The fourth quarter of last year was unlike any other in terms of venture interest in the VR/AR space. Nearly $1.9 billion in venture capital has been invested in virtual and augmented reality software and hardware startups, according to Crunchbase, more than in any quarter.
This year-end jump helped make 2021 the second-best year for VR/AR investment, with almost $3.9 billion of investment flowing into startups — second only to 2018, which raised almost $4.4 billion thanks to several large rounds of such companies. like Magic Leap and SenseTime. according to Crunchbase.
Seven of last year's top 10 rounds occurred in the fourth quarter, including:
Florida-based wearable electronics maker Magic Leap raised a $500 million round in October;
San Francisco-based augmented reality platform maker Niantic closed a $300 million Series D in November; and
South Korean 3D avatar app developer NAVER Z also raised an estimated $188.2 million worth of Series B in November.
Not only the metaverse
While the increase in venture capital funding in virtual reality is easy and convenient to associate with a catchy term, the new interest in this area stems from something deeper, industry insiders say.
"I think what you're seeing is the culmination of a 20-30 year struggle," said Josh Sackman, president and co-founder of AppliedVR in Van Nuys, California.
Sackman said improvements in virtual reality streaming and chips have helped the industry reach new verticals. His company offers VR-based therapeutic treatments to patients and was one of the first to raise funding in the fourth quarter, receiving $36 million in Series B in November.
Zach Lynch, managing partner at Jazz Venture Partners, which competed in AppliedVR Series B, said when he first used VR technology in 2013, he knew it wasn't ready for the masses. This has changed over the years as technology has improved.
“Right now we definitely think VR is what’s going to happen,” he said.
Lynch added that while VR mainstream adoption is likely to take years, companies like AppliedVR have proven a workable VR business model that doesn't need a metaverse or some big immersive world.
“Companies like AppliedVR have demonstrated the ability to create value before mass adoption,” he said.
Joel-Oskar Raisanen, an investor in GP Bullhound venture capital funds, said the core concept of the metaverse is the unification of a person's digital identity and their more physical place in the world. You can already see how this happens - for example, how people use their social networks or game logins on different platforms instead of their real names. However, he still believes that the widespread adoption of life in VR/AR is getting a bit further away.
“We are still waiting for mass adoption,” he said. “The hardware got in the way a bit, but we're seeing a lot of progress. Chances are it's still not what people thought it would be by this time five years ago."
Corporate implementation
When San Francisco-based ManageXR went out to fundraise last year, the company didn't use the term "metaverse" in its presentation, as that was before the Meta announcement.
“Maybe I would if it happened after,” joked Luke Wilson, CEO and founder of a company that helps companies manage their virtual and augmented reality devices through its platform.
Despite this, the company was able to close the $4 million round it announced in December.
The company has grown from about 30 clients - from startups to large enterprises - to more than 100 in about 10 months, Wilson said, as more companies seem to be intrigued by the idea of using virtual reality in aspects such as sales, training and onboarding.
In October alone, Accenture, one of the largest consulting firms in the world, announced it had acquired 60,000 Oculus Quest 2 headsets for employee training.
However, like others, Wilson doesn't attribute the surge in business and investor interest—since he announced the round, he said he's been getting inbound venture capital interest about "every day"—only to the metaverse.
Instead, he says, the renewed interest is an offshoot of advances in virtual reality technology, as well as improvements in the quality and availability of hardware.
“I don't think it's just about the metaverse,” Wilson said. "We're just trying to empower businesses to use virtual reality, not live in it."
Growth of the Metaverse
Like the ManageXR fundraising story, when California-based Inworld AI pitched investors in Mountain View over the summer, that was before the metaverse became a buzzword.
According to Ilya Gelfenbein, CEO and co-founder, the company, which offers a platform for AI developers for immersive realities like the metaverse, has received a tepid reception from some investors.
“In July, investors told us that virtual reality is no longer a sexual topic,” he said. "They said it was two years ago."
The company still easily closed the $7 million seed round it announced in November, he said. However, since the deal's announcement, Gelfenbein said the company has consistently received interest in incoming investments — so strong that another announcement will be made in the next few weeks.
“Interest is only growing,” Gelfenbein said.
While the chatter and headlines about the metaverse certainly help, Gelfenbein said he, too, simply sees the increased interest in space as part of people's desire for more immersive experiences. As further evidence of this, he points to Microsoft's recently announced $70 billion acquisition of Activision Blizzard.
“A fundamental technological trend is here for these virtual worlds,” he said.