The app economy is booming. So why aren’t mobile-focused companies raising huge numbers of new rounds?
Yesterday, we reported on a recent industry discussion regarding the decline in early-stage fundraising. It’s a topic that Crunchbase News has written about quite often, and we’re bringing it back up again. (We’re nearly done; we promise. But you should also read this).
This morning, a new App Annie report detailing the size of the app economy, in terms of revenue, drove coverage. TechCrunch’s coverage of the report noted that “[c]onsumer spending on all mobile app stores will surpass $110 billion in 2018” and that the expected revenue result is “a 30 percent increase from the year prior.”
Those are obviously big numbers. That the app economy is soon to crest the $100 billion mark (estimated, to be sure) while growing at a 30 percent year-over-year clip is astounding. It implies that that particular market has quite a bit of legs left to carry it forward, and it’s going to end up closer to $200 billion than $100 billion when it levels off.
The data point jogged our memory slightly, however. In our coverage of the recently early-stage funding conversation, we noted an op-ed of sorts that posited a number of interesting hypothesis regarding why the startup market is seeing a decline in earlier investment. To wit, the critical paragraph:
The era of funding apps is over – VC funding rounds grew dramatically after 2010 partly because of rebounding economic activity, but mainly in order to back a raft of B2C apps taking advantage of consumers’ emerging mobile-first behavior. With Android and iOS ecosystems well established, nearly every commercial segment saw a raft of new digital challengers, in everything from lifestyle to health, finance and a raft of special interest categories. Since 2014, early-stage funding for businesses with “mobile” in their description has fallen off a cliff.
Given that the app economy is growing by huge percentages from a simply enormous base, the claim seemed worth checking in on. Here is us doing that.
Mobile Up, Mobile Down
Staying as close to what the quoted piece claimed, I asked our own Jason Rowley to dig up all funding rounds from companies in the Crunchbase database that have “mobile” in their listed description.
To keep our analysis simple, we only looked at funding rounds (no exotics, grants, etc) and picked 2011 as a starting point so that the promised 2014 peak would have some space to breathe. Before you look down, guess the shape of the graph. Now, holding that in your mind, read on.
The resulting chart mirrors the original claim:
This almost feels wrong. After all, you might expect the growing sum of available app revenue to entice more players into the market. Players that would, presumably, require capital to get and keep going.
But that isn’t what we see. Indeed, as the app world has matured, funding has declined. There could be a number of reasons for this sort of retrenchment, but I want to highlight how the above mirrors another category we’ve recently explored.
The SaaS world, as we reported earlier today, is seeing a similar divergence in data. While public SaaS companies are doing well, and setting new valuation records, the funding environment for SaaS startups is slack and falling. You can see the similarity to that in our mobile example.
Now in this case, we followed what the original claim said — we looked for companies that use “mobile” in their company descriptions. As such, we casted an over-broad net that also probably had some holes in it.
(For example, some companies that work on mobile apps simply might skip that part of their description. After all, if you can claim that you put AR in VR on the blockchain using ML-powered AI inside of a container, you’ll probably secure a higher price-sales multiple off your current top-line base of zero. But we digress!)
All the same, the search seems sufficiently cogent to make our point: Certain tech categories that we might expect to be awash in external capital due to their initial TAM estimates coming true are not. SaaS and mobile, two previously preeminent categories, seem to have spawned most of the winners that investors expect. If that wasn’t the case, we’d see more activity, not less.
Top Image Credit: Li-Anne Dias
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