Rumors from back in September of Magic Leap raising a Series D investment were confirmed today as the company revealed an additional $502 million in venture funding, led by a Singaporean investment firm Temasek, with participation from strategic and financial investors.
The latest investment in the secretive augmented reality company comes in the form of a brief press release posted to the company’s website. In addition to new investors, Temasek, EDBI, Grupo Globo, and Janus Henderson Investors, investors from prior rounds have added more fuel to the fire, including Alibaba Group, Fidelity Management and Research Company, Google LLC, J.P. Morgan Investment Management, and T. Rowe Price, Inc.
The press release also includes a nebulous new mission statement in the ‘About Magic Leap’ section:
Magic Leap’s mission is to harmonize people and technology, amplifying the best parts of you, to create a better, more unified world.
Though the company has now raised nearly $2 billion in venture funding, they have remained tight-lipped on details of the “Digital Lightfield” AR technology that they’re building. A recently released video was the latest tease from the company, offering little more than vague statements about magic, though the bits and pieces that have either been revealed or leaked about what the company is doing suggests they’re developing their own AR headset.
In a recently granted patent (filed in 2015), the Magic Leap showed a small form-factor headset, that while not entirely fashionable, looks to fit the description provided to Bloomberg. | Image courtesy US Patent Office
For a company that’s showed almost no one what they’re building, Magic Leap has been phenomenally successful at fundraising. The company has previously raised a staggering $1.4 billion, and if a recent reportturns out to be true, they’re about to raise even more, reportedly pushing the company’s valuation to $6–8 billion.
According to Backchannel, a young tech publication owned by WIRED Media Group, Magic Leap is seeking a Series D financing, and though it hasn’t closed yet, Alibaba will lead the round (as it did in the company’s Series C). It’s unclear how much additional capital the company plans to raise, but Backchannel’s Jessi Hempel—who has visited Magic Leap’s Florida HQ—says it will value the company between $6–8 billion, pushing the startup well beyond ‘Unicorn’ status (a startup achieving a $1+ billion valuation).
That’s an extremely rare feat for any startup, but even more surprising for a company that has not launched or even announced any products.
To date the company has done little more than tease what it’s building, but it seems it will be some type of augmented reality headset and operating system environment that could be built on novel display technology that’s uniquely suited for augmented reality.
Wal-Mart Stores Inc, the big-box retail giant, is focusing on the future of VR and AR, along with other emergent technologies, with its newly unveiled tech startup incubator.
According to a Bloomberg Technology report, Wal-Mart is creating the incubator to “identify changes that will reshape the retail experience, including virtual reality, autonomous vehicle and drone delivery and personalized shopping.”
The incubator is simply called “Store No. 8,” a name that Bloomberg says is in reference to a previous Wal-Mart location where the company experimented with new store layouts. Wal-Mart CEO Marc Lore announced the incubator on Monday at ShopTalk, an eCommerce and retail conference in its second year.
According to Wal-Mart, Store No. 8 is focusing on robotics, virtual and augmented reality, machine learning and artificial intelligence, and will be partnering with startups, venture capitalists and academics.
Like many in-house incubators, the goal is to produce new and innovative technologies internally, one that in Wal-Mart’s case will likely focus on the future of its numerous retail locations that, thanks to the power of everything listed above, may change drastically in the years to come.
Zappar, a London-based developer in the Augmented Reality space, is announcing the closing of its Series A funding round. The $3.75m investment will accelerate the development of several new products along with increased support for ZapWorks, their flagship content creation tool.
Having worked with over 200 partners from the retail, television, film and packaged goods industries including Warner Bros, Coca-Cola and Manchester City Football Club, Zappar is a leading developer of Augmented Reality experiences and tools. Their free ‘Zappar’ AR smartphone app reacts when the camera is pointed at ‘zapcodes’ found on printed materials, allowing AR content to appear over any surface. Some of this content is produced in-house, but their most exciting venture is ZapWorks, a new creation suite that allows brands, marketing agencies and other external creators to quickly produce their own AR, VR and Mixed Reality content. They have also successfully crowdfunded a Google Cardboard-inspired $30 Mixed Reality solution called ZapBox.
Today, Zappar is announcing the closing of its $3.75m Series A funding round, led by London-based investors Hargreave Hale, along with brand technology business You & Mr Jones and China’s largest independent mobile game publishing platform iDreamSky.
“We’re at a unique moment in time as AR, VR and MR content and technology moves into the mainstream,” said Oliver Bedford, Fund Manager at Hargreave Hale. “There are a number of players entering this space. Zappar are a clear front runner, grounded in an established, effective, robust, and highly scalable content creation technology that caters to all markets and developer needs.”
The funding will accelerate the development of several new products, and will see the expansion of its SaaS Sales team, User Success specialists, R&D and Marketing divisions, extending Zappar’s international reach. The flagship product ZapWorks, which is already being used by leading brands such as Samsung and Vodafone, will receive further development, global marketing and support.
“Zappar is a best-in-class business that empowers businesses and creatives to build best-in-class augmented reality experiences”, said George Prest, Partner at You & Mr Jones, an investor in Niantic, creators of Pokémon Go. “Since launching ZapWorks earlier this year, the platform’s ease of use, breadth of tools and affordable cost structure have resonated very strongly with the market, resulting in clear belief from us in their business potential. Zappar has what it takes to truly democratise AR creation, and we’re looking forward to the company’s successes.”
“This funding round is another great milestone for the business”, said Caspar Thykier, CEO of Zappar. “Zappar’s mission is to democratise augmented reality. AR represents an exciting future for consumer engagement connecting devices to the world around us. With this round our established institutional and trade investors lend further credence to this future as we continue towards AR delivering a digital discovery channel through mobile devices and head-mounted displays.”
With 2015 breaking previous records, industry observers entered 2016 wondering if VR/AR funding would be able to keep pace.
Guest Article by Clifton Dawson
Clifton is Founder & CEO of Greenlight Insights, a specialty market intelligence company focused exclusively on the VR and AR industries. Prior to Greenlight Insights, Clifton was a growth and monetization analyst at Snapchat, the leading image messaging and multimedia platform. Clifton has a B.A. in Economics from Harvard University and an M.B.A. from Harvard Business School.
Dollars and Deals
In 2016, venture funding of VR/AR companies reached $1.8 billion, ending significantly above 2015. Both median deal size and total number of deals in 2016 outpaced those in 2015, with a 58% increase in average deal size and 30% more deals, according to year-end analysis from Greenlight Insights of individual deals back to 2011.
“In 2016, the increase in deal volume and median deals size illustrate a rapidly evolving landscape for VR technology”, said Clifton Dawson, CEO of Greenlight Insights.
While total venture funding for VR/AR showed major gains in 2016, VR/AR still only holds 1% of total venture funding.
“Despite the category’s steady growth since 2011, compared to more mature industries, such as Transportation (9%) and FinTech (3.5%), VR/AR may not yet be mainstream enough for most investors,” said Ryan Rodenbaugh, an analyst with Greenlight that worked on the analysis.
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In fact, throughout 2016, VR/AR deals were largely early stage, with more than 85% of all deals being Seed or Series A stage financings. Series C and later stage deals represented 7% of all deal volume, despite the top 6 VR deals of 2016 averaging nearly more than $65 million each, and the top 6 AR deals of 2016 averaging $170 million (the latter being skewed largely by Magic Leap’s massive Series C).
Nevertheless, there where many companies that closed a deal in 2015 that raised at least one more round in 2016. For example, NextVR and Blippar each closed deals in 2016, Series A and Series B respectively, and then Series B and C rounds in 2016.
VR/AR is benefiting from an increasingly diverse base of investors with widely varying investment theses, with many of the most active firms having done several co-investments. In 2016, the industry continued to see an increasing number of dabblers investing in VR/AR with 397 venture firms investing in one deal each this year. However, most Silicon Valley investors are not yet actively investing, with only 31 firms closing three or more deals since 2011.
Encouragingly, there is a growing list of notable investors committed to the space.
“The top of the most active investor list has remained remarkably stable over the 2015-2016 time period, with HTC, Intel, and Comcast amongst the most active corporate investors, and BoostVC and the Venture Reality Fund amongst the most active dedicated VR/AR funds,” said Dawson.
Looking Ahead to 2017
Over the last year, there has been a noticeable spike in investor interest in content producers as the industry realizes that for VR/AR products to really take off, consumers will soon demand need to have a significant amount of use for the hardware. Aided by huge recent investments in content production studios, funding in location-based VR, gaming and non-gaming entertainment, and live VR broadcasts, companies will attract a larger share of all venture capital dollars flowing to VR/AR. This trend reflects the growing importance of creating consumer-centric content to promote adoption and engagement with recently released devices.
As we look to 2017, Greenlight Insights is optimistic and excited about the growing role of virtual reality and the impact new technology companies will have on the B2C and B2B opportunities. Greenlight Insights and Road to VR will once again collaborate on the 2017 Virtual Reality Industry Report, a comprehensive overview of the industry landscape, due out this Spring.
At CES 2017, Lumus is demonstrating its latest waveguide optics which achieve a 55 degree field of view from optics less than 2mm thick, potentially enabling a truly glasses-sized augmented reality headset.
Israel-based Lumus has been working on transparent optics since 2000. The company has developed a unique form of waveguide technology which allows images to be projected through and from incredibly thin glass. The tech has been sold in various forms for military and other non-consumer applications for years.
But, riding the wave of interest in consumer adoption of virtual and augmented reality, Lumus recently announced $45 million in Series C venture capital to propel the company’s technology into the consumer landscape.
“Lumus is determined to deliver on the promise of the consumer AR market by offering a range of optical displays to several key segments,” Lumus CEO Ben Weinberger says.
This week at CES 2017, Lumus was showing off what they’re calling the Maximus, a new optical engine from the company with an impressive 55 degree field of view. For those of us used to the world of 90+ degree VR headsets, 55 degrees may sound small, but it’s actually been difficult to achieve that level of field of view in a highly compact optical system. Meta has a class-leading 90 degree field of view, but requires sizeable optics. Lumus’ 55 degree field of view comes from a sliver of glass less than 2mm thick. Crucially, you can also get your eyes very close to the Maximus optics, potentially enabling truly glasses-sized augmented reality headsets.
Unlike some of the company’s other optical engines which were shown integrated into development kit products, the Maximus was mounted in place and offered no chance to see any sort of tracking (though Lumus primarily in the optical engine, not entire AR headsets).
Stepping up to the rig and looking inside, I saw an animated dragon flying through the air above the convention floor. The view was very sharp, and for an AR headset, felt like there’s some immersive potential. However, the contrast didn’t seem great, with bright white areas appearing blown out. The image also had a silvery holographic quality to it. This may mean a lack of dynamic range, or that the display was not adjusting for ambient light in this demonstration. The brightness of the Maximus optical engine seems among its strong qualities, as even without adding any dimming lenses to cut back on ambient light, the image was bright and clear. Ultimately I was very impressed by the capabilities of the Maximus optical engine. Assuming there’s no major flaws to the display system, this waveguide technology seems like it could be a foundation for extremely compact AR glasses, similar in size to regular spectacles (and that’s something the AR industry has been attempting to achieve for some time now).
The image I saw in the Maximus was 1080p, quite sharp at the 55 degree field of view, though Dr. Eli Glikman said that the resolution is limited only by the microdisplay that feeds the image to the optics. With a higher resolution microdisplay (such as Kopin’s new 2k x 2k model perhaps), there’s great opportunity to scale image fidelity here.
Glikman said that the Lumus Maximus still has about a year of R&D left before it’s ready to be productized, but says that partner companies this year will introduce product prototypes based on the Maximus.
Sleek Prototype
To prove that the company’s optical engines are capable of enabling glasses-sized AR headsets, Lumus was also showing a prototype headset they called ‘Sleek‘. It uses some of the company’s other optical engines and has a smaller field of view, but it’s made to show the impressively small form factor that these optics make possible.
How it Works
It’s actually a pretty awesome feat of physics to channel light down a slim piece of glass and then get it to pop out of that glass when and where you need it.
The Maximus optical engine, as seen at CES 2017, relied on the bulky electronics above the optics. There, a pair of (microdisplays which function as the light source of the optics) are housed. The image from each display is stretched and compressed to be emitted along the top of the lenses. From here it cascades down the optics and—from our understanding of Lumus’ proprietary technology—uses an array of prism-like structures in the glass to bounce certain sections of the injected light out toward the user’s eye. During that process, the image is reconstructed into that originating on the microdisplay (somewhat like the process of pre-warping visuals to cancel out the warping of a headset’s lenses).
With Lumus’ advances in waveguide optics, coupled with other impressive microdisplay advances seen at CES this year, it seems that practical everyday solutions for lightweight augmented realist hardware are rapidly approaching. CES 2018 may prove to be a fascinating milestone for augmented reality.
Lenovo’s own investment group and wearable displays manufacturer Kopin Corporation have formed a joint venture named Lenovo New Vision. The combination of Lenovo Capital and Incubator Group’s (LCIG) global resources and Kopin’s wearable technology expertise hopes to grow the enterprise Augmented Reality market.
Since May 2016, the LCIG has been managing the initial $500 million from the Lenovo Capital Phase II Investment Fund in areas including cloud computing, artificial intelligence, and Internet services. While the LCIG has supported a large number of startup companies, its latest venture is with Kopin Corporation, a leading developer and provider of wearable technologies, established in 1984. This creates a new subsidiary of LCIG called Lenovo New Vision which, according to the press release, ‘focuses on AR smart headsets for a broad range of enterprise applications’.
Both Lenovo and Kopin are separately showcasing VR and AR technologies at CES 2017, such as Lenovo’s VR headset prototype, and Kopin’s Whisper Voice Chip, a revolutionary speech recognition solution for wearables. The latter has been recognised as a CES 2017 Innovation Awards Honoree by the Consumer Technology Association, along with the Solos Smart Glasses using Black Pupil, the world’s smallest LCD module for smart glasses, as well as the K2000, the world’s highest speed, smallest form factor OLED MicroDisplay for VR.
“We are very excited to enter into a strategic relationship with Lenovo,” says Dr. John C.C. Fan, Kopin’s President and CEO. “By combining Kopin’s advanced wearable technology and Lenovo’s strength as a global IT and equipment solutions provider, both parties can accelerate the commercialization of AR products and succeed in the fast-growing China and global AR markets.”
In order to move the enterprise AR market forward, Kopin will provide a ‘small capital investment, industrial design solutions, and know-how to utilize key Kopin components to Lenovo New Vision, including the micro-displays, optics, software and Whisper Voice Chip’.
“AR/VR is the next generation technology that will change the world after PC Internet and mobile Internet”, says LCIG President George He. “It is a required technology investment direction for virtually every enterprise. We truly value the cooperation with Kopin, and believe that this cooperation can further accelerate the growth of the enterprise AR market by bringing users optimized products and services.”
Lumus Ltd. recently confirmed a $30 million funding round led by Quanta and HTC. Lumus is a leading provider and developer of augmented reality technology.
Following from the $15 million funding led by Shanda Group and Crystal-Optech in June, Lumus Ltd. recently announced a $30 million Series C round of funding led by Quanta Computer, the world’s largest notebook computer ODM company, along with HTC and other strategic investors. “AR/VR is well aligned with our growth strategy and we’re pleased to invest in the Lumus optics solution for augmented reality”, says C.C. Leung, vice chairman and president of Taiwan-based Quanta. “This is pioneering technology, and we have great confidence in Lumus as an innovator and industry leader for transparent optical displays in the AR market.”
Founded in 2000, Lumus has established itself as a leading provider and developer of the core enabling technology for augmented reality. Their ‘Optical Engine’, which combines a patented Light-Guide Optical Element and a miniature projector, is already found in AR devices used in industries such as aviation, logistics, medical care, and the military. The technology is also being applied to consumer products in the development stage, with the current DK-50 development kit being provided to leading consumer electronics and smart eye-wear manufacturers, sporting a 40 degree field of view – larger than Microsoft’s HoloLens. Speaking to TechCrunch, Lumus CEO Ben Weinberger revealed that a prototype with a 50% larger field of view than the DK-50 will be shown at CES next month.
HTC’s interest is understandable, as their current involvement in VR will inevitably converge with AR in the near future. Alvin Wang Graylin, HTC China Regional President of Vive, recently predicted that the first ‘integrated selectable AR+VR product’ would arrive in 2018. “We are very committed to AR/VR,” says David Chang, COO of HTC. “Our current investment is aligned with HTC’s natural extension into augmented reality following our successful VIVE launch earlier this year.”
While the combined $45 million funding is eclipsed by the staggering $793.5 million Series C investment in Magic Leap earlier this year, the new financing is a tremendous boost to Lumus. According to the press release, they plan to ‘expand development, operations, and marketing of its display technology for the AR and smart eyewear industry’. The rapid rise of AR investment is expected to continue; in a recent IDC study, it was predicted that AR could become an everyday technology for more than a billion consumers within the next five years, with 30 percent of Global 2000 companies incorporating AR and VR into their marketing programs during 2017.
“This new funding will help Lumus continue to scale up our R&D and production in response to the growing demand from companies creating new augmented reality and mixed reality applications, including consumer electronics and smart eyeglasses,” says Ben Weinberger. “We also plan to ramp up our marketing efforts in order to realize and capture the tremendous potential of our unique technology to re-envision reality in the booming AR industry.”
San Francisco based Osterhout Design Group (aka ODG) announced today that they’ve raised a significant $58 million Series A investment to accelerate production and R&D of its smart glasses products.
ODG’s current flagship device is the enterprise-focused R-7 Smartglasses System which sell for $2,750 a pop. The HMD, which has a small ~37 degree field of view compared to most VR headsets, is a self-contained computing device which runs a custom version of Android 4.4 (Kit Kat) and allows users to run a suite of proprietary apps mostly as a heads-up-display type interface, though there is some capacity for headtracking and AR applications in the R-7. It may not be immersive yet, but ODG aspires to make their smart glasses product line into a major augmented reality platform.
The $58 million Series A investment will accelerate production and product R&D, expand patents, and pay for new hires, according to the company. Participating in the investment is Shenzhen O-film Tech Co., Vanfund Urban Investment & Development Co., along with 21st Century Fox and “several individual investors.”
ODG has been focused on custom enterprise solutions up to this point, but as their tech matures and reduces in price, the company has its eyes set on the consumer market as well; AR smartglasses will be the new mobile device everyone carries with them, the company believes.
Next month at CES 2017, ODG plans to reveal their latest product offering, though it isn’t clear yet if it will be a new consumer focused device or a continued iteration of the enterprise focused smart glasses the company has touted up to this point.
ODG’s impressive $58 million raise is sure to afford a major boost in capacity, but there’s no shortage of competition, even at this early stage. The company will be facing off against the likes of AR headset maker Meta, who has secured some $73 million in venture investments, along with Magic Leap, the somehow-still-in-stealth AR headset company that has raised a staggering $1.39 billion. All three companies stand in the looming shadow of HoloLens, backed by Microsoft’s whopping $472 billion market cap.
Business leaders gathered at this year’s Seattle based IMMERSE Summit (previously Sea VR) to explore how VR/ AR and Mixed Reality is transforming manufacturing, design, education, health and medicine and much more. Road to VR‘s Michael Glombicki caught up with two VR/AR investors to get their insight into the opportunities available in the immersive technology space and the strategies they’re employing to capitalise on them.
At this year’s IMMERSE Summit, Road to VR sat down with Matt McIlwain, managing director at Madrona Venture Group (investor in Envelop VR and Pixvana), and Patrick Eggen, managing director at Qualcomm Ventures (investor in Owlchemy Labs and Magic Leap), to discuss their investing strategies when it comes to virtual and augmented reality.
Road to VR: Matt has mentioned before that it is very hard to pick winners when it comes to VR content. Qualcomm Ventures is an investor in Owlchemy Labs, which is a content creator, so, Patrick, can you talk about Qualcomm’s strategy regarding investing in VR content?
Patrick Eggen, Madrona Venture Group
Patrick Eggen: We have this thesis that there is a content creation bottleneck in VR. There is very limited quality content out there. We are looking for early stage companies which have limited dependencies in the VR ecosystem. The beauty of a company like Owlchemy is that they are producing high quality VR content but there’s a broader play there. Longer term, there is a potential platform play where they make the picks and shovels for the broader VR ecosystem. Think of them today as being in content creation but ultimately opening up to enable other VR developers to seamlessly create VR content. First and foremost, I think that’s the challenge.
It’s the same with Pixvana, granted they are all video, but the sophistication of creating content on VR is very, very challenging. Look at a company like Matterport: Matterport is not a pure-play VR company. One of the use cases they have is seamlessly converting their 3D models into VR content. All of a sudden you have 300,000 homes which, in the future, will be VR models and arguably the largest VR library in the world. Think of us not as investing in pure-play content, but think of it as a near-term hedge strategy where there’s always a broader play.
Matt McIlwain: I think that’s similar to our philosophy. Take a company like Pixvana, which we are investors in: it’s about real video and, beyond the point of capture, how do you stitch that video together? How do you process that video? How do you encode it so that it can be distributed to all different consumption devices? Well, they’re not a content company, but they might work closely with a couple of content creators to make some proof points and a demonstration of content that’s out and ready to be distributed broadly in the emerging VR world. I think that’s always been a balance between a company that wants to fundamentally have a broader technology platform but is trying to show existence proofs of what is possible now.
I think companies here locally, like Pluto VR and Rec Room, that are trying to demonstrate shared presence are in a similar challenging time. You have to be able to show the actual application space. Rec Room’s got a great charades game and a really fun frisbee-golf game and my hunch is they have a broader platform play behind that, but they are using those applications to show what’s possible in terms of highly distributed shared presence.
Road to VR: Last year, this event was called SEA VR and it was focused mainly on virtual reality. With HoloLens and Magic Leap we’ve seen a broadening of the conference to include augmented reality as well. How do you see the comparison between the VR and AR opportunities for investment? Do you expect one to be bigger? Do you expect to see a convergence of the two?
Matt McIlwain: We think about a graph: there is VR and AR and then there’s tethered and mobile. Tethered and mobile will go across the time dimension and AR and VR will go across a sophistication dimension. Over time we think AR and VR converge into a world that the Microsoft folks call “mixed reality.” Over time, things will become increasingly untethered down to the point that they’re really kind of full 360 immersive experiences that I don’t need to have a separate computing device that I’m connected to through a wire. Is that a five-year journey? Is that an eight-year journey? Hard to tell specifically, but that’s the direction it’s going.
So, for me, there’s a set of technological things that feel further off in terms of what you might call “high-end AR” compared to what we are seeing in a “high-end VR” experience like an HTC Vive. I think Oculus is getting there, but I still think it’s behind, to be candid, even with the latest stuff that is coming out for Christmas. What Valve has with the Vive is the state of the art from a full, 360 immersive experience and I think that’s further along now. I think HoloLens has some interesting things that they’re putting out; we have a HoloLens in the office and we play with it in different use cases. Patrick knows more about Magic Leap so I’ll defer to him on that.
Patrick Eggen: First and foremost, I concur. I think AR and VR are going to converge. In a simplistic way: VR takes you where you want to go and AR brings anything into your analog world and you can calibrate that dial. If you think of 100% of VR as completely immersive and digital and you dial back a bit you can see elements of both. I think the key is that they are all sort of distinct platforms today. Whether it’s mobile VR, or tethered VR, or VR with a console, or mixed reality, or AR, they’re all very distinct, so you currently have significant fragmentation.
We were early investors in the AR landscape. First, we invested in a company called Blippar about five years ago. Blippar was immediate go-to-market. They used the cameras on existing smartphones to amplify the analog world. They were working with 200 tier 1 brands and they were actually able to monetize. Three or four years before Magic Leap and this whole renaissance, AR was just a sea of dead companies. We were very adamant in investing in one company per sub-sector and we picked Blippar. Out of the gate they scaled to where it made AR mainstream. Basically, they made any object a media format. For four or five years we saw companies that had only one of the two aspects we were looking for: 1) technical acumen using computer vision and 2) marketing chops. Blippar was the one that had both of those attributes. Fast forward and you’ll see they ended up buying Layar.
It wasn’t until Magic Leap came along where we saw a new paradigm: a full-stack platform. I can’t really reveal anything about magic leap but it is fundamentally a new paradigm. If you look at what Rony [CEO of Magic Leap] said at the Fortune conference, he spoke about it as a full-stack compute platform. We think the AR/VR convergence will become the next platform beyond the smartphone and that’s where we’re investing.
In terms of AR, we’ve had a barbell strategy: Blippar was immediate go-to-market and Magic Leap is more of the moonshot going for a new compute experience and we are trying to search for a similar analog in the VR world.
Matt McIlwain: The other thing I’d say is that we’re already seeing, in VR, elements of the virtual reality environment being augmented by my physical world. For example, we’re investors in Envelop VR and they, ironically, help bring the things you did on the screen into VR. But then, when I’m in VR, a lot of people still like using their keyboard and their mouse, so through cameras, they can project your hands and your keyboard and mouse into your virtual reality environment. They’re augmenting your VR world with your physical world and so that is an example of the blending together of VR and AR.
Road to VR: One of the things that is challenging from a media stand-point is covering China. Is that also true when it comes to investing?
Matt McIlwain: It’s not really our strategy because our strategy is to be early stage and mostly focused on companies based in the Pacific Northwest. We look around the world to see what the trends are and what’s real and what’s hype. That’s why having friends like Qualcomm Ventures is great for us because, through them, we can see some great things that we may not be seeing ourselves as easily. We do our own homework as well, but I really defer to Patrick and their team on what they’re seeing on the ground in China.
Patrick Eggen: You really need investment folks on the ground. It’s similar to the strategy that Madrona has in Seattle because they are the beacon for anything in the Pacific Northwest. Not only do they have dedicated investment partners here, but they have the very profound network of eyes and ears. Similar for my colleagues in China, it’s very competitive there and it’s important to have that access on the ground where you can get in early on these deals. I would say China is a hyper-competitive market. Valuations are not cheap. In fact, there could even be a premium there at times. China has really crossed this chasm from being a follower and copy-cat to truly innovating.
On the mobile VR side, we have a portfolio company called Ximmerse in China that a lot of people haven’t heard of. The big issue with mobile VR today is that it doesn’t have six degrees of freedom, so it’s very limited in positional tracking. With the right mobile VR input controllers, that resolves that gap and that’s what Ximmerse is doing. What we saw with Oculus at Connect is they sort of hinted at this holy grail prototype of untethered, optimized computer power, low latency, real time, 6 degree of freedom tracking.
We see wonderful ecosystems like Seattle and LA where you could have break away companies. We’re not biased towards San Francisco and we’re one of the rare firms that invest in fly-over states. We are in seven different countries around the world and the talent here in Seattle that Madrona is investing in is very special. But, I think when you look at Asia, you see some amazing innovation from companies. This is not just a copycat sort of phenomenon. We have folks on the ground in Beijing in Shanghai to invest there. Given the somewhat tepid demand, from an investor’s standpoint, to invest in a series A or series B, we see a lot of companies from Asia, and particularly China, participating and that’s not dumb money. There’s actually understanding there.
Road to VR: Are there still hardware investment opportunities out there?
Matt McIlwain: I think the question there is if there are a lot of venture-backable opportunities versus bigger company opportunities. I think there’s only going to be a few Magic Leap-style bets out there. Ximmerse is an interesting example because they’re picking a broadly defined problem. What are the input devices that provide the ability to create without a big headset and PC sitting by me? They offer a possible solution from an input device perspective.
There’s probably some specific components within the hardware that I could imagine. For example, if there was a fabless chipset design that is going to go into a particular kind of device, I could see that as being an opportunity. But even still, I would bet on Qualcomm or somebody else more than I would bet on Joe with his startup team. If you talk to the folks at Microsoft, they’ll tell you they’ve been putting a lot of money into the hardware that powers HoloLens and I bet Magic Leap will say the same.
Patrick Eggen: To Matt’s point, from a venture-backed lens, it’s challenging unless you calibrate your returns and are looking for a company to be bought. There will be a lot of these companies being very acquisitive by addressing product gaps. You may also see acqui-hires as we’re seeing in the AI space because I think a lot of this talent will be at a premium. But overall, I think early stage we’re investing more on the software side where there’s lower dependencies. Later stage or mid-stage, we’ll look if there’s a higher dependency like visual tracking or eye tracking or something really non-trivial that’s interesting to us but we will calibrate our expectations with respect to returns.
You have to remember that it’s still very early days. I hate to be jaded but the adoption is very limited today. We are in the midst of these platform wars. We don’t have enough content creation out there and it’s still a little unclear. We’re still treading very carefully. As we saw with the AR data points, it took a long time before we got through the woods to this renaissance. We are bullish mid to long-term but we are very cautious for the next 6 to 9 months. We have three investments in this area and we’re hoping to have more but we are very cautious in how we approach it as well.
Road to VR: Do you have a killer app that you are really looking out for?
Matt McIlwain: For me the, the most amazing experiences are the ones where I can be in a shared presence environment in VR or presumably AR. I’ve really only experienced these in a VR environment. That means that myself and somebody else are physically separated and are experiencing something together. Those same things could be as simple as you and I having a conversation in some shared space. It could be on the beach or it could just be in a room. But we could also work on a whiteboard together and when we’re done working on the whiteboard together, we have an electronic record because it was all done digitally.
I think this is a little bit futuristic, but we know they are working on it from the videos we’ve seen at Facebook’s F8 and Oculus Connect. Those are worth watching. In the F8 one, they took a selfie on the London Bridge and then posted it to the real world of Facebook versus the virtual world that they were playing in. That’s actually pretty close to what I want. We’ve seen those kind of experiences, in some cases further along, and I want to see those get commercialized. Those shared presence, rich, immersive experiences that are not just about you and I being in a room but the things that we can do.
So why would you invest in something like that? I want to see that, but you could imagine there being somebody that says: “it’s great that Facebook does what it does, but how about all these other apps? What’s going to be the set of tools that are going to power that kind of shared presence experience?” I don’t think Facebook is going to open-source what they’re building. They’re trying to build a social network, so the strategic play there is somebody who’s going to license or sell that capability to all the other apps and all the other app builders that want to have the cool use-case and application that’s now a shared presence application instead of a single participant application.
Patrick Eggen: I think that’s a really good, quintessential example and shows the power of Facebook. We looked at a company called AltspaceVR in San Francisco and their vision was that Matt and I could go into our own immerse environment, go on the whiteboard, and talk about deals. Then, we could go into the lounge and go watch the Sounders game in a way that amplifies the experience. It will take time and Facebook as the catalyst can just muscle and flex that much faster.
