Apps are hardly exclusive to the iPhone, of course. Developers also create widgets for Research in Motion’s Blackberry and devices that use Google’s Android operating system. But Apple products have held the leadership role in the market since their introduction.
After investing in the developers, Wendle and Klaus hope to see returns based on the sales and other income models (such as micro-transactions and in-app advertising) of the app. iPhone applications that charge more than $10 typically don’t do well, though, and have to sell tens of thousands of copies to be legitimate hits.
The AppFund is counting on iPad owners to be willing to spend a bit more.
“I do think the iPad will probably be a little less price conscious,” says Klaus. “I would like to think the applications developed for this device are more tailored for daily use and daily consumption.”
Typical investments for the fund will range from $5,000 to $500,000—and it will announce its first investment in the coming days. Klaus declined to discuss how the company structures fees, noting that it will vary from investment to investment.
Analysts say there’s some risk to iPad-exclusive venture firms, since the device will run all existing iPhone apps (and it’s relatively easy for developers to optimize existing apps for the device), but the early bet could pay off down the road.
“You’re talking about a real fund that’s making micro-investments, to some extent,” says Colin Sebastian of Lazard Capital Markets. “That’s not a traditional venture capital route. That way you can make lots of bets across a lot of developers. … If the iPad even comes close to the success of the iPhone and there’s a lot of demand for apps, then it doesn’t sound like a bad idea.”
AppFund is certainly not the first venture capital interest in the app space. British firm Northern Film and Media launched an iPad fund for developers in northeast England less than 24 hours after Apple CEO Steve Jobs unveiled the device.
Meanwhile, one of Silicon Valley’s top VC investors, Kleiner Perkins, has established the $100 million iFund that specifically targets applications for the iPhone. That initiative has made seven investments to date. Norwest Venture Partners and Maples Investments are also investing in application developers.