If there’s one thing the start-up world is full of, its buzzwords. In an industry where speed of disruption and change are the only two constants, many tech trends are here today and sadly, gone tomorrow.
So the industry and even the wider community can be forgiven for thinking that Augmented Reality (AR) and Virtual Reality (VR) could be (pardon the pun) illusions or more short-lived buzzwords. But are they?
The early birds
Many angel and other early stage investors don’t think so. I don’t think. Along with two other women, I invested in Sydney-based VR company Humense almost a year ago when the technology was just gaining momentum. This was just around the time funding into this sector started taking off. A report shows that $1.7 billion was invested into AR and VR in the 12 months to March 2016 – with almost $1.2 billion invested in the first quarter of 2016 alone.
If you compare these numbers against the nearly $4 billion that investors have put into the market since 2010, it shows the scale of growth of the technology and mainstream potential for it. The biggest investment recipient with almost $800 million was Magic Leap, a company working on contact lenses with virtual reality functionalities.
Angel and venture capitalists are not alone in acknowledging this growing phenomenon. Top of the investment ladder are companies such as Google (which invested in Magic Leap), Facebook, Intel, and Alibaba. According to Wired, Facebook (which acquired Oculus Rift last year) has over 400 people working on VR and most recently announced it is investing $250 million more into developing VR content. Other companies such as Amazon, Microsoft, Apple, etc., have also dedicated staff to research AR and VR. What we are seeing now is just the tip of the iceberg.
Why AR/VR, why now?
While the concept of VR isn’t recent, lowered cost of handset and hardware production has made it more accessible to start-ups to experiment with. Added to this is another very important reason AR and VR are taking off – we, as human beings are looking for more unique and immersive experiences in everything we do.
From how we play games to how we shop and work, our experiences are getting more personalised and simulated. In an age where society is constantly looking for ‘more’, AR/VR deliver it. These technologies are using the age-old concept of storytelling to bring the world around people to life. People can now not just touch and see digital experiences; they can get entrenched and engage more deeply with it.
The Wired article puts it aptly stating that:
VR does two important things: One, it generates an intense and convincing sense of what is generally called presence. Virtual landscapes, virtual objects, and virtual characters seem to be there—a perception that is not so much a visual illusion as a gut feeling. That’s magical. But the second thing it does is more important. The technology forces you to be present—in a way flatscreens do not—so that you gain authentic experiences, as authentic as in real life. People remember VR experiences not as a memory of something they saw but as something that happened to them. Experience is the new currency in VR.
You need not look beyond the PokemonGo craze to get a sense of how experiences are merging our real and virtual worlds.
While mainstream application of AR and VR will still take a while, the technologies are slowly demonstrating potential beyond their gaming heritage. From shaping shopping experiences to how we watch movies, the future is filled with possibilities. But the technology will only be as good as the content and experiences it delivers.
To maintain the investment momentum, AR and VR have to focus on making the technology relevant to a wider group of people and focus on making money off it. Given the nascence state of the industry and the lack of defined financial models, it will not win over all investors – especially mainline VC firms such as Series B onwards. Only sound revenue models and mainstream adoption / application will help win over later stage investors.
Regardless of when AR or VR become mainstream, there’s no denying that the size and valuation of the market is increasing steadily. Just recently, Humense announced that it received funding from Chinese e-commerce giant Alibaba’s investment arm. Beyond the dungeons and dragons, the land of virtual is getting more real every single day.
About the author
Forming Circles Global, a unique angel investment and mentoring organisation that predominantly invests in female-led technology start-ups. Renata Cooper primarily invests in women founded/led technology start-ups and her portfolio includes US-based CloudPeeps and StorReduce, Australia-based iVvy, Our Little Foxes, Workible, Good360 and Handkrafted. See also: Entrepreneur creating the ripple effect.Renata Cooper is the founder and CEO of