“Mobile is frothy and bubble-like,“ said Rajeev Chand, managing director and head of research at Rutberg & Co.Companies that would have gotten $8 million to $10 million in investments a few years ago are now getting as much as $50 million, he said. “There’s way too much money going into mobile delivery companies. The economics are fundamentally not sustainable.“
Investors have jumped into mobile internet startups as services from dog walking to shopping to food delivery became available via smartphones.In 2014, global mobile data traffic was almost 30 times the size of the entire global internet in 2000, according to Cisco Systems. As a result, mobile internet companies that crossed the $1-billion threshold -known as unicorns -have swelled to about 90 for a combined valuation of more than $800 billion, Digi-Ca pital said in a report last month.
It wasn’t so long ago when there might have been 10 unicorns in an entire decade, said Matt Murphy , a managing director at Menlo Ventures. Venture funders, who typically recoup their investments in five to seven years, may have to wait two to three years longer and perhaps with less rosy results, he said.
WhatsApp represented a bright spot last year when Facebook bought the mobile messaging service for $22 billion. Still, excluding that one deal, the ratio of exits to investments declined for six straight quarters, Digi-Capital said in the report.
While investments in the second quarter amounted to $16 billion, exits were just $13.5 billion, half the $26-billion peak they reached a year earlier, the researcher said.
While in the past, venture capitalists tended to spread their money around, some are now pouring more into fewer companies, and their risks have skyrocketed, said Tom Taulli, a mergers and acquisitions consultant in Los Angeles.
Firms, particularly those that stepped in during later funding rounds when mobile startup valuations were higher, could see losses, and have less money to reinvest.