With the end of the technology boom, venture capital that once fueled Sonoma County's startup businesses has largely dried up.
Now, entrepreneurs are looking to other funding sources, including local "angel" investors who typically provide smaller amounts of seed money to promising startups.
"The venture companies have not been putting money into early stage companies here," said Chris Lynch, who heads an economic development program for the Santa Rosa Chamber of Commerce. "It's got to be angel funding right now."
At the height of the tech bubble in 2000, venture funds pumped $621million into 22 companies in Sonoma County and other communities in the 707 area code.
Funding has dropped sharply since then, with $161million spent on 16 companies in 2005, according to Dow Jones VentureOne, a research company that tracks private equity deals.
In the first half of 2006, there have been only two deals, worth $16.5million.
"It's a tough environment," said Jerry Gladstone, a retired Agilent vice president who heads the new Sonoma Mountain Business Cluster in Rohnert Park, an incubator for startup companies.
"Most startups are too small to attract venture capital," he said. "The smallest check they write is $5million."
The Chamber of Commerce is sponsoring a conference in Santa Rosa next week on funding for startups, with representatives from venture and angel funds.
Entrepreneurs must get creative about raising startup cash, said Jon Gregory of Golden Capital Network, a Chico-based nonprofit agency co-sponsoring the Oct. 18 event. Venture funds now focus on more established businesses, he said.
"It's too risky for venture funds to invest at the seed stage," he said. "As venture funds get bigger, the deals they do have to get bigger. What used to be a $1.5million deal is now $5million or $7million. It leaves a void at the seed stage."
But angel funds are starting to fill the gap, said Gregory, whose organization has helped startups raise $400million in angel financing since 1999.
At next week's event, startups will get a chance to present their products to investors looking for business opportunities.
Sebastopol startup Clairvoyante Inc. was one of only two businesses in the region to get venture funding in the first half of 2006.
Clairvoyante, founded in 2000, is developing technology to improve brightness and cut power consumption for flat-panel displays used in cell phones, cameras, media players, tablet PCs and other digital electronics. Clairvoyante received $7million in a third funding round led by American River Ventures.
The startup, founded by Sonoma County resident Candice Brown Elliott, has grown quickly, moving most of its operation to Silicon Valley in recent years. But Clairvoyante maintains a research and development lab in Sebastopol.
The company licenses its subpixel technology to chipmakers and display manufacturers around the world, said Joel Pollack, Clairvoyante's chief executive officer.
It has grown from just two people to 16 as manufacturers adopt its technology for the next generation of digital gadgets. With the explosion of data, video and still images on tiny screens, there's a growing need for luminous displays that don't sap battery life, Pollack said. Clairvoyante's technology delivers "a dramatic improvement in brightness and power consumption," he said.
The company has raised $20million in venture funds since 2000, enough to commercialize its technology and reach break-even status in the next two years, Pollack said.
Sonoma County's home-grown angel network, North Bay Angels, continues to fund local startups, said Steve Weiss, a Healdsburg investor who is chairman of the group.
North Bay Angels traditionally focused on technology startups, but it's expanding into other sectors, including food, wine and health care.
The group has funded four startups this year, including two wine businesses and a tech company that focuses on network security.
"We're not back to the crazy days of the bubble, but it feels like there's a lot of money out there," Weiss said.
North Bay Angels also is teaming up with other regional angel groups to fund more ambitious projects, Weiss said.
Most local deals range in size from $350,000 to $750,000, he said. That's often enough for the new generation of Internet-based startups, which don't require massive infusions of capital, according to the chamber's Lynch.
"With the deepening of the Internet platform, it's a lot cheaper to get companies off the ground," he said.
Many startups can cut costs by outsourcing their software development, engineering and manufacturing, Lynch said. It's especially true of Internet companies, where employees at widely scattered locations communicate by e-mail.
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