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Thursday, Nov 30, 2023

MONEY—VCs Follow the Money Straight to the Valley

Eve Kurtin admits to a little jealousy when it comes to her partner, Annette M. Bianchi, another of the four managing directors at venture capital firm Pacific Venture Group. Bianchi is based in Northern California where a virtual horde of colleagues can be found clustered along places like Sand Hill Road in Menlo Park or parts of Palo Alto. Kurtin, based in Encino, has no such peer group close by. “I look at her and she’s got this incredible network,” said Kurtin. “I make efforts to get up to Northern California to bond with other VCs.” Kurtin may not have to make that trip too much longer. As more technology companies move into the so-called 101 Tech Corridor that stretches from Woodland Hills to Camarillo, VC firms are following. “It’s just a matter of greater and greater attention being drawn to the Tech Corridor,” said Brent A. Reinke, managing partner with the law firm Clark & Trevithick, who founded the Gold Coast Venture Forum, an educational and networking organization for the tech community. “You’re going to see more venture capitalists and other financing types locating themselves in the area because it does give them a greater presence and shows a greater level of commitment.” Until now, the few venture capitalists that hung out a shingle in the Valley did so for purely pragmatic reasons the principals live in the area. But lately, with Silicon Valley in freefall, the growing ranks of emerging growth companies that have settled in the West Valley are looking all the more attractive to venture capitalists. A recent report by Los Angeles research and consultancy Growthink identified 12 venture capital firms between Glendale and Westlake Village who were active in the Southern California market in the second quarter of the year. While the number pales in comparison to the community in Silicon Valley to the north, it is nevertheless higher than some say they would have expected. “That’s probably 10 more than I know about,” said Marty Albert, managing partner at AmerScan Ventures, a 10-year-old Westlake Village-based venture capital firm that is among the oldest in the area. Albert, who based his company here to avoid a daily commute to the office, second-guessed his decision a decade ago. He no longer has any doubts. “I was sorry I didn’t move to Silicon Valley, and now I think it’s a great area,” he said. “The area from Calabasas to Camarillo is a delicious area for small, emerging businesses.” Unlike the concentration of law firms in Century City or financial firms in downtown L.A., there is no center for venture capital firms within the city’s urban sprawl, and VCs have not followed any particular pattern in locating their offices. With e-mail and other technologies, most say they are in easy reach of their financial partners and investors, no matter what their address. But venture capitalists often collaborate with one another, partnering to finance a single company or loosely bonding when there are synergies to be gained from the respective companies they are backing. And, as in many industries, there are intangible benefits to be gained from being close to others with interests and goals in common. That makes the idea of a hub for these companies attractive. Until recently, the Westside of L.A. housed the most visible cluster of tech companies. But the meltdown in the dot-com sector has fractured that community and made the Tech Corridor the only game in town. Not only are the numbers of companies located along the Ventura Freeway growing, they have generally enjoyed more economic stability than some of the other technology sectors. As the area gains even more critical mass, it will attract greater numbers of venture capital firms as well as the law firms and accounting practices that support them, some say. “It’s chickens and eggs,” said Kurtin. “The more firms that set up here, the more companies sprout and the more companies that sprout, the more (support) people put in offices here.” Reinke next month will leave his current post to open a Westlake Village office for Northern California law firm Crosby Heafey Roach & May LLC. The firm, with a large practice in SEC work, intellectual property and life sciences law, saw an opportunity in the region because of the growing number of technology companies opening here, particularly in the biomedical sector. Venture capitalists don’t limit their projects to the immediate geographic area where they are based many of the companies in Pacific Venture Group’s $210-million fund, for example, are in Orange County. But proximity to a cluster of tech companies can help venture capitalists to identify promising businesses they might not otherwise hear about. AmerScan’s $80 million fund includes two storage companies in the area, Med & #233;a Corp. in Westlake Village and NovaStor Corp. in Simi Valley. A smaller fund, Chavando Group International with $20 million, has found its Sherman Oaks location advantageous for its proximity to potential investors. “Everything is convenient and there are a lot of investors in the Valley due to the entrepreneurial nature of the Valley and the entertainment industry,” said managing director Elias Chavando. “You have a lot of people with a lot of money that want to invest.” Chavando has seen a dramatic decline in the number of unsolicited pitches from firms seeking financing. “We used to get probably 20 e-mails a day (beginning) with ‘Dear Investor, here’s my executive summary,’ ” said Chavando. “You could tell this guy sent it to 200 people.” These days much of the correspondence is addressed personally to Chavando, with an attempt to outline what the company can bring to the firm’s portfolio. “The fakes and the 23-year-olds are dying off,” Chavando said. So too is the need to make split-second decisions risking multi-million dollar coffers. Venture capitalists say that two years ago, the competition was so fierce, they barely had time to check into a company’s references and consider its market potential for fear another VC firm would jump in and make the deal. Today, firms say they have the time for due diligence. All this may bode well for the Valley, with its concentration of technologically complex companies requiring more time and expertise to evaluate. The question is whether the area will grow large enough for a sizable financial presence. “Whether or not there’s a critical mass where it’s going to cause VCs to locate along the corridor is the issue,” said Reinke. “It may make more sense for them to locate along the Westside, but as the area grows, it’s going to make more and more sense for venture capitalists to locate themselves here to take advantage of those opportunities.”

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