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Venture capital funding still slow in Southern California

July 17, 2009 |  9:30 pm

Bank
For many SoCal start-ups, the bank vault is still closed. Credit Anonymous Account via Flickr.

The numbers for start-up investments are out, and in Southern California, they're not so good.

It's a familiar refrain: venture capital funding is tight;start-ups need to sit and wait until venture capitalists have some more funding money. The bad news is that those in Southern California might have to wait a little bit longer.

Nationally, investors put $5.27 billion into start-ups during the second quarter of this year, up 32% from the first quarter. But Southern California attracted only $433 million in venture investment in the second quarter, down 12% from the first quarter. That's according to a Dow Jones VentureSource report scheduled to be released Saturday.

In Los Angeles, venture capitalists invested $111 million, down 34% from the first quarter. That’s down 74% from the same period last year.

“Los Angeles had another challenging quarter,” said Mike Schoenfeld, venture capital advisory group leader at Ernst & Young.

Nationally, investment in information technology crept up 8.5% from the first quarter. But the amount invested during the second quarter, $1.9 billion, is a 41% decline from last year's $3.2 billion. And for the first time since Dow Jones started keeping track in 1992, investment in the healthcare sector outpaced investment in information technology. Venture capitalists put $2.23 billion into healthcare deals in the second quarter.

Things aren't likely to turn around until venture capitalists see more IPOs and mergers and are able to exit their companies, said Samit Varma, a partner with Santa Monica's Anthem Venture Partners.

"They’re waiting until 2010 until the storm is over and the cycle becomes realistic again," he said.

Some of the local start-ups able to raise money this quarter include Generate, a Santa Monica media company that got $2 million, CoreObjects Software of Los Angeles, which raised $2 million, and HauteLook, a Los Angeles Web company that received $10 million.

-- Alana Semuels

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