Mobile Entertainment

The huge reserves of giants like Microsoft, Google, Nokia and others – and their willingness to splash it on start-ups like these – makes mobile content more attractive to investors than ever.

There’s been steady increase in VC activity after the 2000 dotcom crash. In the US alone, VC investments hit $29.4 billion in 2007, the highest annual total since 2001, according to the National VC Association. Unsurprisingly, mobile accounts for a good chunk, with giant funds like Benchmark, Apax and Sequoia scouring the sector for targets.

Indeed, many content insiders have switched sides to help them. Mitch Lasky, the former CEO of Jamdat Mobile, departed for Benchmark shortly after the VC helped sell Jamdat to EA, while Paul Palmieri left Verizon to join Acta Wireless.

In Europe a host of companies is affiliating itself closely with the space. UK investment bank GP Bullhound has completed over 60 transactions in the technology sector since 1999, and they include Cellectivity, Mobile Commerce and others. Then there’s DN Capital, an investor in Eyeka, Digital Chocolate, Shazam and others. Market watcher Library House identifies 62 European mobile content VC deals in 2007, worth €176.7 million.

Precise figures for mobile content investment worldwide are hard to pin down, although consultancy Rutberg says VCs invested $4.9 billion in 371 rounds for the overall wireless industry worldwide last year. Meanwhile, of the $2.7 billion in venture financing in the first six months of 2007, 30 companies announced rounds of $20 million or more. And the content space has its own examples of huge rounds, with MobiTV raising over $100 million, Picsel raising $46.5 million in one round and Hands-On bagging $30 million in its third round alone.

Although 2007 had its casualties, the general feeling remains pretty positive. Don’t forget, the VC’s aim is not necessarily to create a profitable company, but to sell for much more than it put in. And as long as companies like Nokia are swooping for targets like the VC-funded Enpocket, then those high profile busts will not deter the investors. Indeed, Rutberg says that during February 2008 alone, wireless companies announced $515.5 million in new financings.

If the travails of Amp’d and the like won’t deter VCs, what of the general macro-economic gloom? Mike Reid, of 3i in the UK, believes investors take a longer view. He says: “Top level VCs get seven-year commitments from pension funds. They don’t wobble because of a short-term problem in the debt market. But I do think there could be more time spent on existing businesses than on new ones in 2008 and 2009, because 50 per cent of businesses will be behind plan and 80 per cent will want more money.”

As for which sectors attract most interest, it’s safe to assume that the VCs will gravitate towards the same areas as the blogs, conferences and – yes, the trade press: advertising, social networks, location. Reid says: “VCs aren’t immune to hype. There can be a sheep like mentality, just like there is anywhere else.”

Indeed, it’s wrong to think of all investors as possessing a detailed understanding of the market, no matter how fiscally intelligent they may be. Jeremy Copp, CEO of mobile ad firm Rapid Mobile, which recently raised £2 million, says: “We were regularly asked about iPhone and Google Android, even though neither is hugely relevant to what we’re doing.”