Venture capitalists lost some of their enthusiasm for investing in private mobile marketing and advertising companies in 2012, with overall investment levels down 21 percent year-over-year for a total of $460 million, according to a new report from Rutberg & Co.

With mobile marketing and advertising revenues expected to increase significantly over the next few years, investors recognize there is an opportunity in helping to build mobile marketing companies. However, following Millennial Media?s disappointing initial public offering last year and growing concerns over monetization issues, interest has been tempered.

?The Millennial Media IPO came out at $3.6 billion and is now covering about $900 million - that was a signpost that investors are to be wary about the margins, the differentiation and sustainability of different companies across the mobile marketing and advertising ecosystem,? said Rajeev Chand, managing director and head of research at Rutberg & Co. , San Francisco.

?We hear from brands and agencies that it is too complex, there are too many companies doing different niches within the ecosystem,? he said.

The bubble bursts
The other reason for the decline in 2012 is that 2011 was something of a bubble for mobile marketing and advertising as enthusiasm for the sector reached a high, driving big investments such as the $200 million that inMobi raised.

There was not a similar large investment in a company in this category in 2012.

Another key finding is that the number of venture capital investments in mobile as well as the overall dollar value of those investments grew in 2012 compared with 2011 for a 990 deals worth $6.85 billion.

However, the report reveals that the number of mobile venture capital deals reached an all-time high in the second quarter of 2012 compared with previous quarters over the past four years.

Following the peak, the numbers returned to a level on par with previous quarters in the third and fourth quarters.

IPOs disappoint
The decline in investment levels in the third and fourth quarters of 2012 is due to several factors.

?What you are seeing in venture capital industry as well as in mobile is an attenuation in the exuberance that was there in the first half of 2012,? Mr. Chand said.

?That?s the general reason why the numbers have come down,? he said.

?We are still at a relatively high level but we are nowhere near where we were in the first half of 2012.?

In the first half, there was a lot of interest and excitement in the numerous IPOs that were scheduled. However, several of these IPOs turned out to be a disappointment, taking some of the wind out of investors? sails.

Monetization concerns
A secondary reason for the drop in investment levels in mobile in the second half is decrease in the value of deals for companies valued at more than $20 million.

The amount raised for deals below $20 million continued to increase.

One reason for the decline in bigger deals is growing concern about the monetization strategies for some of these companies.

?In mobile, you see many sectors where there are many more users and usage than there is revenue,? Mr. Chand said.

?We hear from a lot of late-stage investors with questions about what are the revenues, and if there are revenues, are the profit margins so thin that you can?t really go to business,? he said.

?The third question we hear as it relates to mobile is are there any barriers to entry? You can have one company and maybe a different company will emerge the day after tomorrow.?

Mobile payments a winner
Mobile commerce and payments was one of the biggest beneficiaries of the interest in investing in mobile with an 83 percent increase in investment levels for a total of $1.1 billion.

Other key findings include that venture capital investment in mobile consumer applications grew 25 percent in 2012 for a total of $1.8 billion.

Enterprise mobile IT also experienced an increase, 22 percent, for a total investment level of $610 million.

?The number of investments has continued to increase in mobile,? Mr. Chand said.

?What the numbers suggest is that the $20 plus million rounds are harder to come by in mobile,? he said. ?There is a lot more scrutiny overall in the venture industry and in mobile in particular you have many spaces where there isn?t as much revenue growth or profit margin as perhaps investors had expected.?

Final Take
Chantal Tode is associate editor on Mobile Marketer, New York