Areas of Mobile VC Investment

I recently conducted a deep-dive into VC investment trends in the mobile and smartphone space. There has clearly been a marked increase in investment activity in this sector since the smartphone revolution led by the iPhone started off in 2H 2007.

To understand which mobile subsectors these VC investment dollars have been going, I looked through VentureXpert data of all available VC investment transactions in the US since Jan 2008. I first filtered down that long list to all mobile transactions using some key words on the company description. I then filtered down to select only early to mid stage investments, giving a total of 87 startup companies meeting these criteria. I then manually classified each funded company’s line of business into one of few areas (such as content, infrastructure, enterprise etc). The final results are below:

The resulting breakdown is not unexpected (and aligns with recent analyses of iPhone investments), but here are some interesting highlights:

• The largest bucket was that of content-focused startups. This includes content production companies such as Booyah, location focused companies such as Buzzd and interactive TV providers such as kyte
• There’s an uncomfortably large crowd in the venture funded mobile payment/mCommerce space. The hope here is to disrupt the $60B credit card space, and more investments continue to be announced as we speak
• Lot of activity in other consumer focussed or related areas such as gaming, social media, advertising.
• Hardware and network infrastructure continue to be bellweathers of VC mobile investments, as the need for both larger pipes and better device components continues to explode.
• There has been an uncanny lull in spaces such as enterprise-focused mobile companies and those focused on areas such as smart homes/ sensor networks. There are both potentially large markets, but VCs have shied away from these areas – which in my experience is largely due to adoption challenges, lack of precedents in these areas.

My view is that these enterprise focused mobile plays should see a lot more activity shortly – as other spaces continue to get overcrowded, and the smartphone value proposition (beyond email) percolates deeper into the enterprise. The Smart home and sensos network space also appears close to its inflexion point (finally).

How does this align with what you have seen?

PS: Classifying companies into narrow functional areas is highly subjective. First of all, it’s hard to even classify startups as ‘mobile focussed’ or otherwise, as many digital media and internet startups have a sub-focus on mobile. Second, the functional buckets I have chosen are arbitrary. The goal was to have a broad picture of the space, for which this should suffice.

Tim Draper on Indian VC Scene, Drought of VC backed IPOs et al

A few days back I came across this interview with Tim Draper: part 1 and  part 2.

Tim is a real maverick, innovator and risk taker if there ever was one. Not only has DFJ backed some truly pathbreaking innovations, but they have also led some innovations in the VC industry itself – globalizing through their affiliate network is one good example. 

Here is one statement from the interview, that I couldn’t agree more with: “[India is] a fantastic country, with huge opportunities, very large marketplace and a group of highly educated people. The culture is incredibly entrepreneurial. I don’t know what you guys did during that time before the free market, but you really know how to deal with a free market.”

Party like it’s 1999, and then cut costs like it’s 1929

Tech blogs are full of posts about layoffs at startups and tech companies. On the face of it, there isn’t anything surprising about these, given the times that we find ourselves in now. These news items are eerily reminiscent  of stories from the 2001-2004 time frame, when counting layoffs was every tech journalist’s most significant activity.

However, I am surprised and appalled at how we as a society fail to learn lessons from downturns, especially given how close on the heals of the previous one this recession has arrived. I have interacted with several VC-funded startups in SF, Philadelphia, India and elsewhere over the past year, and I was continually amazed at how these startups (especially the ones in bay area) were spending VC money by boatloads. Many of the startups in the list cited above literally doubled or tripled their headcounts in the last 6 months. Premium beverages and food were free flowing even where revenues were non existent or growing rather slowly. 

In all due respect, I believe that VCs and managers at some of these startups could have done a much better job of scaling costs linearly, rather than exponentially, even during ‘good’ times. No one could have predicted the extent of the current downturn, but I am a firm believer that startups need to be lean and fighting fit at all times.