Advertisement

Show Me the (Mobile) Money

Venture capitalists are spending big to get the hottest companies

Illustration: Tavis Coburn

Advertisement

Every year of the past decade has been declared, in some capacity, the Year of Mobile. That includes this year, which is when smartphone penetration is expected to surpass 50 percent. (In 2010, comScore pegged U.S. smartphone ownership at 27 percent.)

Rabid excitement for mobile media has managed to outpace the sector’s growth, a fact reflected by increasingly large cash infusions from venture capitalists. In the first quarter of this year, 81 companies raised $616 million; that’s almost double the amount raised in Q4 of 2010 and triple the amount in Q3 2010, according to VC database CB Insights.

“There’s a lot of capital chasing only a handful of interesting and compelling companies,” says Pratik Patel, vp at investment bank Gridley & Co. The limited range of prospects leads to an inevitable result: “The valuation goes north very quickly,” Patel adds.

High premiums would normally turn off value-seeking venture investors, but the ends justify the means when strategic players like Google, Apple, and eBay are eagerly buying their way into mobile technology, regardless of cost. That makes for some juicy exits.

Following sales of companies like AdMob (to Google), Where Inc. (to eBay), and Quattro Wireless (to Apple, where it became iAd), investors are hot, in particular, for mobile marketing analytics and platform plays. They’re also closely watching “m-commerce,” and payments companies like Square, which develop technology to make it easier to shop with mobile devices.

Less enticing? Content plays, which have been limited thus far to gaming. “The interest is there, but VCs fear it’s hard to repeat good content in the form of games,” Patel says. Despite market bullishness, several of the largest recent deals have been in content and gaming: Foursquare, mobile Q&A service Cha-Cha, and game developer TinyCo each raised outsized rounds in the past year.

While most venture players fold mobile plays into their traditional funds, the app world has spawned a few highly specific vehicles. Kleiner Perkins Caufield & Byers recently doubled the size of its Apple-focused iFund, and DCM last month unveiled its Android-focused A-Fund. The recent surge in Android adoption creates a tricky situation for the iFund: Kleiner Perkins admits that most of its iFund companies aren’t actually Apple-specific, since they also develop apps for Google’s Android operating system.

Mobile Venture Capital

Firm
Headquarters,
Latest Fund,
Amount Raised,
and Vintage
Focus Notable
Deals
Accel Partners
Palo Alto, Calif.
Accel Growth Fund, Accel London III
$480 million,
$525 million
2008
Accel’s investments span a variety of digital-related verticals including mobile in Europe, Asia, and the U.S. The Cloud, iPass, AdMob, Go Networks
Comcast Interactive Capital
Philadelphia
$500 million
under management
Invests in digital media and communications technologies
including platforms and ad networks.
JiWire, 4INFO, Greystripe, Bubble Motion   
DCM
Menlo Park, Calif.
A-Fund
$100 million
2011
Backed by Japanese mobile carrier KDDI, mobile-gaming company Gree, and Chinese Internet company Tencent, the A-Fund will invest in companies developing software related to Google’s Android operating system. The fund launched last month and has not yet announced
a deal.
Kleiner Perkins Caufield & Byers
Menlo Park, Calif.
iFund
$200 million
2008
Makes stage-agnotistic investments in location-based services, social networking, mobile commerce, communication, and entertainment companies serving the iPhone, iPad, and iTouch. Zynga,
Twitter,
Pelago, Shopkick
New Enterprise Associates
Menlo Park, Calif.
NEA 13
$2.48 billion
2010
Within its information technology domain, NEA, the world’s largest venture firm, focuses on early stage and growth equity investments. Brightkite, Loopt, Millennial Media, Motricity
Nexit Ventures
Helsinki, Finland
Nexit Infocom II
$122 million
2008
Nexit Ventures backs Nordic and U.S.-based mobile and wireless communication companies, exchanging best practices between the regions. Brightkite, Bitfone
Nokia Growth Partners
Menlo Park/Helsinki
$250 million
under management
Fully backed by Nokia, invests exclusively in growth-stage mobile companies across subsector. Kyte, Swype, Rocket Fuel
Research
In Motion

Toronto
BlackBerry
Partners Fund II
$150 million
2011
Working with Research In Motion, Thomson Reuters, and Royal Bank of Canada, the fund invests in device, platform, and stage-agnostic mobile computing companies. Digby, SocialDeck, Doppelgames, LocalResponse, Payfone
Sequoia Capital
Menlo Park, Calif.
Sequoia Capital 2010
$1.35 billion
2011
Part of a broader investment mandate, Sequoia Capital’s mobile practice focuses on application, communication, device, gaming, and monetization startups across stages in the U.S., China, India, and Israel. AdMob, Bump, Jawbone
T-Venture
Bonn, Germany
T-Mobile Venture Fund
$142 million 
(2011 est.)
NA
Acting as the venture arm of Deutsche Telekom and Creathor Venture, the fund invests in infrastructure companies and application makers with the intention of supporting T-Mobile’s supplier relationships. BelAir Networks, Mobile Commerce, Netbiscuits