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Venture Capitalists Hot About iPhone Startups

If last year saw the venture capital community chasing startups building around the Facebook platform, this year the new new thing are iPhone application makers. In addition to the $100 million iFund floated by Kleiner Perkins Caufield & Byers, other VCs are getting in on the action.

We recently covered Pelagao, which raised $15 Million from iFund, Reliance Communications and T-Mobile’s Venture Fund. Union Square Ventures and First Round Capital recently invested an undisclosed amount in New York City-based Pinch Media. Add a relatively unknown company, Tapulous, to this growing list that is beginning to get a lot of attention.

My sources are telling me that this company has closed funding from investors like Co-founder Marc Benioff and Jeff Clavier. The company is said to have been valued at around $8 million. Apparently, it was tentatively called GoGoApps, but changed its name recently. What makes this company so special?

First it was started by Mike Lee, a well-regarded Mac programmer who worked on the popular software Delicious Library as part of a company called Delicious Monster. The company’s other co-founder is Bart Decrem, who also founded Flock, a company that makes a browser for optimized social apps. He left the browser maker in September 2006 but has recently re-emerged.

Decrem told Michael Arrington that he was in the process of raising money and his company was making social apps for the iPhone, and they will be launching it over the next couple of weeks. In a story last week, Ars Technica’s Jacqui Cheng pointed out that the company had hired some serious programming talent to work on a “whole family of apps,” including “Twinkle (a Twitter client) and Collage (a realtime collaborative art/photo sharing app).” In the Ars story Lee said, “The focus is on small, beautiful apps, with a focus on bringing people together.” From why I have learned, they have built over 30 apps.

Tapulous isn’t the only one looking for funding. There are quite a few early-stage iPhone app makers that are knocking on the VC doors. One VC joked about seeing half a dozen Loopt-like startups out there. There are several shiny objects on the market with no users, making it hard to fund these companies. Some investors are taking a watch-and-see approach to the sector, mostly because investing in iPhone/iTouch apps will be about market share momentum.

That is a good approach to take. As Simon Brocklehurst pointed out in his analysis earlier this year, the success of investments in device-specific app makers is predicated on the platforms being hugely successful, and selling in large numbers — like 100 million iPhones over the next five years. That still shouldn’t prevent a frenzy resembling the Facebook madness we saw last year.

20 Responses to “Venture Capitalists Hot About iPhone Startups”

  1. ^ says who?

    iphone users are uber geeks and valley tech nerds. aka people who think software should be free and who won’t pay for ANY software.

    iphone software is the new web 2.0. and we know where that ended up (although most of the readers of gigaom are still in denial)

  2. >built over 30 apps.

    That’s one of the things most interesting to me about the App Store, part of what really creates the potential for the App as the new Single. On the desktop today, you can’t develop 30 simple, beautiful apps that are worth paying for separately, and there isn’t a good way to charge for them individually. But put them in a store together along with all the other apps available for the platform and you might just have something.

    @Shrike, iPhone is not ‘the’ mobile platform because of numbers, but because it is so damn difficult to find, buy, install and use applications on every other handset. The point of the excitement here is that the market hasn’t existed in the sense that users were’t buying.

  3. Om, this is a classic VC paradox. On the one hand, a hugely innovative platform, destined to secure a massive global footprint, and owing to the marriage of iPhone SDK with AppStore, you have app builder, marketplace, e-wallet and distribution channel rolled into one.

    On the other hand, very low technical barriers to entry and built in marketing/reach/monetization reduces selling barriers, translating to a “back the winners” strategy as best path in most cases.

    The real opportunity seems to be more at the angel investor level since most iPhone app builders won’t need a big support organization and marketing spend to get a product launched, iterate and find their way to an audience. $500K +/- is a more palatable and profitable way to separate the wheat from the chaffe, and save the VC dollars for expansion capital or more horizontal/business types of offerings.

    Food for thought, and here is a detailed analysis of Jobs’ Keynote at WWDC:

    iPhone 2.0: Swinging for the Global Fences

    Check it out if interested.


  4. Mark T

    …..”Some investors are taking a watch-and-see approach to the sector”..

    If VC’s are telling you this you’re being taken down a dark alley. Most VC’s that have any interest in the mobile space will be investing in the earliest stages of these companies. Don’t think for a minute that VC’s will stand on the sidelines with Kleiner Perkins having earmarked $100M for this platform. Also, the entry of RIMM into the competition will only help increase the reach of dollars for innovative start ups.

  5. Shrike

    While the iPhone has the AT&T anchor around it’s neck, it shouldn’t be overhyped as ‘the’ mobile platform. Until its available on other services, we have to consider the deeply ingrained Blackberry and other key platforms on which so much of the market depends.

  6. Jacquis

    I had two thoughts in my head as I wrote that last comment. I confusingly mixed in the fact about Apple’s App Store being available in 62 out of the 72 countries in which the iPhone will be sold with the total potential customer base of the Carriers partnered with Apple.

    So like the guy above was trying to say… if they were excited by the 100 million US customer limited market served by a single carrier, then they should be even more excited to fund and invest in start-ups that can reach a 1 Billion customer global market base.

  7. Jacquis

    100 Million potential customer base vs. nearly 1 Billion potential customers in 62 out of the 70 countries the iPhone will be available in by years end.

  8. 100 million iPhones last year is a great reason for all these ap developers to get behind the platform.

    I just wonder, though, are we stifling creativity and technological advancements of other phones, such as the new Samsung Instinct or the soon to exist Android OS because we are hoisting iPhone so high?