Podcast Notes: When to Invest in VR
(Note: This paid-only premium content first appeared in the Oct. 8 issue of Inside XR. You can sign up for premium here.)
Every week, we summarize an AR/VR podcast to save you time and keep you up-to-date. This week features MetaVRse VP of Marketing Alex Colgan, who interviews Alan Smithson of the XR for Business podcast about the VR/AR investment landscape. [Questions and answers were edited for brevity and clarity.]
Background: Alan is the CEO at MetaVRse, a web-based 3D/XR creation platform. In this special podcast, Alan reverses roles and allows Alex to interview him about VR/AR investments and returns, as he's been building capital for several MetaVRse projects, including the MetaVRse Engine. Alan says there been "enormous" capital invested into AR/VR startups during the last few years, reaching the billions of dollars. While the pandemic has caused a sort of investment "winter," he believes a spring will emerge soon.
Alex: What are some of the biggest disruptions we've seen in the last six months due to COVID?
Alan says all the uncertainty led to investors closing up their wallets starting in March. In September, he's seen funding rounds come back and believes this pickup trend will continue through October and November. There's a lot of fresh capital sitting on the sidelines, and "if it’s not deployed, it’s losing money."
There are new startups, as well. More than 70 startups have created XR collaboration tools that allow you to go into VR and AR glasses and communicate with people around the world. Other opportunities exist to use 2D screens to navigate 3D worlds, like a Second Life 2.0 and live concerts. Investors have a huge opportunity with companies like this, which have market caps over $3 billion right now.
You’re also seeing a few public companies, like Unity Technologies. They raised $1 billion in a single day and saw their valuation jump from $6 billion to over $13 billion.
Alex: Travel is important for investors to connect with startup founders and gauge if they truly want to invest. Are people adjusting to the travel restrictions, or are they loosening up, allowing these more organic conversations to happen again?
Most investors have also turned to Zoom to continue their conversations. While it's hard to get that firm handshake and eye contact, it is a new normal, and they are dealing with it.
In some ways, it's allowed investors to invest wider geographically than they normally would. They can also see more deal flow in a short amount of time using conference calls. Entrepreneurs don’t have to spend thousands of dollars on plane tickets to meet with investors. It's made the process more efficient in the long run.
Alan says face-to-face meetings can still lead to bias, as people make decisions based on their gut that aren't always true. The pandemic has caused investors to perhaps be more analytical about their investments and do more digging.
Still, many early-stage startups are seeing more pressure to have traction in their technology before getting in the door investment-wise. Much like the 2000 bubble, this could be overall good for the whole investment environment because it's not investing in companies without a proven track record.
Alex: There really is a challenge with the inability to do live software demos. Everything looks like slideware if you’re not able to meet in person.
Alan responds: isn't that the whole point of virtual technologies? If you’re a VR company, shouldn’t you be able to do your pitch in VR? If the investors you’re pitching don’t have a VR headset at all, are they the right VCs to be pitching?
Alex: Not to play into stereotypes, but often investors of a certain age may not have an interest in or access to the very latest and greatest.
Alan says the Oculus Quest 2 starts at $299 and, unlike its predecessor, has not sold out. The technology is not a barrier anymore. When you're pitching VR to investors, you have to allow them to experience it. This is a problem right now with COVID.
But companies like VictoryXR and ENGAGE, platforms for education and meetings, are still doing a good job at bringing not only investors but customers into the experiences. If someone has a VR headset, they'll meet in VR and do a full tour.
While companies like Unity might not do personal demos anymore, small startups and studios definitely need that one-on-one. They're pitching by Zoom. You have to adapt; you have to move forward and just do it.
MetaVRse's product, for example, does translate through the web. They use Zoom but can send a link for people to experience the AR, 3D, or other technology on their phones in real-time. This makes a difference because when it’s in your hand, you can touch it, and feel it, and spin the objects around, and experience it. You have to get creative with demos now more than ever.
Alex: MetaVRse's has the advantage of being fully web-based and capable of running on practically any device.
Alan says anyone who’s working in the space won't succeed if they can’t figure out how to make their software work across many different devices. That’s why Unity, Unreal, and Spatial are worth tens of billions of dollars each: because they have a cross-platform reach. When it comes down to investment, investment capital is probably the most expensive capital a startup will ever, ever take in. When it comes down to it, a business that constantly loses money is not a business. We’re in COVID times now, and people are looking for real value.
Alex: As the market is heading toward 2021, what do you think the XR landscape will look like?
Alan says he believes location-based VR/XR companies such as The Void and Sandbox may not survive. They are struggling as they've had to shut down their VR arcades and attractions during the pandemic and may not recover.
As far as where it's heading, we're a mobile-first society right now. Over the next three to five years, we’re going to go from phone to face, with Facebook announcing their AR glasses.
You also have Google acquiring glasses maker North. Apple has recently made an announcement suggesting their own AR glasses are coming. Things are speeding up, and it'll likely be up to five years before we have full mass acceptance of wearing AR glasses on a daily basis.
Predictions should also be taken with a grain of salt. Five years ago, there was zero data about the industry. They were just making it up out of their backsides. Now the industry has data and traction, but a lot of investors invested too early. Companies were on the right track, doing really cool stuff, but five years too early. Magic Leap was way too ahead in terms of adoption and what the world needed. Everybody went after consumer first as well, and consumer is not the market that’s expanding. It’s enterprise applications, with the one exception of the Oculus Quest.
Alex: The Quest is able to bypass that because they’ve been pushing hard on the content front. Content is always this catch-22 when it comes to the consumer markets. Consumers need to see content that they want in order to buy the platform. The platform developers need to see that there is a sufficiently large user base to justify development in the first place.
Alan says people overestimate what they can do in the short term and underestimate what they can do in the long term. He encourages investors to look at the five and 10-year roadmaps for startups? Are they looking for a quick exit? There have been many mergers and acquisitions happening in the space. In the future, many won't be billion-dollar exits, but 10- 20-, 30-million dollar exits. North Glasses, for example, sold for less than they raised. Is that a success story? I don’t know.
Alex: Maybe you can speak about North.
They’re in a little hub called Silicon Valley North. Google’s got a head office there. And North had their head office. North was able to develop real, true augmented reality glasses. They were interesting because they were just a heads-up display, but it was really cool. And comfortable and light.
Consumers are fickle. In 2020, you're going to see a launch of new XR viewers, like NREAL or MAD Gaze, that gives you spatial computing and is very lightweight. They’re going to plug into your phone so that all the processing power will be on your phone, via probably USB cable. And so these glasses are going to unlock abilities for people to have AR on their faces.
Alex: Are these trends going to accelerate regardless of who’s sitting in the U.S. Oval Office?
One candidate wants a complete closed down and nationalistic view of the world, and that’s fine, Alan says. However, we’re in a global world now. It doesn’t behoove any one nation to try to isolate themselves anymore. We’re past that as humanity. That’s going to do a disservice to American technology companies in the long run.
Americans naturalized and natural-born Americans have a lower risk tolerance across the board, for everything from starting businesses to employment. When you have an entire generation that’s being built around lower risk, that means lower entrepreneurship rates and lower innovation. And when you don’t have immigrants coming in with highly technical skills from around the world, this can be a hindrance to companies.
Maybe this will open up opportunities for companies to have development partners around the world. It's the best time to start a company and get a company off the ground because if you can succeed in an environment like this where the world’s upside down, you are going to be able to weather the storm.
Alan says people interested in learning more about the investment landscape can search for Digi-Capital online, which tracks VR/AR investment deal flow in real-time. Q1 of 2020 was the lowest investment in AR in the last five years.
Alex: Nowhere to go but up!
Some advice would be for startups to look at Unity and NexTech, Alan says. They’re a company on the Toronto Stock Exchange. Unity is now on the stock exchange. Investors are starting to understand this technology, which is a huge opportunity. Five years ago is too early, now is perfect, and two years from now will be too late. We’re in the second wave of AR and VR, and it’s all going to start with the phone and go to the face.
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