SoCal Venture Totals Slip, But IT Shines

Southern California's venture capital numbers for Q4 slipped, as did numbers nationally, according to numbers released over the weekend by Dow Jones VentureSource. According to the report, Southern California's venture capital totals slipped for the first time since 2003, down more than 18 percent annually, to $3.2 billion--that drop represented the weakest quarter in SoCal in 5 years, according to Dow Jones. However, Southern California's IT industry actually saw an increase in investments, bucking a national downturn in IT industry investments.

According to the report, investments in Southern California totaled $421.80M for the quarter, across 51 deals, down from $902.16M and 58 deals in Q3. Nationally, venture capital investments slipped 30%, to only $5.5 billion in 554 deals, invested -- the lowest quarter since 2005.

Locally, San Diego led the region with $182.5M invested in the quarter across 14 deals; Los Angeles had $105.78M in 22 deals; and Orange County had $94.89M in 10 deals. Orange County also managed to pull out a year-to-year increase in venture deals, unlike most markets in the nation, with investments up over last year's $89.48M invested. Among the few bright spots for Southern California as a whole was the Information Technology industry, which was up both quarter-to-quarter and year-to-year at $222.4M, up from $184.4M for the same quarter last year, and up from $179.68M in Q3. Southern California results in the sector were opposite the national trend, which saw IT investments drop 39 percent.

"One things worth pointing out is that more dollars in Q4, nationally, as well in LA, went into second and later stage deals, than early stage deals, " said Mike Schoenfeld, part of Ernst & Young's Global Venture Capital Advisory Group, commenting on the results in an interview with socalTECH. Schoenfeld said it gives the sense that venture capital firms are "circling the wagons" and focusing more on the health and viability of their current portfolio, rather than new investments.

For the quarter, the most active industries after IT were Healthcare, with $96.11M in investments in the quarter; followed by Industrial Goods and Materials, with $36.49M in investment; closely followed by Business and Financial Services, with $32.0M invested.

Among the hot spots in Southern California's venture market was clean technology and energy deals. "The big increase this year is in energy," said E&Y's Schoenfeld, explaining, "renewable energy deals are up significantly," driven by big deals in Q2 and Q3.

For the year, national venture capital investments totaled $28.8 billion, down 8 percent from 2007, when $31.4 billion was invested in the U.S. Nationally, Energy Investments saw annual investments almost double, to $3.6 billion in deals.