Investors Tell Us Where They Think VR Is Headed

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Investors Tell Us Where They Think VR Is Headed
June 6, 2018
Image Credit: Matijaz Slanic/ Shutterstock

 

After an initial frenzy of interest in virtual reality due to Facebook’s acquisition of Oculus, investors and startups alike faced a “VR winter.” This was a difficult period of time in which consumer adoption of VR was slow, funding dried up, and startups had to get creative to survive the lean times.

 

Is it possible that 2018 is the year in which consumer adoption reaches a tipping point and the industry takes off? I’ve interviewed nine investors who have provided their insights on where the VR industry has come, as well as the risks and opportunities that exist in 2018 and beyond. We’ve asked them what opportunities are available in the space — and what tips they have for startups.

 

Gigi Levy Weiss, founding partner at NFX and Inception VR

Above: Gigi Levy Weiss

 

Opportunities: B2C: the most compelling opportunities here are in very high end and well curated experiences, such as those in Inception VR. Another type of content that fits the mold is high end games. These experiences need to be vastly superior to other experiences that it makes up for the unintuitive and cumbersome process of setting up a VR headset.  Another opportunity in the consumer space is point of sale experiences at places like malls, theaters, or VR focused theme parks.

 

B2B: training is a clear use case that is already gaining traction. The use case, broadly speaking, is getting employees to be able to simulate situations that would otherwise be tough or expensive to replicate in the real world. Moreover, there will be a big data opportunity in the VR representation of analytics. In this context, VR could be used in business to present data in a better way and help teams learn more effectively.

 

Tips: The first thing I ask myself when looking at a VR product is a mixture of two things. First, would this service also work in 2D? If the answer is that nobody would try this experience in 2D, then nobody will jump through the hoops of trying it in VR, which would demand a worse user experience for something that is ultimately unimpressive.

 

The second thing I ask is: if experience would be interesting in 2D, why and how does it become better as a 3D/VR experience? These questions are relevant for both consumer and enterprise use cases. For example, if there is a medical training app, I’ll ask if there are 2D video medical training services? Yes, because videos are used for teaching. Thus, will 3D/VR make the training better? If the experience is an interactive simulator for surgeries, then yes, it would probably improve the training. Ultimately, founders should be able to clearly answer these questions before diving in, or they may build something that nobody uses.

 

Hadley Harris, founding general partner at Eniac Ventures

Opportunities: At Eniac, we remain skeptical of VR, however, one area we’ve continued to spend some time in is vertical enterprise solutions. These are use cases where an employee can use VR to derive deep value for his or her company, such as training for tasks where the current training is very expensive, difficult or hazardous.

Above: Hadley Harris

 

Another area of interest for us is BCI (Brain Computer Interfaces). These technologies are further out, but we believe they have the opportunity to completely change the way users interact with VR and AR systems. Also, the data generated by BCI will likely be some of the most robust datasets ever created.

 

Tips: For consumer VR companies, keep your burn low until it becomes clear when consumer adoption with start to come together. When possible, work with deep-pocketed industry players like Facebook and Google to help fund your operations.

 

For B2B VR, focus on the burning needs of your customers. This is true of all B2B companies, but especially in VR because there is so much friction with employee adoption.

 

It’ll also be crucial to have a relentless focus on lowering friction to usage. Our portfolio company, Visual Vocal has thrived in part by making their VR collaboration platform work well on mobile VR and focusing heavily on end-user onboarding, thus lowering the bar to getting users on the platform.

 

Stephanie Zhan, Partner at Sequoia Capital

Above: Stephanie Zhan

 

OpportunitiesI’m excited by VR’s potential to enable new forms of creative expression, more immersive entertainment experiences, and new ways to build meaningful friendships online. Our portfolio company Against Gravity, the maker of Rec Room — a platform for social user-generated content — is an example of this. Rec Room is a platform with over 30 million games and 50,000 user created rooms where you can play fun virtual games like co-op quests and paintball, or even design your own games and worlds with each other. As a testament to the power of the Rec Room community, players spend on average over 90 minutes per day in Rec Room.

 

We are also seeing players experiment with extending their VR games into cross platform experiences, giving users new ways to engage even when they aren’t fully immersed in VR. VR Chat has done a fantastic job pioneering this, extending their VR experience into interactive experiences on PC and consumptive experiences through Twitch streams from influencers in the community.

 

I also remain incredibly excited by AR’s potential to enable new, compelling gaming and entertainment experiences. We’ve seen early success with Pokemon Go, Snap and Instagram filters and lenses, and I can’t wait for new founders to leverage the technology for new forms of storytelling and adventure.

 

Tips: Build a fun and compelling experience. Give users creative ways for expression and fun ways to engage with each other as well as with the content and narratives in your experience.

 

Focus on community and identity. It’s not enough to create a novel experience that people will consume once and never try again: you need to give people a reason to keep coming back. Giving people ways to build a sense of identity and foster relationships is key to this. Finally, because we are in the early innings of VR, it’s all about learning and iterating quickly.

 

Jacob Mullins, Partner at Shasta Ventures and lead of Shasta Camera Fund

Opportunities: Our current investment focus in VR is in three main areas: gaming, social, and messaging and communication. At this early stage in the evolution of this new platform, consumer is likely to grow much faster than enterprise, and as a result will likely be the biggest opportunities in the near and mid-term. This reflects the rise of gaming, social, and communication as the fastest growing opportunities as mobile emerged.

Above: Jacob Mullins

 

That said, it’s likely that VR will eventually get pulled into the enterprise at scale. However, in the same way that mass consumer adoption of smartphones was required before enterprise mobile platforms emerged, we’re likely to see mass consumer VR emerge first.

 

Tips: Stay lean and monetize early. VR apps should be monetizing and charging from day one, because you won’t have the luxury of free users in VR. The best way to know if you have product-market fit is to have paying customers. People vote with their wallets, after all. Focus on monetization, think about it early and often. There is promise for in-app transactions and virtual goods in VR. Currently, in-app transactions are onerous on the existing platforms, but once it becomes easier, it will open up new business models like freemium, digital goods and subscription.

 

Adam Draper, founder and Managing Director of Boost VC

Above: Adam Draper

 

Opportunities: We believe VR is one of the most powerful technologies being developed today, and that it will be used to connect the world. Our thesis is that computers have been a narrow window into the digital world, and VR/AR/MR technologies will allow us to step into this world. Boost VC has made 70+ VR related investments, including: TheWave, Arthur, Dimension10, PokerVR, and JanusVR.

 

We see big opportunities for VR companies working in B2B, infrastructure as well as consumer social in 2018 and beyond.

 

Tips: Think big and win. At Boost VC we encourage all of our startups to “be the cockroach” — meaning we want them to be scrappy and stubbornly hard to kill. As many entrepreneurs know, doing a startup is not easy, and when the times get tough it’s important to believe in your idea and get tougher.

 

Anarghya Vardhana, Principal at Maveron Ventures

Above: Anarghya Vardhana

 

Opportunities: The biggest opportunities are fundamentally linked to solving big problems. Modern society faces a loneliness epidemic that VR platforms are uniquely suited to solve, via shared presence. People increasingly spend time in technology yet are less connected to the people around them. However, with full immersion, VR users can experience a type of human bondingthat would have otherwise been impossible. This is particularly true for disabled or elderly people who are unable to physically leave their homes.

 

We also live in an increasingly distracted world. As such, VR’s lends itself well to deep focus by forcing users to be totally present in an experience. This, in turn, enables them to decouple from the chaos of daily life and gain balance through experiences like meditation.

 

Tips: Manage your burn rate. You need to understand where your money is going and how to stay frugal and lean. Connect with startups in the ecosystem, as well as the big players. Try to get a sneak peek around the corner for what the big players are doing, because this will dictate product and distribution strategy.

 

You should be testing your ideas early and often. VR is psychologically demanding in terms of spatial awareness and you should conduct user testing with a diverse audience. How will women react to your experience? How does the experience differ for a short or tall person? Do people from different cultures react differently? Knowing the answers to these questions can make or break your user experience and chances for success.

 

Kobie Fuller, general partner at UpFront Ventures

Opportunities: The intersection of VR and training is a compelling opportunity. This includes platforms with tools that leverage VR to better teach people anything from life skills to trade skills. The immersive medium is a much more intuitive and effective means of delivering certain types of training compared to traditional 2D content and videos. When applied correctly, VR education can make a seemingly expensive VR rig seem like a no-brainer investment that can fundamentally change one’s life.

Above: Kobie Fuller

 

While this is more related to AR than VR, being able to supplement workers in the field is promising. This includes the ability for people on work sites to gain real-time feedback and direction from HQ to accomplish some sort of task. This could be particularly valuable to companies dealing with physical infrastructure for construction, maintenance, and repairs.

 

Tips: Know what you’re getting yourself into. This is a marathon, not a sprint. You’ll need to be patient and realize that you may be at this for years until you see meaningful adoption around what you are doing.

 

As you’re raising capital, be careful not to waste your time talking to “tire kickers”: investors who take meetings just to be educated but who aren’t serious about writing checks. Vet your potential investors up front by checking if they have a thesis around your specific areas of focus. What would excite them about your venture?

 

Since the VR ecosystem is still a tight knit circle, network with startup founders in the space who have raised capital. They’ll have a good idea of which investors will be a good fit for you, based on their investment theses and outlook.

 

Finally, remember that VR should enable experiences that were previously impossible. An example of this is The Wave VR, which enables an immersive social music experience that is unique. VR platforms are and will continue to be a significant investment of resources for people, so they must enable experiences that are impossible to access anywhere else.

 

Greg Castle, founder and managing partner at Anorak Ventures

Above: Greg Castle

 

Opportunities: Within enterprise VR, there are great opportunities for teams who have specific areas of expertise that can be applied to simulations and training. An example of this is Limbix, who have assembled a team of mental health experts and software developers. By combining industry knowledge with spatial computing, they are providing a suite of tools for mental health professionals. Likewise, the CEO of OssoVR is an orthopedic surgeon who brings years of training and experience to bear on his VR surgical simulation company.

 

Enterprise collaboration is also an area showing great promise. While Limbix lets mental health professionals walk you through simulations, Insite VR, enables you to collaborate on architecture, construction, and engineering projects. As the technology, portability and ergonomics behind VR headsets improves in the coming years, the opportunities for specialist teams providing training and simulations will continue to grow.

 

Tips: Now is a good time to get into the market. That said, VR startups still need to be capital efficient and manage their burn. Your products should leverage the innate powers of VR to transport people to new places. Be careful not to take concepts from 2D computing that have worked in the past and try to shoehorn them into VR. Finally, whenever possible, adding social capabilities to your platform can be extremely valuable. The content that wins enables people to experience and enjoy immersive experiences with others.

 

Matt McilWain, managing director at Madrona Venture Group

Opportunities: We’re interested in the idea of “multisense” opportunities. That is, evolving forward from the rudimentary inputs VR uses today, toward improved voice interactions, eye tracking, gestures — all of these different areas can combine to produce huge breakthroughs in user experience. We’ve reached a point in the stability and accessibility of VR headsets where we can, and should, begin exploring these areas in both consumer and enterprise use cases.

Above: Matt McilWain

 

Shared presence experiences across multiple types of devices and applications will be a shift in the near future. Companies like Pluto VR are making strides in this space by enabling people to feel like they are in the same space. In the mixed reality future, we could see a merging of VR and AR to enable shared presence experiences across both types of devices.

 

Tips: First, be frugal and disciplined with your capital. Learn from companies that have survived the lean years of the VR market and see how they made it.

 

Second, look for real product-market validation. Test a broad user group to better understand the product idea you’re bringing to market. Focus on usage adoption trends and ride that wave.

 

Third, explore the boundaries of multi-sense opportunities. Where are the boundaries of VR/AR interactions, particularly in regards to voice and gestures? Great opportunities will emerge from making these work together seamlessly.

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