Hope and fear drove $120B mobile internet deal explosion

March 8, 2015

Burning Man 2006

Hoping for 700 billion dollars mobile internet revenue, and fearing over 30% online cannibalization, mobile deal makers shattered records last year (as reported in Digi-Capital’s Mobile Internet Investment Review). There were 120 billion dollars of mobile internet deals ($32 billion early stage investments, $90 billion exits) in 2014. Or three times Apple’s net income. Individual mobile internet sectors saw up to 42x average 3 year investment returns. Party time for mobile entrepreneurs and investors.

Drinking from the fire-hose

Mobile internet investments

A heady cocktail of VCs, private equity firms, banks and corporates competed to invest over 32 billion dollars in mobile internet startups last year, fuelling the engines of growth in not just mobile but the entire tech market. 12 billion dollars of new money dropped in Q4 2014 alone, topping two and a half times the same quarter a year ago.

mCommerce raised $8.4 billion, travel/transport $6.8 billion, and social networking $2.3 billion. Utilities, finance, food and drink, games, wearables and lifestyle each raised over $1 billion. Tech, enterprise/B2B, messaging, advertising/marketing, medical and photo/video each raised over half a billion dollars, with 12 other sectors swallowing $1.7 billion more combined.

It looked hard to not raise money in mobile if you were doing something interesting last year.

Exit through the gift shop

Mobile internet exits smashed through 90 billion dollars ($65 billion mergers and acquisitions, $26 billion IPOs) in 2014, more than twice the previous record from the year before. Even taking out Facebook/WhatsApp’s $21.8 billion, there was an 80% jump from 2013. Institutional investors backed IPOs hoping to get in on the ground floor of a high growth market. Online corporates facing massive cannibalization of their core businesses, and hoping to share in high growth, were major drivers of the acquisition boom. Early stage investors and entrepreneurs had a field day.

Billions are cheaper by the dozen

Mobile internet sector exits

Fifteen mobile internet sectors each did over a billion dollars of exits last year. Messaging took a third of the exit market at $31.4 billion ($10.6 billion without WhatsApp) followed by games $16.7 billion. Food and drink, lifestyle, and social networking returned over $5 billion each. Utilities, music, enterprise/B2B, finance, advertising/marketing, photo & video, travel/transport, tech, mCommerce and navigation each had over a billion dollars of exits, with the twelve remaining sectors adding another $1 billion in total.

Bigger than big, stronger than strong

Mobile internet sector return on investment

All of these exits were a bonanza for mobile internet entrepreneurs and investors, with 3 year sector returns (or the multiple of dollars received in 2014 for every single dollar invested in a sector over the last 3 years) of up to 42x investment. The strongest performing sectors were navigation (42x), messaging (18x), app-store/distribution (11x), games (10x) and social networking (8x), with average 3 year returns across all mobile internet sectors around 3x. It is worth noting that these are average returns across sectors, as individual deal returns could be much higher (or lower).

700 billion dollars revenue forecast? Check. 68 mobile unicorns worth a quarter of a trillion dollars? Check. 120 billion dollars of deals? Check. Early stage investment returns up to 42x? Check. More hope and fear for 2015? Check.

You can read the full analysis here.

Digi-Capital, advises mobile internet, games and digital companies in the U.S., China, Japan, South Korea and Europe.

[Hope-Fear image credit: HD Clarity]