VCJ Cover Story: The Mobile Explosion

Mobile investing is exploding. And as Mark Boslet reported in the latest issue of Venture Capital Journal, funding in the mobile sector through the first 7 1/2 months of the year already exceeds all of last year as investors bet on startups combining mobile, social media and location-based technologies to create services that few can imagine today.

So far, no breakthrough companies have emerged, even as Groupon, Facebook and Google put substantial resources behind their mobile initiatives. But VCs are bullish that they can create some.

“We will see a number of new Fortune 500 companies emerging over the next five to seven years that have mobility at their core,” says Dana Stalder, general partner at Matrix Partners. “None of them exist today, except for Apple.”

The combination of social, local and mobile, so called “SoLoMo,” is “definitely now in the mainstream for venture investors,” says David Cohen, founder of TechStars, a seed-stage incubator. “A year ago, it was still a leading thought. [Now] everybody is out for the gold rush.”

The potential appears huge with the market growing in leaps and bounds. In the fourth quarter of 2010, for instance, smartphone sales rose 87% and outshipped PCs for the first time, according to data from IDC. The research firm expects 53.5 million tablets will sell in 2011.

The recent surge of mobile investing put $3.29 billion in the pockets of Internet-related startups pushing mobile business plans through mid-August, according to an analysis of data from Thomson Reuters (publisher of VCJ and peHUB). At this pace, invested capital for the year in mobile technology could rise to nearly $5.3 billion, well ahead of last year’s $3.2 billion.

Shawn Carolan, managing director at Menlo Ventures, says he is more focused on taking advantage of novel features that make mobile devices fundamentally different than PCs, such as the centrality of voice, GPS location identification, built-in cameras and the ease of device personalization, saving users from repeatedly signing into apps.

But challenges lie ahead. For one, applications seem to breed like rabbits, making discovery of new ones a hurdle. Also hard is determining whether a new innovation is a feature in a broader product or the basis of a standalone company.

In addition, location-based services raise privacy concerns. Another potential roadblock is the issue of spam alerts. Some entrepreneurs fear mobile users will recoil from alert overload and turn off notifications, blocking a communications channel for startups.

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And if you want to chat more about the mobile sector or other hot trends, send an email to Alastair Goldfisher at [email protected].

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