Early stage funding flows to mobile content companies

Venture capitalists have heavily invested in recent weeks in developers of rich content applications for wireless phones, as they bank on expectations that sluggish adoption rates for bandwidth-intensive apps, such as mobile video, are poised to ramp up.

Over the past three months, investors have poured more than $160 million in companies that add video, advertising, social networking and other features to mobile handsets. Funding activity remained brisk this month, as Frengo, a maker of social networking services for cell phones, and Quattro Wireless, a developer of ad-supported mobile websites for publishers, each closed early stage rounds. Redwood City, Calif.-based Frengo raised $3.4 million from Index Ventures, Khosla Ventures and Trilogy Equity Partners, while Waltham, Mass.-based Quattro raised $5.75 million in a Series A round that included Highland Capital Partners.

David Chamberlain
, principal analyst at market research firm In-Stat, says that mobile video service options are poised to expand. In-Stat projects that the number of commercially launched mobile TV broadcast networks will grow from nine in 2006 to 13 this year. The research firm also predicts that the number of mobile TV broadcast subscribers will reach 125 million worldwide by 2011.

The growth predictions are based on how U.S. cellular service providers are hoping to boost their core voice and messaging revenue with such add-on features as music videos, song downloads and news clips. Up until now, however, consumer adoption of next-generation mobile content applications has proceeded more slowly than venture investment.

But not any more. Venture capitalists are boosting their investment in leading players. Amp’d Mobile, which sells broadband wireless service and handsets, raised $108 million in March from Columbia Capital, Highland Capital, Intel Capital and Redpoint Ventures, bringing its funding total to more than $300 million since 2005. GoTV Networks, which provides multimedia content to mobile phone users, raised $12 million in the same month from Qualcomm and Motorola. Hands-On Mobile, a San-Francisco-based wireless entertainment company, raised $10 million in late March from Bessemer Venture Partners, Institutional Venture Partners and Draper Fisher Jurvetson.

Advertising and social networking applications of mobile phones are also getting a boost. Bertelsmann Capital Ventures and D.E. Shaw Technology Ventures took part in an $8 million early stage funding round in April for Emotive Communications, a developer of interactive ringtone technology. AdMob, which runs a mobile advertising network, raised $15 million in late March from Sequoia Capital and Accel Partners.

Mobile content companies have also scored a few exits. Earlier this month, Microsoft Corp. purchased ScreenTonic SA, a Paris-based mobile advertising company backed by 3i Group and I-Source Gestion. One month earlier, Microsoft acquired Tellme Networks, a developer of voice-accessible data services backed by The Barksdale Group, Benchmark Capital, Bowman Capital, Kleiner Perkins Caufield & Byers and Pantheon Ventures.

In-Stat’s Chamberlain says that there is profit potential for some advanced applications, such as for mapping tools that piggyback on GPS location-tracking chips commonly embedded in phones sold in the United States. One of his favorites is the mobile mapping service offered by Santa Clara, Calif.-based TeleNav. The company raised $30 million in late stage funding last year from iGlobe Partners, Menlo Ventures, Sycamore Partners and Lehman Brothers Venture Partners, according to Thomson Financial (publisher of PE Week).

As for mobile video, Chamberlain is less optimistic. He cites surveys carried out by his firm indicating that the vast majority of consumers are not interested in viewing video clips on their mobile phones.

“I don’t see people beating the doors down to get mobile video,” he says. “That has been a supply-side initiative, rather than a carrier initiative based on what consumers are looking for.”