Brief Thoughts On Trends In Mobile App Investing

If you observe the intersection of mobile and investing today, you may have noticed a new trend among mobile startups to extend their beta periods. I’ll explain why I think this is happening. One, mobile is clearly a huge, huge secular platform shift with new gatekeepers and high-growth. And, more growth is coming. This causes an influx of capital and excitement into the category. For teams with relevant skills and a decent enough concept, getting seed/angel money to start fiddling with a prototype is quite easy. There’s more than enough capital to go around for these smaller rounds, and you’ll see VCs increasingly in the game. However, two, despite the excitement around how “big” mobile is, today mobile distribution (for a variety of reasons) remains extremely hard. The larger funds have mostly decided, for now, to quickly identify potential winners and chase them rather than betting on what could breakout. It’s a rational move when considering an example like Snapchat and the company’s financing trajectory, for instance.

So, between one and two, there’s a bit of room, and savvy mobile founders with the right talent and networks are using the space to their advantage, but not without risk.

Here, the founders build, test, and release their app (after seed funding) into a tight alpha group. Consider alpha testers to be very close friends of the company, the type of friends who would not share secrets but give pointed product feedback to the founders. When kinks are ironed out in the product, and if the founders feel good about it, they are faced with a curious choice: Option (A), put the product into a slightly wider but still small beta and quickly put the app into the general market but be subject to scrutiny on metrics; or Option (B) use their network of connected product advisors, investors, bloggers, and insiders to release a wider beta where a controlled group will use and hopefully talk about the app — so much so it triggers pre-emptive financing discussions, as investors don’t want to miss out on a great app right at the point of inflection. In Option (A), the risk is that mobile distribution is so hard, the likelihood of a major pivot or M&A or worse looms large. In Option (B), the risk is the insiders won’t take to the product or that the perception (signaling) that other investors don’t like the app enough to create a market for the investment. Over the past year, I’ve seen more of Option (B) being played by experienced, connected mobile founders in the Valley and NYC. It’s not an approach many people can execute on or pull off successfully, but the extended beta period, in effect, acts as a controlled environment to have a more sane fundraising campaign that can focus on a broader vision besides apps that sit in our pocket and isn’t beaten down by the lopsided metrics in the mobile app stores. To clarify, I’m not suggesting mobile founders employ A vs B, but just sharing what I’ve seen playing in the game.