Apple app investor Kleiner sees "frothy" market

SAN FRANCISCO (Reuters) - Competition among venture capitalists has raised valuations in start-ups to 'frothy' levels, particularly for consumer Internet companies, Kleiner Perkins manager of a fund focused on iPhone application developers said on Monday.

After a slow 2009, there is a rush to invest, which has raised prices of start-up firms and sent Kleiner looking for earlier stage companies, Kleiner Perkins Caufield & Byers Partner Matt Murphy said at the Reuters Global Technology Summit in San Francisco.

Murphy manages the iFund, a $200 million fund that invests in applications for the iPhone and other Apple Inc (AAPL.O) devices. Game designer ngmoco, texting provider Pinger, and music discovery service Shazam are part of iFund, which was launched in 2008 with $100 million.

"It's gotten pretty competitive out there now for the best ventures," he said. "It's gotten frothy for new investments."

Investors who were on the sidelines through most of 2009 because of the slow economy are rushing back in, Murphy said.

"That frothiness is pretty broadly spread right now, especially among consumer Internet. The consumer Internet is growing much more slowly than the mobile Internet," he said. "The frothiness around mobile is probably justified.

Murphy cited the example of mobile app Foursquare, a location-based social networking platform, that is seen as red hot now.

In wide-ranging remarks, the Kleiner fund manager also said he is competing more with angel investors, who make smaller investments than VCs, in the race to find good companies at a reasonable price.

"We are doing a lot more seed investing now," he said.

M&A ATMOSPHERE SEEN STRONG

Venture funding during the first quarter was up 38 percent as compared to the same period last year with companies in the information technology sector attracting the most funds, according to the MoneyTree Report by the National Venture Capital Association and PricewaterhouseCoopers.

Larger technology or media players are keen to define their mobile strategy.

"The M&A market is looking very strong this year," Murphy said. "All the incumbents are flush with cash."

The Silicon Valley venture fund has yet to invest the new $100 million raised. It has 14 investments so far and is looking at investments in healthcare and education-related applications for the iPad.

For example, doctors could walk around with an iPad 'chart' of their patients, rather than a clipboard.

The iPhone is seeing new competition from devices running the Android environment created by Google Inc (GOOG.O), but for now Apple is the main platform, he said. Developers are not considering starting off with Android, he added.

More than 200,000 iPhone apps already are available and more are being developed.

"It's a fairly Darwinian environment," Murphy said. "We have received something on the order of 7,500 to 8,000 business plans so far."

With the doubling of the iFund this year, Kleiner began receiving 50 to 200 business plans a day.

(Reporting by Poornima Gupta and Peter Henderson, editing by Tiffany Wu and Carol Bishopric)