Glitzy LA chases geeky stardom

It didn't happen. Studios spent big and reaped little in the game market. The Spot, and other online shows, were wiped out by high costs and limited audiences. And the media companies based here found that their movie and TV content was of little use to the data-oriented Web and technology's money-men. As a result, the Los Angeles area - the traditional "West Coast" - simply looked on from afar as the San Francisco Bay area systematically drew the cream of the crop of high-tech capital and expertise.

But now, LA is rushing to reclaim its glitzy place in the U.S. business world. Today, a growing number of financiers and technology leaders believe this sprawling metro area is poised to join the high-tech big leagues.

Consider:

Venture capital firms are rapidly forming in the area. Silicon Valley seer Tim Draper's firm set up a satellite operation last year, for instance. Palomar Ventures, a new $80 million information-technology investment fund, cranked up earlier this year. And just a couple weeks ago, Jake Winebaum quit as Disney's online chief to form eCompanies, which will back young tech ventures in the LA area.

While the LA venture-deal flow remains moderate in size, it's growing quickly. PricewaterhouseCoopers data show that venture investments here jumped 80 percent over the same period a year earlier. About three-quarters of that money is going strictly to high-tech companies.

The Lawnmower
Grassroots industry support groups are bursting at the seams. "Lawnmower," a local technology roundtable founded in 1992 with just a handful of participants, now routinely draws hundreds to its events. The just-founded Zone Club, meanwhile, attracted several hundred people to its first couple of meetings.

The emergence of broadband communications, which will allow for far more video and other graphically intense content, is widely expected to give traditional studios and independent producers more opportunities to contribute content to the Internet.

"We're thrilled about the region," says Draper. "We think it's going to be as big or bigger than the Silicon Valley over the next 20 years."

It's a bold and contrarian prediction. When the Web emerged just five years ago, deals began flowing in Silicon Valley faster than a Hollywood chase scene. The pace - and the disparity - has only accelerated. In the first quarter of this year alone, Silicon Valley generated $1.7 billion in venture capital deals - more than six times the figure for the giant LA/Orange County region, according to PricewaterhouseCoopers.

Money where the mouth is
But Draper is putting some of his money where his mouth is. The head of Silicon Valley's Draper Fisher Jurvetson last year helped create a new affiliate venture-capital group called Zone Ventures, which has set up shop in downtown LA.

Already the group has done eight different deals, notes partner David Cremin, including the provision of seed capital for eStyle, a hot LA e-commerce company founded by former Disney executive Laurie McCartney.

Not that LA has been devoid of Web stars to date. Locally based GeoCities sold to Yahoo, for instance, after one of the hottest initial stock offerings in history. Broadcom, meanwhile, a maker of broadband semiconductors and a darling on Wall Street, grew out of its headquarters in Irvine, Calif. And there's also eToys, the Internet challenger to toy stores everywhere.

It's an impressive and growing list of Web winners. But does it truly foretell of an eventual eclipse of Silicon Valley itself, as Draper contends?

"He's pretty bullish," says Tony Hung, venture capitalist with LA's DynaFund Ventures. "I probably wouldn't go that far."

Hung joined DynaFund in 1997, and he works out of an unassuming office park in Torrance, on the periphery of the sprawling LA area. Hung's biggest winner so far is probably eToys, which DynaFund seeded early on. The online toy store now has hundreds of employees and is considered a major threat to physical toy stores everywhere.

But inadvertently, Hung's operation illustrates some of the challenges of participating in the technology sector in Los Angeles. DynaFund's Torrance offices don't exactly sit in a hive of Internet startup activity, as any location in Silicon Valley would. Rather, Hung notes cheerily that he's equidistant to several entrepreneurial nodes in the LA region.

"It doesn't matter where you are, you're always an hour away," says Hung, putting a happy spin on a situation where distance does matter. After all, venture capitalists spend much of their time monitoring the companies they fund, meeting with their strategists and helping them interview important job candidates.

Hung notes - correctly - that Silicon Valley is far more spread out than it's portrayed. But the LA-freeway image is hard to dispel; Hung and others note that it probably has contributed to the relatively slow pace of technology development in Southern California.

Just as important as image is infrastructure, Hung asserts. By that, he means the network of lawyers, consultants, venture capitalists and accountants that serve and inspire upstart tech companies.

Underserved?
Los Angeles, he adds, "has been underserved by the venture capital community" and other service providers. The LA VC sector is so small, Hung says, that "you can make a few phone calls and know what everybody is up to."

A number of local leaders have tried to help jumpstart the kind of networking that emerged early in Silicon Valley. The Zone Club, a creation of Zone Ventures, is a boosterish technology group that now gathers once a quarter.

Draper's firm also is trying to create a magazine to tout local high-tech heroes. In Silicon Valley, Draper backed Upside magazine for just that purpose. Now, Cremin says he is working to establish an online publication that could eventually become an Upside-like magazine.

Jeremy Verba, executive vice president for Mpath in the Bay Area, says he has seen first-hand evidence that efforts such as these are working. Before April, when he joined Mpath, Verba was responsible for relocating much of the E! TV network's online operations from San Francisco to Los Angeles. Approaching the task with some trepidation, Verba says he was pleasantly surprised to find that he had little problem finding and recruiting about a dozen software and engineering specialists for eonline.com.

The cyber element
During that time, Verba also recalls attending LA meetings of Lawnmower (whose unusual name was derived from the cyber element of a Stephen King-inspired movie). A Santa Monica gathering in 1996, he remembers, drew about 200 people. But just a year later, in a sign of what will become of the LA high-tech community, there were an estimated 1,500 to 2,000.

"It was packed," Verba says.