Benjamin Kuo’s Blog

Yet another venture firm has turned their eyes toward the new media sector, with the latest — Saban Capital — hiring VantagePoint’s Craig Cooper to head up new media investing in Southern California.  Cooper said the fund “will scour the U.S. and international markets for opportunities across all investment stages” in an interview with the Hollywood Reporter. The fund is the second within the last few weeks to specifically target new media in Southern California. Last week, William Morris, Venrock, and Accel, along with AT&T, booted up their new fund headed by Richard Wolpert with the same goal — new media investments in Southern California.  The new funds follow a yet-to-be announced (or closed, as we hear) fund from Draper Fisher Jurvetson and the CAA also specifically targeting new media in SoCal.

Interesting quote in VentureWire this morning from David Siminoff of Venrock on their new Southern California media fund:

“L.A. is just not the place you go for cutting-edge semiconductors, but it’s the place for storytellers,” Venrock General Partner David Siminoff said. “I have a feeling deal flow will lean toward the storytellers.”

The quote shows quite a bit of the stereotypes (and unawareness) of the Los Angeles and surrounding area in terms of technology. Unfortunately, usually when people think “Los Angeles” they really are thinking “Hollywood.” So, they ignore the greater Los Angeles area — and its strong semiconductor background — and think the only opportunities in the area are Hollywood media deals. If you’re thinking West Los Angeles, maybe. But if you look at the area as a whole (and in particular, Orange County), you’re wrong.

Some examples of why:

• Broadcom (Irvine) - $3.8B, 6400 employees
• Conexant (Newport Beach) - $750M, 2400 employees
• GloNav (Newport Beach) - recently acquired for $110M by NXP Semiconductor - cutting edge GPS chipsets
• U-Nav (Irvine) - GPS chipsets and software, acquired for $54M by Atheros
• Inphi  (Westlake Village) - high speed InP/GaAs components, funded by Cadence, Dali-Hook, Flextronics, Mayfield, Tallwood, Walden
• Fulcrum Micro (Calabasas) - clockless chips, funded by Granite Global Ventures, NEA, Palomar, Worldview
• Xirrus (Westlake Village) - WiFi chipsets/systems, funding from August Capital, Canaan Partners, QuestMark, and USVP.
• Jazz Semiconductor (Newport Beach) - high speed communications chips
• Quartics (Irvine) - wireless video semiconductors, headed by AST’s Safi Qureshey, funded by Foundation Capital and Enterprise Partners
• Solarflare (Irvine) - 10GBASE-T chipsets. Funding from Oak, Sequoia Capital, Intel, etc.
• QLogic (Aliso Viejo) - storage/networking systems and semiconductors

And that’s just to name a few of the firms here…  There’s a significant amount of latent semiconductor potential (if VCs ever get back to funding it) coming out of Caltech, USC, and UCLA — schools which have all spawned very significant advances in the semiconductor world. There’s also significant number of companies providing design tools and software, electronics components, hardware, and much more much closer to the semconductor than content/Hollywood world.  So please, don’t stereotype LA as being content…

The William Morris Agency and venture capital firms Venrock and Accel are reportedly creating a new, digital media fund to invest specifically in startups in Southern California, according to the New York Times. The new fund is going to be overseen by former RealNetworks executive Richard Wolpert. (Wolpert is a Southern California resident, and was previously commuting between Westlake Village and Seattle).

As many of you know, we are starting to post regular contributed articles from people in the community about various aspects of startups, entrepreneurship, and venture capital. Our latest addition is an Marc Averitt of Okapi Venture Capital on what venture investors look at in terms of risk assessment in startups. If you’ve got some useful advice you’d like to share — about anything of interest to high tech companies and entrepreneurs — let us know!

There’s a good guest post by Clearstone’s Sumant Mandal over on VentureBeat today about Southern California’s venture capital environment. For those of us in Southern California, it’s old news, but it’s good to see the word getting out to the rest of the world. (VentureBeat is a Silicon Valley blog site run by former San Jose Mercury News reporter Matt Marshall, covering startups and high tech).

Clearstone (disclaimer: which is a sponsor of this blog) has been one of the venture firms here helping to bolster not just their own investments, but also events, groups, and other efforts to accelerate Soutehrn California’s rise in the high tech startup business.

Here’s a random, unsupported and unsubstantiated, list of five good, and five bad, reasons for raising venture capital — based on the opinions I’ve drawn from frequent interviews with entrepreneurs and learning a lot from the local venture capitalists in Southern California.

Five good reasons to raise venture capital:

1. Time to market is vital, and so is gaining market share, and raising capital is the best way to get there before others.
2. You’re working on truly revolutionary technology, which requires deep pockets to bring to market (ie. semiconductors, advanced materials, biopharmaceuticals, etc.)
3. You need to hire and scale out a team to bring products to market (i.e. you need to ramp your operations, put together a logistics chain, and otherwise expand ahead of launch.)
4. Adding capital will accelerate revenues and growth — ie, you’re business model is proven, there’s a big market, and spending ahead of revenue actually results in a multiplier effect. Prime example of this: You have a software-as-a-service tool which has a 98% retention rate, and will return you a hundred dollars for every dollar you spend on acquisition, and you just to acquire more customers to ramp revenues.
5. Venture capital will bring critical, strategic relationships to bear on your business. A typical deal here might be taking capital from Steamboat Ventures — which is Disney’s Venture Capital arm — to smooth a supplier relationship for your technology to their content divisions.

Five bad reasons to raise venture capital:

1. You’ve got a great idea, but no experience –engineering, marketing, sales, operations or otherwise–and you want to hire someone to do those for you.
2. Five other companies with your exact same idea/web site for the “next YouTube” have just gotten funding, and you think you ought to get venture capital too.
3. Your business model isn’t working, you’re bleeding cash, and you can’t see yourself getting cash flow positive soon.
4. You’re not very sure of your idea, and you’d rather risk someone else’s money than your own.
5. You’re tired of “working for the man” and want to use venture capital to give yourself a nice raise.

CNET has some further details this morning on Kaai and Soraa, two stealth startups in the LED market which were recently stealth funded by Vinod Khosla’s Khosla Ventures. The companies — both of which are apparently out of UC Santa Barbara — were founded by blue LED inventor Shuji Nakamura and fellow UCSB professor Stephen Denbaars.

Dan Primack over at PEHub.com appears to be spending his morning today focused on ferreting out stealth Los Angeles venture deals, and has the details on at least three, independent stealth fundings in Los Angeles today:

• Real D, which developing 3D movie projection systems for Hollywood, has raised $20M in a Series D funding
•  Katalyst Media, an entertainment studio headed by Ashton Kutcher, snagged $10M
• and C3L3B Digital, a developer of casual and MMO games based in Simi Valley, has scored a $3M investment (round in progress).

Dow Jones VentureSource is reporting this morning that Southern California’s total venture investments totaled $3.8B, in 272 deals. The firm said that the region saw a 12% increase in investments over 2006.

The numbers follow  the release of PricewaterhouseCoopers and the NVCA MoneyTree Report Saturday, which reported that Southern California (Los Angeles, Orange County, and San Diego) had $677.6M in deals for Q4. That level of investment is actually down from $784.4M in Q3, and most significantly saw Southern California dropping behind New England in terms of funding dollars and deal count.

Another interesting detail apparent in the PwC results was the huge amount of investments specifically in San Diego, which represented $423.7M  of the Q4 deals.

Anyone who scans the many blogs of the “venture capital bloggers” is pretty used to glaring endorsements by venture capitalists of their portfolio companies. But sometimes, you see endorsements by venture capitalists of companies they are NOT invested in, which is usually a sign of bigger and better things.

I’ve noticed couple of recent VC endorsements of Sonos, the Santa Barbara maker of digital music hardware. Surprisingly, those have not been by investors (at least that I am aware of) in the firm, but just VCs who seem to like the company’s hardare. Sonos has a system which streams wireless music throughout your house.

Some examples:

• Seth Levine (Foundry Group/Mobius) - Sonos - how have I lived without you?!
• Fred Wilson (Flatiron/Union Square Ventures) - Bringing The Web Into Our Living Room, Sonos Rocks

(Sonos has received backing from BV Capital, and has been pretty mum about their firm’s other investors…)