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Funding for iPhone start-ups passes $100 million

Start-ups have raised more than $100 million to build iPhone applications, but where are the business models?

Recent data from Chubby Brain identifies $102.49 million in total VC/angel investment divided among 17 iPhone application start-ups.

The iPhone is a great mini-computer and may be the next big gaming platform, but I'm still struggling to get the math to work in terms of what a typical VC expects as their return on investment.

iPhone investments
iPhone investments Chubby Brain

Macworld's App Guide lists more than 58,000 apps available for download with more coming online every day, though it's not clear that downloads are equating to sustained revenue for developers.

But, developing an iPhone application still seems like a good business move, provided you can market effectively and not fall into the boom and bust cycle that many applications find themselves in.

Chubby Brain asks the right question:

But what about the middle of the spectrum? Who are the startups looking to build scalable businesses with the iPhone at the core, and more specifically, who is funding such efforts?

The investments highlighted by Chubby Brain are diverse, with social networking and games outpacing other categories by roughly 10 percent. But only a few of the investment categories (advertising and monitoring for example) have already been proven.

So, this seems like a pretty big bet considering most VCs are looking for a 10 to 15 times return. Considering the lack of exits, lets start with a 5x multiplier as the threshold for a positive VC return:

Investment: $102 million
5x: $510,000,000
15x: $1,500,300,000

Even as an iPhone fanboy, I find it hard to see how that $100 million turns into $1.5 billion considering the low barriers to entry for new apps, the low-cost of sale, the lack of micro-payments and few subscription-based applications.

Are there any iPhone-specific applications that will hit $5 million this year? Or is the money really in converged applications such as iControl that leverage the iPhone as part of a larger platform? I tend to fall in the latter camp but it's way too early to tell if anyone besides Apple will make money from the iPhone.

The full report from Chubby Brain is worth a read.

Follow me on Twitter @daveofdoom.