DFS Flooring announced that it has purchased the San Diego and Van Nuys locations and maintenance business in Fullerton of The Invironmentalists, a flooring, sales, installation and maintenance company. Greg Keyes and Richard Freidman, owners of DFS, have held key management positions with The Invironmentalists for the last 16 years. The company will continue to operating the San Diego and Van Nuys facilities and the Fullerton maintenance department with the same management and staff. The Invironmentalists had previously reported a change in strategy that would result in a return to local ownership in the sales, service, installation and maintenance of flooring products.

Westlake Village-based J.D. Power and Associates, best known for its ratings of new cars, will start ranking the best computer tech support services. The market research company will team with the San Diego-based Support Professionals Association to rank tech support in both the consumer and enterprise markets. The two companies plan to also rank how well the companies handle calls, answer questions and solve a caller’s problems. The companies to be surveyed include household names such as Oracle Corp. and Hewlett-Packard Co. Text book publisher The McGraw-Hill Cos. announced last week that it will buy J.D. Power for an undisclosed amount. Industry analysts estimate the sale price to be approximately $400 million. The deal is subject to regulatory review and is expected to close in April.

The products may not be headline grabbing, but venture capitalists say the 101 Tech Corridor nonetheless presents significant investment opportunities. Speaking at a presentation on the state of venture funding in the region, a panel of investors said that the region that stretches roughly from Sherman Oaks to Santa Barbara houses a substantial cluster of emerging growth companies and good potential for spinoffs, both from existing companies and from the research underway at University of California Santa Barbara. “If you look at the region you see these companies raising anything from $8 million to $75 million,” said Jeff Carmody, chief operating officer at Agility Capital, a lender that specializes in venture backed and small cap public companies. “What that proves is there’s opportunity for your early stage companies to spin out.” Carmody joined Stephen H. Watkins, general partner at venture firm Arcturas Capital, and Joseph Marks, managing member of Smart Technology Ventures, at “Shaking the Moneytree,” a quarterly conference on venture investments sponsored by PricewaterhouseCoopers, Thomson Venture Economics and National Venture Capital Association, along with law firm Musick Peeler & Garrett, which recently opened offices in Westlake Village. The panelists noted that spin-offs from research programs at UCSB, a slowdown among corporations seeking to invest in startups, quality of life issues in the Conejo Valley and the increased competition among VCs are drawing venture capitalists to the area. While media- and entertainment-related technology companies are mostly clustered around the West Los Angeles area, the 101 Corridor is home to a number of other types of firms, the panelists noted. “When you look at a broader region from Westlake Village to Sherman Oaks there certainly is a lot going on networking, photonics said Marks, whose VC firm focuses on wireless, photonics, broadband and other technologies. “If you are cognizant of the types of investments, (the area) makes sense, but not just everything.” Third highest According to the Moneytree Survey, the Southern California region received some $2.2 billion of VC funding in 2004, the third highest area for investing behind Silicon Valley and New England. Nationally, software companies attracted the most funding, $5.1 billion, up 18.5 percent over 2003. But when taken together, biotech and medical devices won the lion’s share of investment funds, $5.6 billion, the Moneytree Survey found. “Life sciences is really the story,” said Randy Churchill, director of business development at PriceWaterhouseCoopers, who presented the survey results at the conference. Despite the presence of biotech giant Amgen in the region, the panelists noted that there has been a dearth of life sciences companies emerging along the 101 Corridor. “Amgen made people so rich they didn’t have to work,” said Watkins, who worked at Amgen early in his career. “A lot of my friends decided to spend their time with their families and buy ranches in Montana.” Amgen employees profited enormously from stock options during the technology bubble, but that has changed, Watkins noted, and the company may generate far more startups in the future, not just because adjustments in the stock market have made options less profitable, but also because Amgen has grown to a size where it cannot devote resources to drugs that promise only modest returns. Those products, however, may be substantial enough to form the basis of startup firms. While the passage of Prop 71, earmarking some $3 billion for stem cell research, is sure to boost biotech startup activity across the country, the panelists were nonetheless sharply critical of the legislation. “I thought that was the worst piece of legislation that’s come down the pike in a long time,” said Watkins. “There’s no more promise to stem cell research for curing disease than many other types of research. That being said, this region will benefit in some form.” Different criteria In general, VC companies are out in force looking for investments, but their criteria is far different from the salad days of the technology boom in the late 1990s. Among the trends, VC firms are eschewing interesting technologies and concepts for companies that are farther along in the development process. In many cases they want to invest in companies that already have revenues and customers. Later stage and expansion stage investments made up the bulk of investments in 2004 on a national basis, the Moneytree Survey found. Later stage companies, those already generating revenues through the sale of a product or service that is widely available, received $7.2 billion in venture funding last year, an increase of 47.5 percent over 2003. Investment in expansion stage companies was down in 2004 versus 2003, but those firms still received $9.5 billion in funding last year, the Moneytree Survey found. By comparison, early stage companies received VC backing of $3.9 billion, 15 percent more financing than they did in 2003. And investment in seed and startup companies was down 10 percent to $346 million on a national basis. “Something we’ve seen is VCs looking for mature companies to make an investment in,” Churchill said. Those companies that did not go down when the tech bubble burst have created managers better equipped to run companies today, the panelists said. “What we’re seeing are later stage companies that have weathered the storm,” said Carmody. “These are experienced management teams that have weathered the storm.” At the same time, the move to invest in more mature companies has meant that earlier stage companies have to rely on their own resources. That, said the panel, has made them far better managers as well. “The constraint in venture capital has created a class of companies that are scrappier, and more cognizant of risk on the downside than they were in the late 90s,” said Watkins. “That’s all very attractive to us.”

North American Scientific reported a loss for its fourth quarter of $7.5 million or $0.48 per share on revenues of $9.8 million. For the full fiscal year ended October 31, 2004, the company reported a net loss of $36.3 million or $2.76 per share on revenues of $24.7 million. North American Scientific develops radiation therapy products and services for use in cancer treatment

Before last week’s primary election left Mayor James Hahn and Councilman Antonio Villaraigosa as the last men standing, voters had been hearing the same speeches for months: choruses of praise for LAPD Chief Bratton along with promises to speed up traffic and add more housing. With much of the city up for grabs once again, some Valley business interests are hoping to grab some attention from the two candidates in the coming weeks. Steve Caplan, executive vice president of the Association of Independent Commercial Producers, said he expects to hear both men speak more about plans to foster growth in the entertainment industry. “All indications are that both of them have a strong sense of the value of economic development from production. Interestingly, it didn’t really emerge as a political issue, or policy issue, in the debates between the five candidates, but it might just become more engaged in the runoff.” said Caplan. “My sense is that both will be working to gain support from the entertainment industry both for fundraising and for the many votes in the form of the people who work in the business.” Both Hahn and Villaraigosa supported business tax reform, which passed the City Council unanimously last year. Most of the credit for the reform went to Council members Wendy Greuel, Eric Garcetti and Tony Cardenas, but Caplan said that Hahn made a significant contribution to the reform proposal while staying out of the limelight. Mel Kohn, who was on the Business Tax Advisory Committee along with Caplan, has credited Hahn with proposing a tax exemption for every Los Angeles business that grosses less than $100,000 each year. The reform package also provided specific relief for the entertainment industry. Caplan said he’d like to see the mayor be a champion for Los Angeles. “Part of what we’d like to see happen is whoever becomes mayor to be much more visible and a vocal advocate,” he said. The governor is currently putting together a proposal to keep production in Los Angeles, Caplan said. “We’d expect the mayor, whoever it may be, to be supportive and find a way to lobby for those reforms,” he said. Boosting biotech Edmond Buccellato, chief executive officer of Advanced Biotherapy in Woodland Hills, said he’d like to see more support for the city’s biotechnology companies. “It’s not necessarily related to governmental influence or incentives,” said Buccellato. “For very early stage companies, however, the challenge comes when you begin to build an infrastructure, build a business and create employment. The city tax burden for companies becomes onerous, small enterprises that have an opportunity to grow oftentimes just cannot afford the costs of doing business with respect to city taxes and other types of costs paid to the community.” Buccellato said he plans to keep the company, which is developing treatments for autoimmune diseases using antibodies, headquartered in Woodland Hills, partly because he is from the Los Angeles area. Advanced Biotherapy only employs a handful of people in Los Angeles, however. The company’s laboratories are located in Maryland. Buccellato, who says he is not active in politics, nevertheless thinks that collaboration between the biotech industry and local government could help foster emerging biotechnology companies. “The cost of drug development is significant, and identifying sources of capital and funding is problematic,” Buccellato said. A strong cluster of private biotech companies and publicly funded research institutions might foster a pool of skilled workers that Advanced Biotherapy could use to staff a laboratory in Los Angeles, he said. Hahn and Villaraigosa have both said that bringing biotechnology jobs to the city is a priority. Since voters approved Proposition 71, which directs the state to issue $3 billion in bonds to support stem cell research, Hahn has been trying to lure the California Institute of Regenerative Medicine to Los Angeles, and even announced that he had arranged for free downtown office space. Later the same week, Villaraigosa appeared at a press conference with L.A. County Supervisor Gloria Molina and University of Southern California Keck School of Medicine Dean Brian Henderson to announce the creation of a joint county-city authority to help revive a planned biomedical research park near County-USC Medical Center. Tom Hogen-Esch, associate professor of political science at Cal State Northridge, said that Bob Hertzberg’s endorsement might go a long way in helping one of the candidates win in the Valley. “In this case it might actually make a big difference, not just because Hertzberg has a towering personality but because he has a huge rolodex, which goes all the way up to Arnold Schwarzenegger,” Hogen-Esch said. Hogen-Esch said that Hahn is likely to work hard over the next two months to ingratiate himself to the Valley’s business community and homeowners, and differentiate himself from Villaraigosa as much as possible. “I really think he’s going to try to label Villaraigosa as a ‘tax and spend liberal,’ he’s going to play up his fiscal conservatism credentials and try to play to those kinds of issues that resonate in the West Valley,” Hogen-Esch said. “It will be interesting to see if West Valley voters, who tend to be the most conservative in the city, will hold their nose and vote for Hahn or whether they’ll support someone who’s very far to the left of Hahn.”

These days, when Larwin Investment Co. considers an acquisition, it scrutinizes the property with a very narrowly defined focus. The folks at Nearon/Ossola Group are doing a lot of their shopping out of state. And at Investment Development Services Inc., officials are sifting through about 100 deals just to find one. With property prices sky high in all sectors of the real estate market, just about every non-institutional buyer has had to reevaluate the criteria it uses and the way in which it shops for acquisitions. Some are just saying no. “People are paying ridiculous prices,” said John Battle, a partner at real estate brokerage Lee & Associates-L.A. North/Ventura County Inc. “A lot of our clients sold into the market last year and they either bought out of the area or they decided to pay the taxes instead of reinvesting.” Last year in the San Fernando Valley, median prices rose 14 percent to $109,000 per unit for apartment buildings, 27 percent to $185 per square foot for office buildings and 20 percent to $210 per square foot for retail properties, according to a Marcus & Millichap report. With the escalating prices, the return thresholds have dropped sharply, so that where buyers could expect a return between 8 percent and 10 percent on their investment just a few years ago, they are now settling for 6 percent or 7 percent, and as little as 5 percent in some cases. “I think they’re accepting lower returns. It’s that simple,” said Tom Festa, a broker at Grubb & Ellis. “There’s so much institutional money that needs to diversify in real estate, or has decided it needs to be there and there just isn’t enough product.” The competition has created a seller’s market that may or may not be temporary. “In the last year, I’ve sold my interest in about half of what I own, and only time will tell if I did the right thing,” said Jerry Katell, president of Katell Properties, who joked that he’s thinking about calling a psychic to see if he should sell the rest of his properties. “I look at cap rates being so low and values being so high, I look at it as an aberration. For the forty years I’ve been in the business, it’s a unique time.” One of Katell’s properties, the Nordhoff Industrial Complex, has been valued at a cap rate ranging between 9 percent and 10 percent since it was developed in the 1980s. “Now, if I wanted I could sell it at a 7 percent cap rate,” Katell said. “Now it’s worth 40 percent more than it’s been in 20 years.” Low interest rates have certainly spurred a lot of the buying activity, particularly for smaller investors. And the value of the dollar, which has dropped markedly in the past year, is inviting foreign investors into the market as well, increasing the competition for trophy properties in particular. But some of the reasons behind the rush to buy real estate may portend a more permanent change in the marketplace. Diversifying portfolios With the collapse of the stock market in 2000, many institutional investors began moving to diversify their portfolios by adding real estate holdings and other so-called opportunity funds emerged with huge war chests to invest. “Between 1990 and 2000, the average cap rate was 8.5 percent,” said Hessam Nadji, managing director of research services at Marcus & Millichap. “That’s been squeezed down to 6.4 percent on a national basis because so much capital flowed into real estate.” Some think that as interest rates rise, smaller investors and foreign players will pull back out of the market, relieving some of the price pressure. But the institutional investors may well be in for the long haul, and their costs for financing will be cheaper, whether or not interest rates rise. At the same time, opportunity funds have created a new investment sector that may also survive the current interest rate cycle. “There’s dozens you’ve never heard of with 100 million to 500 million to invest in real estate, and they’re all looking at Southern California,” said Mark Ossola, a principal at Nearon/Ossola Group. “As more of these pop up, they’re all chasing the same deals, which means one thing, prices go up.” While investors disagree over whether the current market dynamics are cyclical or permanent, they all agree that buying properties takes a different eye than it did a few years ago. “If in certain cycles of the real estate market you can look at 10 deals, the difference is now you have to look at 100 to find one you like,” said David Mgrublian, managing director at Investment Development Services. “Those that can sift through what’s in the market quickly and find out where the hidden value is located are those that are going to be successful and those that don’t have a clue will wallow.” Mgrublian thinks the trick is to stick to the trading areas that you know to adequately evaluate the value of the property. The company’s recent decision to purchase the Washington Mutual office complex in Chatsworth was based on the quality of the tenants that occupy the property as well as what Mgrublian perceived as an attractive location in walking distance of the Northridge Fashion Center. “If you were in New York, how would you figure that out?” he said. “We just know.” Officials at Larwin concur. Even after, like others, adjusting its return criteria, the company still has to work harder to find properties that meet it. “Where the phone used to ring, I’m driving around, shaking hands spending a tremendous amount of time out in the field to create transactions that make sense for the seller and for us,” said Greg St. Clair, vice president at Encino-based Larwin. The company is also focusing on markets it is familiar with and paying added attention to the property features, including things like proximity to freeway corridors and buildings with flexible uses. “So I’m not locked into one tenant,” St. Clair said. “We can keep the buildings full and keep ourselves at a good rental rate that will protect our cash flow down the road.” Many others say they just won’t compete with some of the buyers in the market, and they are looking elsewhere for investments. “What it means to the Nearon Ossola partnership is we’re having to go out of state to look at new properties,” said Ossola. The company has recently acquired a mixed use property in Tacoma and another in Utah. “Because of the competition and the prices of land, we’re actually having to go out of state to find deals that make economic sense,” Ossola said.

Video on demand has been the proverbial “next big thing” for well over a decade now. Finally, after such a lengthy gestation period, the technology is poised to finally break through to mainstream culture in the next year or two and several Valley companies have positioned themselves well to capitalize on this burgeoning market. Often confused with pay-per-view, traditional video on demand offers consumers the ability to watch a movie beamed from a cable company’s uplink center at any time of the day or night. The consumer could then watch the movie at their discretion, fast-forwarding or rewinding at their leisure. In contrast, pay-per-view involves movies and special events being distributed via satellite at pre-set times, without the luxury of stopping and re-starting the film. TVN Entertainment is an avatar for the changing nature of video on demand technology. Founded in the late 1980s, the Burbank-based company originally focused on pay-per-view television, but about five years ago began making the switch to video on demand offerings. It currently offers a wide slate of programming ranging from World Wrestling Entertainment programs, to recent Hollywood blockbusters, to professional boxing matches. The 65-employee company manages, encrypts, and delivers the content to cable companies such as Adelphia, Comcast and Charter. The company expects approximately $50 million in revenues in 2005, an increase of 20 percent from the previous year, thanks in part to the growing video on demand market. These figures put TVN at or near the top of all video on demand companies. Since the beginning of the year, the company has been furiously making deals with content providers, inking pacts with World Wrestling Entertainment Inc., Discovery Communications Inc., and Rainbow Programming Holdings LLC. “We’re seeing more and more content coming available in VOD. We’re currently working with every cable company and with every telephone company. We have deals with 70 content partners including all the major Hollywood studios,” Doug Sylvester, TVN’s chief operating officer, said. “We work with any network that has VOD offerings including the premium cable networks. We’ve also begun working with a whole group of new content companies that have specialized programs that are targeted to consumers.” Gerry Kaufhold, principle analyst for In-Stat, a market research firm based in Scottsdale, Ariz., is bullish on both TVN’s and VOD’s prospects in the coming years. “TVN is a key player in the industry; they provide the distribution for a lot of the Hollywood companies. They are more than just a go-between from the studios to the cable companies. In this business, it’s more about the relationships between the studios, the cable service providers and the distributors,” Kaufhold said. “It’s not something that you can just jump into and do cheaply. The studios have to trust you. There’s room for only a limited amount of players. TVN is in a very secure position because eventually, everything is going to be on demand.” Increasing market share As the cable companies have faced stiff competition from satellite television providers, they have found VOD as another way in which they can gain an increased market share. Since cable companies broadcast programming from a massive network, they have an almost limitless capability to offer video on demand. However, satellite providers rely on smaller disk servers that severely hamper the amount of programming that they can provide. TVN is not the only local company to profit off of the emerging video on demand market. Adult film company Vivid Video, located in the Cahuenga Pass near Universal City, has also recently been increasing its VOD revenues. While Vivid CEO Steven Hirsch claims that only about five percent of the company’s sales come from VOD, he maintains that the technology is only in its infancy and growing fast. “It’s still a very small part of our revenues but it’s growing all the time. There are two different parts of our VOD business. We offer VOD over the Internet through companies like CinemaNow and then there is VOD television, in which we partner with the cable companies and Playboy TV,” Hirsch said. “We see both of them growing and we will probably double our VOD revenues this year over last year. I see VOD, whether it’s on TV or on the computer, as ultimately being a main focus of our business.” Video on demand’s growth has not been limited to the Internet and cable television business; cell phone video on demand programs have also begun to take hold. While the technology is not as widespread as cable video on demand services, Sherman Oaks-based GoTV Networks (formerly VStar) is confident that wireless cellular customers are a viable growth market for video on demand. Like TVN, GoTV has switched its business model to exploit the expanding VOD market. Founded in 1997. GoTV, originally provided animated content for people with low-bandwidth Internet connections. Since transitioning to cell phone video on demand at the turn of the decade, GoTV has seen the move yield dividends. The company currently offers video on demand specially tailored for cell phone users on the go. Instead of watching complete programs with commercials, GoTV focuses on providing content in quick two minute bursts of information. The company typically offers sports, news and entertainment programming culled from partners such as Variety magazine, The Associated Press, ABC News, and the Weather Channel. The company offers seven different types of services ranging in price from $3.95 to $5 a month. Most recently, GoTV received $15 million in venture capital funding from Bessemer Venture Partners and Charles River Ventures. “The cell phone VOD industry is exploding and the revenue companies are taking in is going to explode. People want these products on their cell phones,” GoTV President and Chief Operating Officer Steve Fowler said. “We differentiate ourselves from everybody else because we take information and specifically make and custom format it for a wireless device. We give the busy mobile person things to entertain them. People aren’t about to watch an hour and a half movie on a cell phone. However, they will watch two or three minutes of news, sports or entertainment and that’s what we give them.” Tom Adams, the president and senior analyst for Adams Media Research , believes the cell phone VOD industry has great potential. “Video on demand for cell phone users is an interesting idea. There aren’t any major cell VOD companies that have jumped out to dominate the industry,” Adams said. “But it definitely has potential. There are a million things you might want to look at on the go. The bandwidth available is atrocious right now, but that will slowly improve. It’s a real growth area.”

No sooner did GoTV Networks Inc. secure its first round of venture capital funding than the on-demand, mobile television company brought on three senior managers a new CEO, a chief strategy officer and a senior marketing vice president. The events were no coincidence. With the lessons of the dotcom bust still looming large, startups and the venture capitalists that finance them are realizing that no matter how good the technology, it’s the management that will make or break the future of the company. “What I hear venture capitalists saying, as opposed to the bubble when they used to think the technology is key, now they say the most important thing is the people,” said Randy Churchill, director of business development for PriceWaterhouseCoopers, who works with many VCs. “They’re really funding the team. You bet on the jockey, not the horse.” In some cases, VCs are insisting that company founders step aside to allow professional managers often hand picked by the financiers to manage the business. But even when they don’t install their own managers, VCs are paying as much attention to the team running the company as they are to its products and services. In many ways, GoTV is the quintessential new breed of tech startups. Founded in 1997 by a physicist, the company bootstrapped it for a number of years before receiving its first round of venture capital funding this month $15 million from Charles River Ventures and Bessemer Venture Partners. Three years ago, the management of GoTV passed to a marketing and operations expert, Steve Fowler, but with the venture financing, a new layer of management has been added. Sherman Oaks-based GoTV hired David Bluhm, cofounder of Mforma Group Inc., another provider of mobile entertainment, who also engineered the sale of WUF Networks to Yahoo!, as CEO. The company brought on Thomas Ellsworth, a former EVP from competitor JAMDAT Mobile as chief strategy officer, and it hired Elizabeth Brooks, former head of business development at Buy.com and a veteran of the music industry, as senior vice president of marketing. “You need different people at different phases (of the company’s growth),” said George Zachary, a partner with Charles River Ventures, which, at 25, is one of the oldest venture capital companies and now manages about $1.8 billion in funding. “What Steve (Fowler) was awesome at doing was growing the initial business so it created a cool product. “What David Bluhm is great at is scaling fast growth, mobile entertainment companies.” For a company like GoTV, which provides programming such as movies, news and sports that can be played on cell phones and other wireless devices, getting out in front of the pack means capturing three separate markets. Not only does the company have to establish partnerships with content providers to corner the best entertainment programming, it also must develop the widest possible distribution among wireless carriers and, at the end of the distribution line, successfully market those services to the end users customers who use cell phones and other wireless devices. “As we go forward, any company like ours is going to magnify the number of external conversations it’s having,” said Bluhm. “So just the sheer volume of conversations with content owners, studios, TV companies, anybody that’s got content, it gets pretty expansive. Just handling that, and (managing) the operations to scale, there’s just a sheer number of balls to keep in the air.” New duties Fowler, who relinquished his CEO duties to Bluhm and now becomes president and COO, began working with Bluhm while GoTV was exploring venture financing options. When it became clear that the company’s growth would require additional management expertise, the two struck a deal. Fowler will focus on the operational end of the business while Bluhm works on the strategic plans and programs. “There’s a huge amount of technology to make this work,” Fowler said. “Every carrier requires different software. There’s going to be a lot of activity in terms of hiring a technological group to do that. Especially when you get professional money, you have to clean up your external systems and technology, and make it bulletproof, more reliable and more scaleable.” While Bluhm was tapped by Fowler with the blessing of the VC backers, other additions to the management team were introduced by the venture capitalists. “Liz, who I introduced to the company, was a known commodity in music and consumer entertainment,” said Zachary of Elizabeth Brooks whose background includes head of creative operations in North America for BMG Music Publishing and a stint as marketing vice president at Napster. “Our role is to help the best content players get to the broadest group of carriers and get them to an audience of billions of people, not just herein the U.S. A lot of the value we’re creating is we’ve basically hired a bunch of people that are key carriers to make those relationships work.”

Two-time Olympic Gold medalist Michelle Kwan was tapped to be the spokeswoman for East West Bank. Kwan will appear in the bank’s upcoming media campaigns. East West Bank officials said they chose Kwan because her pursuit of excellence in the rink reflects the same values as the bank. San Marino-based East West Bank has a branch in Encino.

The Arden Group, parent company of Gelson’s Markets, released its sales and income figures for its fourth quarter. For the quarter ending January 1, 2005, Arden Group Inc. reported net earnings of $3.9 million or $1.16 per diluted share on revenues of $122 million. For the full year, the company earned $34.6 million or $6.70 per diluted share on revenues of $486 million. Earnings for the fourth quarter fell by 48 percent compared to the fourth quarter of 2003 and earnings for the full year rose 36.7 percent versus 2003. Sales in the fourth quarter of 2003 were inflated due to a labor dispute at competing supermarkets, which was settled in February of 2004.