Mobile Bucks VC Tech Investment Fatigue

By Pete Rizzo (@pete_rizzo_)  

Mobile startups continued to capture venture capitalist (VC) interest heading into the holiday season: In just the past few weeks, startups like TapCommerce, Sift and The Hunt all capitalized on the trend, netting $18 million for novel takes on mobile shopping solutions.

The recent wave of funding follows a particularly active third-quarter in which the mobile and telecom sector received a record-setting $1.1 billion on 150 deals. However, new data from CB Insights further suggests they’re also bucking another key trend – the follow-on investment fatigue common to tech investors.

CB Insights analyzed follow-on funding rates among tech companies seeded between April and September 2012 in a report released November 3 to determine which industries VCs regularly provided additional investments at later-stage rounds.

Of the more than 750 seeded tech companies to receive funding, social media startups were revealed to have the worst follow-on rate, at below 20 percent. Conversely, customer relationship management and photo startups, two technology sub-industries that have been heavily influenced by mobile, saw follow-on rates near or above 50 percent.

Together with past data on mobile sub-industries, the reports paint a clear picture of the mobile startups likely to receive investments following initial funding.

Top Mobile Sub-Industries By Deal Volume

With mobile continuing to gain momentum with consumers both for in-store shopping and online purchases, VCs have been quick to reward startups that capitalize on the technology and its potential. However, certain sub-industries have garnered more favor.

As illustrated in this graph, CB Insights indicates that mobile customer relationship management startups accounted for the highest amount of deal volume.

Together, the three top sub-industries received nearly 20 percent of all mobile deals.

Top Mobile Sub-Industries By Follow-On Investment

Of the top three mobile sub-industries, mobile project management startups were found to have the highest follow-on rate. Payments companies were further divided in this subsequent report. eCommerce enablement companies, for example, saw a roughly 25 percent follow-on investment.

A closer look at the top follow-on rates reveals customer relationship startups have the best chance of receiving both high deal volume and late-stage funding.

Is A Mobile Payments Bubble On The Way?

While these trends could be viewed as positive, due to the high levels of investment in the space, some commentators disagree. Merchant Warehouse CEO Henry Helgeson suggested in Forbes that a mobile payments bubble could be forming, one similar to the bubble most recently observed in the subscription commerce sector.

For more of Helgeson’s analysis on mobile payments, read his statements on the future of digital wallets here.