,” said John R. Ball, founder and managing director of Steamboat Ventures. Ball said he sees a strong level of activity in the digital media and consumer technology spaces, driven by innovation around IP delivered content and the degree of rich interactivity afforded by social media platforms. Last March Cisco acquired one of Steamboat’s portfolio companies, Pure Digital Technologies, Inc., in an approx. $590 million deal. The firm has portfolio companies in the U.S. and Asia, and has its eyes on Europe. Liquidity is going to be a big issue in 2010, said Ball, adding we’re off to a good start with merger and acquisition activity of venture backed companies and some positive signs for IPOs. “We invested in six new companies in 2009, which is on pace for us, and we’re looking forward to another good year in 2010,” said David Cremin, managing director of DFJ Frontier in Sherman Oaks. He said the firm is considered a “generalist” when it comes to the types of companies it invests in. But it is especially interested right now in digital media, information technology and some life sciences with a diagnostics bent. DFJ Frontier has also invested in a handful of locally-based companies, including United Sample in Encino, AudioMicro in Sherman Oaks and Lottay.com in Ventura. Cremin agreed that the VC industry is shrinking, but not necessarily the amount of money being invested. He’s encouraged that there has been increased activity for IPOs and mergers and acquisitions as of late. His main concern for 2010 is whether or not trouble in the commercial real estate industry will slow things down. “I’m pretty bullish about the year as long as there’s not too much of an issue with real estate,” said Cremin. Encino-based Pacific Venture Group chose not to be included on the Business Journal’s list of venture capital firms published in this issue. An e-mail response from the firm, which invests in the healthcare sector, said it is in harvesting mode with remaining portfolio companies from Fund II and is not making any new investments. Eric Manlunas, founder and managing director of Sherman Oaks-based Frontera Group, said his firm was in “fire fighting mode” over the past 18 months, and did not put any new capital to work in 2009. It only deployed capital to existing portfolio companies. “The good news is we re-upped with many of our portfolio companies and we believe they will come out stronger,” said Manlunas, adding the firm has 17 active companies in its portfolio and a heavy emphasis on Southern California. Frontera Group is looking to deploy new capital and exit some of its companies in 2010. The firm exited three companies last year. Manlunas said he has cleared a lot from his plate and can now focus on the future.