Tech ventures in The City attracting cash

A shift in the distribution of venture capital dollars has San Francisco significantly outpacing its South Bay competitors and buoying key industries during the economic downturn.

In the past three months, 22 software companies received investment money in San Francisco, compared with seven in San Mateo and three in Mountain View, the home of Internet powerhouse Google Inc.

Likewise, four of San Francisco’s clean-tech companies received venture capital dollars during the second quarter compared to one in Mountain View and one in Palo Alto, according to economic reports.

“This is a new trend,” said Ted Egan, chief economist for San Francisco. “High-tech is thought of being a South Bay, Santa Clara thing, [but] we are the leader.”

Investors poured nearly $3 billion into Bay Area companies in the past three months — a 100 percent increase from the first quarter. More than $283 million went to San Francisco green-tech, software and biotech firms, elevating The City’s position in the innovation industry.

The increasing flow of money into San Francisco is directly tied to The City’s booming market for new social-media and gaming
companies, drawing on its diverse and more youthful talent pool, Egan said. That, along with the targeted development of the Mission Bay neighborhood, has influenced more companies — and thus more venture capital — to come to San Francisco.
Venture capital investment has helped Recurve, a local green-building company, grow by nearly 30 percent in the past year.

“I didn’t anticipate we’d see that increase,” said Matt Golden, president of Recurve, which recently secured $8 million in capital.

The upward trend has helped buoy San Francisco as it struggles to recover from the recession. Although San Francisco shed an estimated 30,000 jobs during the past two years, the software industry alone added more than 800 jobs during the recession.

However, nobody is banking on this injection of money reversing San Francisco’s 9.7 percent unemployment rate — at least not immediately, said Jim Lazarus, vice president of public policy for the San Francisco Chamber of Commerce.

Traditionally, startup companies are not huge job generators, but they do build upon themselves, which creates a cumulative effect on the economy, Lazarus said. This will definitely put San Francisco on a more competitive edge with areas like the South Bay, which has historically been the high-tech hot spot.

“Startups want to be where other startups are,” Lazarus said. “You find we can compete with the Bishop Ranches [in San Ramon] of the world and the Santa Claras of the world.”

Worthy ventures

The Bay Area industrial and energy industry took in the most venture capital last quarter, while software landed the most deals.

Industrial/Energy

Amount: $804,000,000
% of Total: 27.58%
Deals: 21

Software
Amount: $534,000,000
% of Total: 18.33%
Deals: 68

Biotechnology    
Amount: $379,000,000
% of Total: 13.01%
Deals: 33

Medical devices and equipment
Amount: $319,000,000
% of Total: 10.94%
Deals: 23

IT services
Amount: $243,000,000
% of Total: 8.34%
Deals: 28

Semiconductors

Amount: $165,000,000
% of Total: 5.68%
Deals: 16

Media and entertainment                
Amount: $101,000,000
% of Total: 3.47%
Deals: 31

Telecommunications
Amount: $97,000,000
% of Total: 3.31%
Deals: 11

Financial services
Amount: $71,000,000
% of Total: 2.43%
Deals: 4

Networking and equipment
Amount: $67,000,000
% of Total: 2.30%
Deals: 13

Consumer products and services    
    
Amount: $37,000,000
% of Total: 1.26%
Deals: 7

Computers and peripherals        
Amount: $35,000,000
% of Total: 1.20%
Deals: 7

Business products and services  
 
Amount: $23,000,000
% of Total: 0.77%
Deals: 7

Health care services
Amount: $15,000,000
% of Total: 0.51%
Deals: 1

Electronics/Instrumentation    
Amount: $12,000,000
% of Total: 0.42%
Deals: 3

Retailing/Distribution    
Amount: $8,000,000
% of Total: 0.27%
Deals: 2

Other  
Amount: $5,000,000
% of Total: 0.17%
Deals: 1

Ahead of the pack

More software companies in The City pulled in venture capital than in any other Bay Area city in the second quarter of fiscal year 2010.

San Francisco: 22
San Mateo: 7
Redwood City: 6
Menlo Park: 4
Palo Alto: 4
Mountain View: 3
San Jose: 3
Santa Clara: 3
Sunnyvale: 3
Cupertino: 2
Emeryville: 2
Los Altos: 2
Alameda: 1
Alamo: 1
Sausalito: 1
Woodside: 1

esherbert@sfexaminer.com

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