Venture capital craters for early stage mobile apps
On an annualized basis, "A" round of financings for mobile companies fell 91 percent, from $405 million in the first nine months of 2009 to $37 million at the same point in 2008, a truly staggering decline. And it's not as if 2008 was a stellar year for venture capitalists, either, as the U.S. economy began imploding and limited partners began to default on capital calls in droves.
Venture capitalists speaking on a panel at the conference blamed the downturn on difficulty of creating killer apps for the iPhone and dealing with monolithic and change averse mobile carriers. "We were infatuated by the iPhone and the opportunity for some sort of killer app to come out of the App Store. The App Store has been great for Apple and for small developers but it hasn't been good for venture capital and venture funded startups," says Mitch Lasky, a general partner at Benchmark Venture Capital and the CEO who led mobile games startup Jamdat to a $680 million acquisition.
Panelists also said that part of the lack of funding reflects a new reality in the mobile development space where smaller teams with less money can more easily build products and compete. "Mobile startups don't require as much capital as before. It's easier than ever to launch a mobile startup. Even if you don't get awareness, you can easily get fulfillment in the App Store," says Rob Coneybeer, a general partner and co-founder at Shasta Ventures.
This dramatic decline comes as the VC industry goes through a rough patch. Even top VCs have estimated the entire VC universe in the U.S. will need to shrink by 50 percent to come back into historical balance. Still, the decline mobile startup fundings is far more than 50 percent and recovery to even half of the pre-bust levels will likely take several years. In the meantime, cell phone idea geniuses in Silicon Valley are still knocking on VC doors but are closely considering other options to fund their mobile Web startup dreams.