Funding for 'on-demand' start-ups hits frenzy

Billions pouring into on-demand apps: Report

The on-demand start-up space has never been hotter.

Research firm CB Insights released a report Thursday highlighting just how much money is rushing into start-ups like Uber, Airbnb and Instacart. Investment activity is red-hot, with funding rising to $4.1 billion in 2014, a jump of more than 500 percent year-over-year.

That rush of capital is showing no signs of letting up. The first-quarter of this year marked the highest quarterly funding total on record as start-ups raised $787 million across 22 deals.

At the current run rate, analysts at CB Insights say 2015 is on pace for a new funding record that could more than double 2014's total.

So, which of these start-ups is raising the most money? Uber, by a mile.

The ride-hailing app raised 39 percent more funding than all other on-demand services last year—combined. And CEO Travis Kalanick is busy raising even more money to fuel his startup's global ambitions.

There are reports that the San Francisco-based company plans to raise as much as $2 billion in new funding, which could value Uber at $50 billion or higher.

After Uber, the most well-funded on-demand start-ups are Lyft, Airbnb, Instacart and Eventbrite. In total, these five companies are valued at a staggering $57 billion. (Instacart told CNBC they're raised $275 million to date.)

There are a lot more professional investors now hoping to commit capital in this sector, and own a piece of what they hope could be the next Uber. In 2010, there were less than 20 VC investors that had done a deal in on-demand mobile services. Through the end of April of this year, there were nearly 200.

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The most active venture capitalist in this space over the past five years has been SV Angel. Ron Conway, a legend of angel investing who was an early backer of Google, Facebook, and Twitter among others, founded the venture firm.

SV Angel's approach to investing is different than its rivals. Rather than make a limited number of big bets, its partners commit a series of smaller investments in early-stage companies, realizing that many will fail but those that become billion-dollar companies will more than make up for the write-offs. | Getty Images

Brian Pokorny, a General Partner of SV Angel, told CNBC that he's bullish on this space. The smartphone has upended the relationship between companies and consumers. Now, thanks to the global popularity of those hand-held computers, entrepreneurs are redefining entire industries from grocery shopping to pharmaceuticals, he said.

For example, with the Instacart app, users can now order groceries right to their doors within an hour. Luxe Valet allows for on-demand parking and valet services. Or there's NimbleRX, a new SV Angel-backed start-up that delivers drug prescriptions to its users. In other words, consumers no longer need to wait in line at the local pharmacy.

Pokorny says he believes that investment activity in these kinds of start-ups will continue at a strong pace, given the potentially transformative and disruptive nature of the services.

"There is a massive shift taking place, and there are an increasing number of industries that can be impacted," he says, adding, "In 10 years, we'll look back and wonder how the world existed before this technology."

There are risks for both investors and entrepreneurs when money is so relatively easy to raise, however. For one, many of these start-ups will fail. In fact, partners at SV Angel assume that 40 percent of the startups they fund will ultimately go belly-up.

Pokorny highlights another risk: if raising ever-larger rounds of financing from VC's is simple then start-up founders might not be as innovative or as driven. In such an environment, entrepreneurs can become more complacent and less scrappy. Still, Pokorny says that's a problem that ultimately self-corrects.

"If entrepreneurs don't execute then the problem solves itself," he says. "They won't be able to raise another round of funding."

Uber, Lyft, Airbnb and Eventbrite didn't respond to requests for comment.

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