Is Mobile Venture Capital Investment Really Dying?

It seems as though there has been some consensus building around the idea that venture capital investment into the otherwise booming mobile sector has been trending downward. The latest comes from PEHub last week – apparently only just over $2 billion was invested in 204 mobile companies last year, down from $2.5 billion invested in 237 companies in 2007 and $3.3 billion invested in 252 mobile companies in 2006. The data is admittedly imperfect and seems to primarily include mobile infrastructure and mobile-exclusive companies. Given that context, I can’t really question the data, but I do question anecdotal evidence pointing towards less venture investment into the mobile space in general and less attention given to the mobile space by venture capitalists, as the PEHub piece suggests (I'm speaking on a relative basis to other sectors – we know overall venture investment is down).

The reality is that the mobile market is gigantic, growing rapidly and undergoing a major transformation – a perfect storm of driving forces for venture capital investment. Interestingly, it’s the transformation that is skewing mobile investment data and perception. As smartphone adoption continues to grow and the mobile experience continues to evolve- mobile devices are more and more becoming an extension of the internet. At the same time, venture-backed internet companies (and really all internet businesses in general) have increasingly been adapting content/services to be delivered through multiple channels, including mobile (other examples include the use of desktop applications, widgets, social media sites, etc.). Investment going into extending channels of distribution for internet and tech start-ups to mobile users - including developing and maintaining downloadable apps and mobile sites- doesn't get pulled into any mobile venture capital investment tally, giving the perception that venture capitalists are perhaps bearish on the mobile sector. Furthermore, as the web browsing experience on mobile devices continues to improve and the line between apps, mobile sites and regular sites blurs, looking purely at investment data/figures on mobile investment will not tell you the real story.

As mobile becomes another distribution channel for internet content, what you are going to see is mobile-specific services, such as advertising or payments become less relevant. Existing companies will eventually become consolidated into larger advertising or payment networks. This will either happen through the acquisition of mobile-only companies by larger service providers or expansion of mobile-only companies into other areas. For example, let’s say you are a mobile ad company such as admob. As the traditional internet experience starts to meld with the mobile experience, advertisers will be looking for cross-channel ad distribution, and you will be forced to cease being a mobile-only company and have to either expand your offerings or be acquired (meaning you will not longer be considered a “mobile company”). These same principles will probably apply to television and game consoles as the lines between them and the traditional computer and internet experience begin to meld.

So yes, investment into traditional mobile-only companies is declining, but it’s a natural progression. In no way is the mobile space being ignored or underappreciated by venture capitalists. The use of mobile as a channel of distribution and a source of growth will continue, but as the mobile experience evolves, fewer and fewer investments will fall strictly under the category of “mobile.” In fact, its existence as a category for venture investment may cease to exist all together, whether it’s 10, 20 or 30 years from now.

One final note – From meeting with a lot of VCs you find that those with international presence (particularly in Asia) are actually investing more heavily in mobile-specific services such as games right now. In the US, operators get in the way of the distribution channel too much. Although they are starting to work with developers a little bit more as they search for new revenue during the recession, operators in Asia and Europe are much more open and have allowed for much more innovation to take place, resulting in more venture investment into the mobile sector in those regions.