@MWC: VC firms see potential in mobile apps, offer advice

BARCELONA – Venture capital firms are finding the current rush of mobile application developers a solid segue for shaking off the past 18 months of economic doldrums. Speaking during a keynote session at this week’s Mobile World Congress event in Barcelona, Spain, a trio of representatives from VC firms provided insight into the current market.
“The VC world goes in waves, investing and harvesting,” said Rich Wong a partner at of Accel Partners. The back half of 2009 we had good visibility and positive momentum for 2010.”
All three members of the panel noted that application developers were in general attractive targets for VC funding as they generally ran very efficient operations needing very little upfront money.
“The application ecosystem is very capital efficient,” explained Bob Borchers, partner at Opus Capital. “They don’t need much; just a PC and they can get developing.”
This was countered by comments that the more traditional wireless market was more difficult to fund at the current time due to the generally higher level of funding, and thus greater risk, involved.
But, just because application developers are easy targets for VC firms, the speakers warned that those firms should evaluate if they really need an infusion of capital and increased pressure that comes with the proceeds.
“If you are a small company with low overhead it’s pretty easy to make money,” said Dave Weiden, partner at Khosla Ventures. “If you have a larger overhead and have to pay big licensing fees that makes it more difficult. You don’t want to take on more funding than you need. … We see a lot of companies that should not be looking at getting a lot of money, and should be happy being a successful, small company instead of swinging for the fences.”
Wong added that for those smaller operations a smarter play would be to use friends or families to help fund the operations if possible, that way they could keep control of the operations.
As for a focus of those developers, the panel members said they see a future for both native applications that live on a device as well as those that are browser-based.
“Some apps are better served as a Web app, like banking apps that you may not want on your phone and would rather have them in the cloud,” said Borchers. “But, native apps are also gaining a lot of traction, and I think they will be the most successful in the near term.”
Beyond the general direction of whether to go native or Web-based, the more important question at the moment may be which platforms to support. Apple Inc.’s OS; Google Inc.’s Android; Research In Motion Ltd.’s BlackBerry; Palm Inc.’s WebOS; Nokia Corp.’s Symbian; Microsoft Corp.’s Windows Mobile; Samsung Electronic Co. Ltd.’s new Bada? The possibilities appear endless.
“We run into this question immediately when talking with companies” Weiden said. “It’s a great testament to RIM that they are even in the discussion, though few in Silicon Valley would think that way. Android has so much momentum that they are hard to ignore. It really depends on who your audience is. I have encouraged a number of companies to put RIM first, even in front of Apple. But it depends on what you are looking for: one million paid users or 100 million non-paid.”
Beyond the advice on direction, the panel members also suggested that those firms truly in need of VC funding would do themselves some good by either moving to where the money is or at least having someone on the ground in those financial centers that is in the loop on which VC firms to talk to.
“It’s very important to have a touch point in the Bay Area,” Wong said. “You can have your headquarters anywhere, but you have to consider having a place where the big players are.”