Summary:Stock market turbulence that has sent the fortunes of some once high-flying tech stocks plunging is not likely to dry up the large pools of venture capital funds that have washed over California in recent years, a group of industry insiders said.
"We're going through a cleansing period now and we'll soon be out of that," predicted Mark Gorenberg, Senior Partner at Hummer Winblad Venture Partners. "People will recognize great companies and they will come back."
The availability of venture capital is widely credited as one of the key ingredients that fueled the explosion of new technology-related firms, first in Silicon Valley and more recently in Southern California.
Twenty-eight venture capital funds are currently active in the Los Angeles region, up from just three six years ago, pointed out Rohit Shukla, President and Chief Executive Officer of the Los Angeles Regional Technology Alliance.
While those funds aren't going away, they are changing their focus, Shukla noted. Rather than seeking out Internet content sites — several of which have shed much of their value in recent months — the funds are looking for hard technology. The panelists noted that companies involved in telecommunications continue to be a favorite.
"We'll look back at (the year) 2000 and say the wireless Web was as under-hyped today as the Internet was five years ago," Gorenberg said.
Some funds see opportunity in the carnage of the Internet market, said Richard Rosenblatt, Chief Executive Officer and founder of Prime Ventures. Rosenblatt's company recently bought 70 percent of drkoop.com for $27 million, a fraction of what the company was valued at just months ago. Rosenblatt is now the company's CEO.
"I see a new wave of venture capitalists buying assets and turning them around in the new economy," Rosenblatt said. "We can find public companies trading at $1 or below and have a chance to turn them around."
If the strategies of some funds are changing, the qualities they look for in target companies remain the same, they said.
"I'm looking for energy and passion," Draper noted. "A good business model helps, but we can help a company with that."
Gorenberg said his firm looks for large potential markets that the company is capable of reaching. "We look for excellence, but not necessarily experience," he said.
He also noted that strong, early-bird companies are much more likely to get the attention of venture capitalists. "Being number one is a market is worth a lot more than being number two or three."
Rosenblatt's firm is committed to keeping a narrow focus in the Internet arena. "We only invest in companies we can affect," he said. "We've got to be able to understand them."
As it's possible that his firm may eventually end up running a company if key personnel depart, Rosenblatt has no appetite to stray into other fields, such as biotechnology, he said. Besides, there remain plenty of good opportunities in his field.
"A lot of great public and private companies are getting shellacked right now," he said. "There is a huge opportunity."
