A tough year for California venture capital closes on a promising note

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The venture capital market in California slumped through a rough 2009 before showing signs of life in the last quarter, according to a report released Friday.

The weak period mirrored a national down year for these investments.

Venture capitalists dolled out $10.4 billion in 1,033 deals last year, compared with $15.6 billion in 1,246 deals in 2008. The one-third drop in value for California investing was slightly worse than the 31% drop nationally.

The numbers are part of a quarterly report from Dow Jones VentureSource, which bases its data on surveys of professional venture capital firms. National figures were released Thursday night.

Though overall value dipped from the third quarter to the fourth, the final three months fared better than the same months in 2008. Total investments in California companies increased 6% for the quarter over the previous year’s quarter to $2.8 billion.

Jessica Canning, global research director for VentureSource, said the decline in California was expected. But she was surprised to find the brunt of the drag coming from the Bay Area -- mostly the result of a slowly recovering information technology industry.

“Overall Southern California has held up a little stronger,” she said. Scott Sangster, president of Tech Coast Angels Los Angeles, a group of investors that funds local start-ups, said he expects investment volume and value to improve this year.

‘There’s nothing wrong with the creative spirit, the entrepreneurial spirit in Southern California,’ he said. ‘When we look back a year from now, 2010 numbers will be substantially bigger than 2009.’
His group invested in 25 local companies last year for a total of $5 million, compared with 31 deals for $7 million in 2008.

The drop in venture capital hit the Los Angeles metropolitan area particularly hard. Investors doled out only $621.9 million in the last year, a 47% decrease compared with the year before.

Nationwide, venture funding of healthcare companies last year leap-frogged the long-time favorite, information technology, but in greater Los Angeles, IT captured more dollars -- $186.6 million -- than any other industry in the area.

-- Robert Faturechi