Chubby Brain_Logo

The iPhone Inspired 2nd Economy: Over $100 Million Goes from VCs to iPhone Startups




Warning: Illegal string offset 'keywords_time' in /home/chubbybrain/public_html/blog/wp-content/plugins/internal_link_building.php_/internal_link_building.php on line 103

iphone-moneyWe recently revealed that $23.3 million had flown to Twitter-oriented startups from venture capitalists and angel firms (as of May 2009). Arguably, the other hot story in tech land is the iPhone and so we wanted to peer into the ChubbyBrain startup database and see how much money has been invested in startups predicated on the iPhone platform.

A brief recap
Applications for the iPhone were initially released in mid-2007 on iTunes when there were merely 500 available for download.  Earlier this year, Apple saw their one billionth download from the App Store.  Today, less than two years after the iPhone’s launch, the number of applications on the Apple App Store is greater than 50,000 according to some estimates.

Of these applications, it’s evident that a significant portion of them reside in either of two extreme ends of the spectrum that are likely not relevant to the VC/angel investing community: 1) established companies seeking some sort of presence on the iPhone to increase their brand’s awareness or product/service reach or 2) individual developers building cheap, viral applications who are enthusiasts/hobbyists or those hoping to catch lightning in a bottle.

But what about the middle of the spectrum?  Who are the startups looking to build scalable businesses with the iPhone at the core, and more specifically, who is funding such efforts?  After a look into the ChubbyBrain database, we identified $102.49 million in total VC/angel investment divided amongst 17 iPhone application startups (as of June 29, 2009). Perhaps this $100M+ number isn’t surprising given conversation that the iPhone may be bigger than the PC, but over $100 million in the span of less than two years for iPhone predicated startups is noteworthy. Or perhaps for some of you, this number is a lot less than you expected?

The following analysis takes a deeper look at these investments with a focus on what startups are receiving money, which investors are supplying funds, the amounts of these investments, as well as other interesting trends/statistics that may have implications for the future in this space and/or be helpful to investors or app developers hoping to understand what has gone on to-date.

It’s worth noting that we limited the scope of this study to startups whose core functionality/capability is centered on the iPhone.  For example, Facebook is a venture-backed company who also have an iPhone application.  However, they do not qualify for inclusion in this study because their iPhone Application is complimentary, not core, to their business. Admittedly, this delineation was a bit of art and science but our aim was to remove those startups who might be building mobile apps or tools across platforms, e.g., iPhone, Android, Symbian, etc or where the iPhone element was complementary but adjacent to their core business. And so our $100 million number focuses on those startups who are tethering themselves in a large way to the iPhone platform.

So far, Kleiner Perkins Caulfield & Byers leads the way with $50 million committed across six startups.  This is, in large part, due to the $100 million iFund they launched in March 2008 with the specific goal to target the quickly expanding iPhone app market.

(Please note: To learn more about funding amounts, date of investment, etc, you can click on the company/investor widgets at the end of this analysis)

iphoneinvestmentlist


The aggregate statistics for these 17 companies are given below.

databreakdown

This table enables us to see that the median and average level of fund is relatively close but that there are multiple “large deals” that have taken place. iControl pulled down the highest single investment at $15.5 million, taking in a total of $20.5 million total for the company.  Just behind iControl is Pelago which took in $15 million in Series B funding. Both Pelago and iControl were funded out of KP’s iFund. From here we are able to look at the large disparity in funding between angel and venture capital investors over a period of time.

angelvcbreakdown1

We then broke down the 17 companies into individual industry categories and so the 2 charts below show this industry breakdown by number of investments and the percentage of money invested in each industry category. breakdowncompaniesperindustry2 ofmoneyinvestedinindustry1

These two charts show some interesting correlations between companies and investment trends. For the most part, the number of investments ties well with the amount of funding. Of course, large investments like those in iControl and Pelago do have the ability to impact the charts so it is worth looking at both the absolute number of startups funded and the money invested as you evaluate what areas are relatively hot within the iPhone ecosystem.

We also took a look at when these investments occurred as the graph below illustrates showing investments per month over the last three years.

numinvestments

Next, we took a look at number of investments per month against the interest in “iPhone Apps” and the “iPhone” more generally using Google Insights data as a proxy for interest. Google Insights offers a glimpse into how many searches have been done for a particular term, relative to the total number of searches done on Google over time.

interest2

It is worth noting that the large spike (blue line from Google Insights) in July of 2008 is the opening of the App Store. It can also be seen that there is an increase in investment activity after the opening of the store to customers.

interest1

Although the amount of investment activity has increased after the launch of the iPhone store, we do see that some of the largest investments iPhone predicated startups did come before the opening of the App Store.

Finally we took a look at iPhone startup related investments vs. quarterly iPhone sales reports. amountinvestediniphoneappsvssold1

After studying the “Amount Invested in iPhone Apps vs. iPhones Sold”, it is interesting to note that the number of iPhones sold mirrors the amount invested, but with a lapse of 4-6 months. The amount invested may or may not have any direct impact on iPhones sold but it seems to reveal a unique and interesting trend between the two metrics. Of course, this is with limited data so as we track these metrics over time, we’ll see if the pattern continues.

It will be particularly interesting to see where the funding levels go especially since this report comes within days of the release of the iPhone 3G S on June 19th 2009. Although the quarterly data is not yet available, there are reports that Apple has sold more than one million iPhone 3G S units on its initial weekend of sales.

With the release of the iPhone 3G S just a week ago, and speculation that over one million iPhones already sold in the first weekend, it will be interesting to see if an upward trajectory for iPhone-related companies will continue. We will revisit this analysis in several months to see how this study and the trends we’re currently seeing are faring at that time.

If you have ideas on where you see the iPhone funding trend going and which industries you feel will remain hot going forward, do leave a comment with your hypothesis.

If we’ve missed any startups that have been funded which you feel should be included, please let us know in the comments or via email to team(at)chubbybrain.com.

We look forward to your ideas and insights.

You can leave a response, or trackback from your own site.

Leave a Reply