Mobile First Enterprise Apps: VC Investing Boom Ahead

This article originally appeared in Forbes.

The rapid rise of the iPhone, iPad and other mobile devices has fueled a mad rush of venture funding into consumer-facing mobile companies. During the 2011 first half, according to Rutberg & Co., venture capitalists invested $3 billion into 358 mobile companies – with $960 million going to the “media and applications” sector, defined as social networks, mobile games, mobile advertising, app platforms, news aggregation, photo sharing and group messaging.

VC investment in enterprise mobile companies has been more tepid. According to Rutberg, VCs invested just $254 million into “enterprise IT” mobile companies over the same span.

As global organizations race to transition legacy systems to the cloud – and enable mobile workers to access applications and services wherever they are, from any device – the mobile enterprise sector clearly presents an untapped opportunity for venture investors. But it’s not enough to simply shut off the funding tap to consumer mobile companies and start funding enterprise mobile startups en masse. Not all mobile enterprise companies are created equal.

The startups with the greatest potential to generate outsized returns are those creating “mobile-first enterprise applications” – those that leverage the unique capabilities of mobile devices to enable the creation of new categories of enterprise applications. These applications are very different from mobile-enabled versions of traditional enterprise software such as Salesforce.com andWorkday. True “mobile-first enterprise applications” are built for mobile platforms initially or exclusively and enable a worker or business to do things that simply were not possible before the proliferation of advanced connected devices.

Some examples of mobile-first enterprise applications include Doximity, a mobile app that enables physicians to collaborate and communicate more effectively in which my firm is invested; Square, which allows many small businesses to accept credit cards for the first time; and Gigwalk, an app that enables businesses to turn smartphone users into an “instant mobile workforce”. These companies are among the first to truly leverage the power of mobile to create unique business-focused value propositions.

Much of the mad rush to sink millions into consumer mobile startups parallels the dot-com boom. The late ’90s funding craze was focused almost entirely on consumer Internet companies – and the painful bust that followed was a consequence of over-investment into consumer startups and under-investment into enterprise Internet companies. What rose from the ashes of the dot-com bust, however, was Web-enabled services and cloud computing – a wealth of innovative enterprise software companies applying Internet technologies to business processes.

Investment in the mobile sector is evolving in much the same way, but at a faster rate. Right now, mobile-first enterprise companies are vastly underfunded, while those consumer mobile start ups are vastly over-funded. Only a handful of these consumer-focused start ups will gain the critical mass needed to succeed; after all, there are only so many mobile games, social networks and apps consumers are willing to buy.

However, just like in the dot-com bust, the demise of many of today’s amply-funded consumer mobile upstarts will eventually benefit the mobile enterprise sector. Popular consumer mobile technologies will eventually become core components of business-driven apps – bringing the mobile craze into the office in much the same way the Internet fully arrived at work only after the dot-com bubble burst.