A new study of the financial outcomes for Southern California venture-backed companies in the IT sector finds that approximately $48 billion in value has been created by those companies over the period 1995-2009. The study, conducted by Jon Funk of OceanRoad Partners, includes data from socalTECH.com's proprietary venture database, Dow Jones/VentureSource, and Greg Martin of Redpoint Ventures.
Funk initiated the study last fall to create an historical statistical analysis of the financial outcomes for the region's venture-backed information technology companies. The study initially identified outcomes for 872 companies beginning the mid-1980's in the region, which encompasses the area stretching from the Mexican border north to San Luis Obispo, and east to the Nevada border, including parts of the Central Valley. Funk then focused the analysis on the 731 documented exits for the period 1995-2009.
The study found that the greatest values for Southern California venture-backed firms were created by companies operating in Online Services (51%), followed by Communications and Networking (15%), Software (10%) and Semiconductors (9%). The region has produced 95 exits over $100 million (13%), 50 over $250 million (7%) and 23 over $500 million (3%) during the period analyzed.
Among the highest acquisition values were MySpace ($580M in 2005), Shopzilla ($560M in 2005), Rent.com ($430M in 2004), Lowermybills ($330M in 2005) and Sandpiper Networks ($630M in 1999). IPO successes (as measured by the market capitalization at the close of the first day of trading) include Entropic ($500M IPO in 2007), Divx ($625M IPO in 2006), eToys ($7.8BM IPO in 1999) and Xylan ($2.3B IPO in 1996). The IPO values cited reflect the value of the company on the day of its initial public offering, which don't necessarily reflect the value realized by the investors, Funk said.
"The data demonstrate the vitality of the region as a lucrative area for venture capital investment, especially in the last 10 years as online services have come to represent a new area for innovation", Funk said.
The study also shows that approximately 1,200 different investment entities made at least one investment in the 731 outcomes for the period, indicating worldwide interest in investing in the region. However, only 90 investment firms produced at least five outcomes during the 15-year period, showing that consistent investment in the region is concentrated among a relatively small number of entities.
According to Redpoint's Martin, 2010 might be a strong year for exits, with a number of venture capital-backed, Southern California firms currently filed for initial public offerings. Martin tallied five, venture-backed companies in Southern California who have filed draft S-1, with plans to go public sometime this year, including GameFly (online services-gaming), Green Dot (consumer and business services), Maxlinear (semiconductors), NewEgg (online services-ecommerce) and ReachLocal (online services-advertising).