Despite downturn, venture capitalists still bullish on mobile

Times may be tough, but no so dire that venture capitalists have abandoned the mobile sector--just this week alone, mobile broadcast provider Roundbox [1] announced the close of a Series C financing round valued at $20 million, and mobile search engine Taptu [2] trumpeted a $9.8 million Series B round of its own. The state of mobile venture financing was the subject of a panel Tuesday at the Orange Partner Camp mobile development conference in Cape Canaveral, Fla., and while the economic downturn has clearly forced investors to reconsider their perspective on the industry, all agreed capital financing is still there for application developers with innovative products, strong management, competitive differentiation and a powerful value proposition.

"The ecosystem is changing--all venture capitalists are talking about now is capital efficiency," said Eric Ver Ploeg, managing director for VantagePoint Venture Partners. "You can't talk to a VC without talking about capital efficiency." According to Ver Ploeg, the balance of power in the mobile industry is also in flux: Where operators once called the shots by controlling all access to the subscriber, the introduction of Apple's App Store and other digital application storefronts has given developers a direct-to-consumer channel that circumvents carrier domination. "You're no longer beating your head against a closed system," Ver Ploeg said. "We're seeing the emergence of new opportunities. The overhead is lower, so entrepreneurs are rushing in."

The preponderance of cheap and free App Store applications nevertheless remains a challenge to startups looking to the iPhone platform to launch their business, said Matt Golden, senior member with the BlackBerry Partners Fund. "Can you build a business around the iPhone? I don't think so," Golden said. "With 10,000 other apps in the App Store, how do you market [your application]? How do you find it? Or can you keep it small and still build a real business?"

Smule, a development startup that has enjoyed significant success with its Ocarina musical iPhone application, was a topic of considerable discussion. "[Ocarina] brings back memories of ringtones, where it seemed like people were making money almost by mistake," said Martin Duval, CEO of bluenove. "This is what's happening now--you can make a lot of money even if you have no business vision or plan. Smule doesn't even know what it's doing next." The changing economics of mobile development have also afforded developers more latitude to make mistakes, Ver Ploeg added: "We've got a lot of people trying different stuff now," he said. "The truth is most things fail. But if it doesn't take a lot of money to develop, that's great. That's where the opportunity exists."

Grim economic conditions also present the perfect opportunity for developers with a truly revolutionary concept to attract venture attention, Golden said: "There are fewer competitors in an tough economy." He said BlackBerry Partners Fund is focusing its investments on firms that ratify four major themes: The smartphone is the next computer; the smartphone will replace the wallet; new services will require sophisticated software; and users will create, consume and discover content via mobile device.

Panel moderator Larry Berkin, vice president of ecosystem and corporate business development with software technologies provider Access, closed the formal discussion by spotlighting the roll call of mobile firms with recent venture wins, among them mobile advertising marketplace AdMob [3] ($15.7 million in Series C), mobile video services provider Transpera [4] ($8.25 million in Series B) and mobile video messaging platform provider Mogreet [5] ($5 million in Series B). Berkin nevertheless expressed some concern for the future given the economic downturn, citing a fear of what he called "cashtration"--i.e., financial impotency. No doubt it's even more painful than it sounds. -Jason [6]