Phoning in a gold rush? Investor appetite in apps starting to resemble dot-com frenzy

Mar 24, 2011
Tech

As more consumers download mobile apps to their smartphones, tablets and other devices, venture capital investors are competing to buy stakes in startup developers that they hope will eventually become multi-billion dollar companies. While the mobile media industry today arguably has as much promise as the Internet sector had in the late nineties, the onslaught […]

As more consumers download mobile apps to their smartphones, tablets and other devices, venture capital investors are competing to buy stakes in startup developers that they hope will eventually become multi-billion dollar companies.

While the mobile media industry today arguably has as much promise as the Internet sector had in the late nineties, the onslaught of venture capital into the app space is allowing a handful of startups to raise money at dot-com bubble-like valuations.

There are no tales of irrational exuberance like Pets.com or theGlobe.com just yet. However, some companies are raising tens of millions of dollars in financing before earning a dime or delivering their first apps to market.

Here are five apps that are helping their developers raise what one day might be recalled as an obscene amount of money. Of course, if any of these apps knock it out of the park, these investments could also become the biggest bargains of the century.

Color

Debuting this week on the iPhone and Android devices, Color is a state-of-the-art photo sharing application that lets users see pictures and videos of others within their physical proximity.

“It’s a crowdsourced visual representation of life,” co-founder Bill Nguyen told VentureWire.

Two years ago Nguyen sold online music company LaLa Media to Apple (AAPL) for $80 million. Because of Nguyen’s pedigree and the app’s state-of-the-art technology, Color Labs was able to go to market having already raised $41 million from several blue chip investors. One of the company’s investors, Sequoia Capital, invested $25 million. This is twice as much as the firm invested in Google (GOOG) during its early days in the late nineties.

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Color can currently be downloaded for free. Nguyen told VentureWire that the company’s plan to make money is not really complete and that the focus is on “advanced technology and the amazing penetration of smartphones already.”

GroupMe

One of the darlings of the 2011 South by Southwest Music and Media Conference, GroupMe is a free group messaging application for the iPhone, BlackBerry and Android devices. The New York-based company, which was founded last year, has raised $11.5 million to fund its service that allows small opt-in groups to send text messages, share images and send locations to one another.

Earlier this month, more than 2 million messages were sent to users attending or keeping up with SXSW activities. The company’s venture capital investors include Khosla Ventures, General Catalyst Partners and First Round Capital.

Inkling

Although not as trendy as photo sharing and group-based messaging, iPad textbooks are getting more than a passing grade from financial and strategic investors. San Francisco-based Inkling publishes dozens of interactive textbooks in the fields of business, economics, and biological science. Traditional publishers McGraw-Hill (MHP) and Pearson (PSO) recognized Inkling’s ability to include video, 3D graphics and social collaboration into their titles and recently led a multi-million investment round in the company. This follows a first round of financing that include Sequoia Capital, Felicis Ventures and Kapor Capital.

The Inkling app is free to download, and then offers the ability to individual chapters or entire books.

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Flipboard

This free iPad app turned a lot of heads last summer when it debuted with $10.5 million in financial backing from Kleiner Perkins, Facebook co-founder Dustin Moskovitz, actor Ashton Kutcher and others. Flipboard does a brilliant job turning posts from Facebook friends and people you follow on Twitter into magazine-like reading displays and photo albums. The Palo Alto-based company is so well regarded, that, according to All Things Digital, it is now out raising a second round of financing “at an eye-popping $200 million valuation.”

Not bad for a company with no revenue yet.

Kik Messenger

A mobile chat service similar to GroupMe, Kik was such a favorite among BlackBerry users that Research In Motion (RIMM) booted the app off its platform as it was taking market share away from the BlackBerry Messenger service. No worries. Earlier this month, the company raised $8 million from Union Square Ventures and others. Kik’s new iPhone and Android updates were also well-received by the SXSW crowd.

Union Square Partner Fred Wilson, also an investor in Twitter and Zynga, told VentureBeat that the app will satisfy anyone with a need for speed.

“(The) product is fast, so frickin’ fast, way faster than anything [on] the market,” he said. “It starts with speed.”

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Brad Spirrison

Brad Spirrison is the managing editor of appoLearning and Appolicious Inc. In this capacity, he has sampled and evaluated thousands of iOS and Android applications. He also holds an M.A. in Education and Media Ecology from New York University.

Spirrison worked in concert with appoLearning Expert and Instructional Technology Specialist Leslie Morris while curating and evaluating educational applications.

A longtime media and technology commentator and executive, Spirrison is also a regular contributor to ABC News, The Huffington Post, TechCrunch, Bloomberg West and The Christopher Gabriel Program.

Spirrison is married and lives with his wife and young son in Chicago. As his son was born just weeks before the debut of the iPad, Spirrison takes his work home with him and regularly samples and enjoys a variety of educational applications for young children.

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