Although the term metaverse has been around for nearly 30 years, Facebook’s rebranding to Meta in late October 2021 seems to have reignited investor interest in it. Among them, virtual reality (VR) and augmented reality (AR) technologies play an important role in this concept.
The fourth quarter of last year was unlike any other in terms of venture capital interest in the VR/AR space. Nearly $1.9 billion in venture capital flowed into AR/VR hardware and software startups, more than in any previous quarter, according to enterprise services database firm Crunchbase.
The data also shows that Q4 VC growth helped make 2021 the second-highest year for VR/AR investment, with nearly $3.9 billion in VC funding going into startups, second only to 2018. At the time, venture capital in the space was approaching $4.4 billion, thanks to massive funding rounds from companies like Magic Leap and SenseTime.
Seven of the 10 larger VR/AR funding rounds in 2021 occurred in the fourth quarter, including:
- Florida-based wearable technology maker Magic Leap raised $500 million in October;
- San Francisco-based AR platform builder Niantic closed a $300 million Series D in November;
- South Korea-based 3D avatar app developer NAVER Z also raised $188.2 million in Series B bond financing in November.
Pushers are more than just the metaverse
While the increase in VC funding in VR is easily a catchy term, industry insiders say the renewed interest in the field stems from something deeper. “I think what you’re seeing right now is the culmination of a 20-, 30-year struggle,” said Josh Sackman, president and co-founder of Van Nuys, Calif.-based AppliedVR. ”
Improvements in VR streaming and chips have helped propel the industry into new verticals, Sackman said. His company, which provides VR-based treatments to patients, was one of the companies to raise money in the fourth quarter of last year, closing a $36 million Series B in November.
Zack Lynch, the managing partner of Jazz Venture Partners, said when he first used VR technology in 2013, he knew it wasn’t for the masses. But as technology has advanced, this has changed. Jazz Venture Partners participated in AppliedVR’s Series B funding round.
Right now, we absolutely think VR is something that’s bound to happen,” Lynch said, adding that while VR may take a few years to be embraced by the general public, companies like AppliedVR have proven a viable business mode that does not require VR or immersive technology. The company has shown the ability to create value before mass adoption.
According to Joel-Oskar Raisanen, an investor in the GP Bullhound venture capital fund, the basic concept of the metaverse is the fusion of someone’s digital identity with their real-world location. People can already see this happening, such as using social media or gaming accounts to log into different platforms instead of their real names.
However, Ressanen still thinks it will take much longer for life in VR/AR to be widely adopted. “We’re still waiting for mainstream adoption,” he said. “We’re seeing huge improvements, hampered by hardware, but it’s probably still not at the level people thought five years ago.”
Enterprises may be the first to adopt
When San Francisco-based ManageXR raised funds last year, the company didn’t use the term “metaverse” in its pitch, as that was before Meta’s announcement of a name change.
“If it were after Meta, I would probably do it,” joked Luke Wilson, CEO and founder of the company, which helps businesses manage their VR and AR devices through its platform. Regardless, the company closed the $4 million round it announced last December.
Wilson said ManageXR has grown from about 30 customers to more than 100 customers in about 10 months, from Startups to large corporations. Just last October, Accenture, one of the world’s largest consulting firms, announced that it would buy 60,000 Oculus Quest 2 headsets for employee training.
Like others, however, Wilson doesn’t attribute the increase in corporate and investor interest to the metaverse. Since announcing the funding round, he said he’s been getting inquiries from venture capitalists “every other day.” He sees the renewed interest as a result of advances in VR technology and improved hardware quality and affordability.
“I don’t think it’s just about the metaverse,” Wilson said. “We just want businesses to be able to use VR, not necessarily live in it.”
Laying the groundwork for the Metaverse
Similar to ManageXR’s fundraising story, the Metaverse hadn’t become a buzzword yet when Mountain View, Calif.-based InWorld AI pitched to investors this summer. The company, which provides an artificial intelligence (AI) development platform for immersive realities such as the Metaverse, has received a lukewarm responses from investors, said CEO and co-founder Ilya Gelfenbyn. “In July, investors told us that VR was no longer a hot topic, and they said that was two years ago,” he said.
But Gelfinbain said the company was still able to comfortably close the $7 million seed round it announced last November. However, since announcing the deal, the company has received so many inquiries from outside investors that it has had to decide to issue a dedicated announcement in the coming weeks. “The interest is growing,” Gelfinbain said.
While discussions and headlines about the Metaverse will certainly help the VR/AR space, Gelfenbain said he thinks the growing interest in the Metaverse is driven by a growing appetite for more physicality. The desire for an immersive experience. He points to Microsoft’s recent announcement of a $70 billion acquisition of game developer Activision Blizzard as evidence. “Basic technological trends in the metaverse have emerged,” he said.