IRVINE, CA—Increased venture-capital funding for fledgling companies, many of which are software firms, allows them to grow and take down larger swaths of office space in Orange County, JLL's SVP Curtis Ellmore tells GlobeSt.com. The firm recently found that high-tech investment volume has grown in this market in five consecutive quarters, with the software industry attracting the highest amount of venture-capital funding. With $467.6 million raised last year as of the end of Q3, total year-to-date funding for that time period in 2015 was 120.1% higher compared to the same time period the previous year, with VC funding concentrated in the Airport Area and South County submarkets. We spoke exclusively with Ellmore about VC funding in the software industry and how it relates to commercial real estate.
GlobeSt.com: Why is the software industry attracting the most VC funding in Orange County?
Ellmore: The software industry as a whole nationally is attracting a lot of capital everywhere, and Orange County is not too dissimilar from other major markets. The software world is moving so quickly, evolving and changing with new apps being developed to be applied to mobile platforms, and on top of that, the industry is trying to keep up with the whole universe of the Internet moving to the cloud and cybersecurity concerns. There's a lot of movement in the software industry as a whole; everything is new and cutting edge. Venture capitalists are attracted to these software companies for deals that can provide them with better returns on their investments.
GlobeSt.com: What is behind the year-to-date increase in VC funding in 2015 to this region over the previous year?
Ellmore: The year-to-date increase is global, but specifically in Orange County, there is a lot of international money and equity looking for returns. They look at all different indexes—the stock markets, real estate, all different types of asset classes—and where these VC firms are looking to place money as an asset class is in the software companies in anticipation of them either getting bought out or going public. By investing in a number of different software entities, they can get quicker and higher returns than in the other asset classes. VC firms raise are looking to place as much capital as they can as quickly as they can.
GlobeSt.com: What do VC funds look for in the Orange County market?
Ellmore: They're not necessarily looking for the market as they are for the companies and the talent behind them. What's great about Orange County is that it is a desired location for people to live in and raise families. Orange County as a whole is inherent of a lot of businessmen and -women who typically want to live in Orange County; that's where their CEOs live and will form companies. VC firms are not looking at regions as a whole, but at the companies themselves, and there are many companies that have organically started here; the talent and labor pool are here, and also it's a desirable place for the workforce to live.
GlobeSt.com: How does VC funding relate to the real estate market in Orange County?
Ellmore: When an Orange County company is a recipient of VC funding, it typically leads to a growth in headcount: more engineers, designers, admin and back-office support. More headcount takes down larger swaths of office space, so it's a positive sign for the CRE market when we see these companies get this funding. Positive absorption leads to a healthier Orange County economy.
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Carrie Rossenfeld
Carrie Rossenfeld is a reporter for the San Diego and Orange County markets on GlobeSt.com and a contributor to Real Estate Forum. She was a trade-magazine and newsletter editor in New York City before moving to Southern California to become a freelance writer and editor for magazines, books and websites. Rossenfeld has written extensively on topics including commercial real estate, running a medical practice, intellectual-property licensing and giftware. She has edited books about profiting from real estate and has ghostwritten a book about starting a home-based business.
