Presence Capital Takes the Temperature of VR/AR at Mid-Year

This week we checked in with Presence Capital, a San Francisco-based venture capital firm that specializes in virtual reality and augmented reality startups. Presence, which made its first investment in July 2015, has now invested in 33 companies, including VR animation studio Baobab; Strivr, a creator of VR training systems; Meta, the developer of a 3D hologram headset; and Applied VR, which uses virtual reality in healthcare. Its many co-investors include Andreesen Horowitz, Betaworks, SVAngel, and Sequoia. Presence raised a $10 million fund from investors in 2015.

The small specialty venture firm has backed a wide variety of ideas, while trying to predict where the newborn VR and AR market will head over the next five or ten years. Presence is seizing near-term opportunities in business uses of these technologies, while looking ahead to a time when the device universe will settle on some standard operating systems and features that might expand a mass audience. Managing partner Amitt Mahajan says he expects Apple and Google to take the lead in those areas. The venture firm’s average investment is $200,000, but the range is $100,000 to $500,000, Mahajan says. Mahajan previously co-founded MyMiniLife, which was acquired by Zynga; and at Zynga he co-created the game FarmVille.

We asked Mahajan to interpret the industry landscape as it has rolled out over the pivotal past two years for VR/AR technology. First, a brief summary to set the stage for our Q&A:

Last year, the release of the first consumer versions of high-end virtual reality headsets such as Facebook’s Oculus Rift and HTC Vive spurred excitement as the long-anticipated potential of VR became, well…reality.

This year, we’re seeing reality play out in mundane business terms, like the numbers of headsets actually sold, and at what price points. Price matters, as Sony sold more than a million units of its relatively inexpensive PlayStation VR headset, launched in October, while Facebook dropped the price of its Oculus Rift twice. Both compete against simple devices like Samsung’s GearVR, a headset that adapts a mobile phone to deliver VR experiences.

Although millions of headsets of varying types have been sold, hardware sales still depend on the supply of VR content—and vice versa.

In 2017, reality bites for AltspaceVR—one of the first startups to create social spaces in virtual reality. The company, running out of money, decided to shut down, and held its farewell party Thursday. Meanwhile, San Francisco-based Linden Lab, creator of the 3D world Second Life, opened its social VR world Sansar in beta to the public on July 31.

Augmented reality moved to the foreground this year as Google revived its Google Glass—which had been spurned by consumers—as Glass Enterprise Edition, a headset that’s been under development as a business tool for training and other purposes. In other AR plays, Microsoft’s HoloLens and Plantation, FL-based Magic Leap are offering an alternative to fully immersive VR by exploring the projection of holograms into the natural environment.

Here’s a transcript of our interview, lightly edited for clarity:

Xconomy: Last year was a high-profile year for VR, with the market release of many VR headset models. Is there now a waning of public attention and consumer interest in VR products, and a drop in headset sales, and in prices? Has that affected VC decisions?

Amitt Mahajan: I think a lot of people have gotten the chance to try VR at some level, but very few have tried the fully immersive, Vive/Oculus Touch-level of VR. Many people see the potential, but think it’s a niche thing at the moment, and we tend to agree due to form factor, complexity in setting the system up, and cost. All of these will become more approachable in the next few years.

X: How have your investment choices shifted since Presence started investing? In what directions?

AM: We’ve started to focus more on B2B [business to business] and enterprise use cases of VR, and less on consumer. For example, AppliedVR is selling hospitals a VR solution for patients undergoing painful procedures. The idea is that they can improve patient comfort levels through immersive experiences.

X: Which of your portfolio companies are already earning revenue (if any)?

AM: Many of our B2B businesses have paying customers, especially the ones in training. Strivr recently announced a deal with Walmart, for example. Some of the VR game companies in our portfolio have paying customers as well.

X: How about VR uptake among businesses, for training and other uses? Is this the main source of revenue for VR startups?

AM: I think so. If you’re using VR for training, for example, you can figure out how much efficiency gain you’re getting from the adoption of a VR training system and calculate a return on that investment. It makes it really easy to make a business case for using VR, something that’s a lot harder to do with consumers.

X: Why do you think VR can yield a return on investment?

AM: If I’m a business that is using VR to train my employees, I’m saving money on human instructors, finding it easier and faster to train my employees, and potentially ending up with employees that are better trained than those that take a single class or read an operating manual. I can calculate out what that means, too, in terms of dollars saved and see if it outweighs the cost of the VR equipment and software.

AR and VR can transform the nature of work today, and that’s really exciting from a business perspective as the cost and form factor of the headsets don’t matter to businesses that see ROI from adopting these technologies. Apple’s release of ARKit is critical for consumer adoption of AR, and we expect that the iPhone8 will be a hot item that puts proper AR (and potentially mobile VR) into hundreds of millions of consumers’ hands.

X: Recently, attention has shifted to AR software and device combinations such as Facebook’s Camera Effects, Glass Enterprise Edition, Apple’s ARKit, Snapchat Spectacles, Google Tango AR, and Microsoft’s HoloLens. Will mobile AR undercut the adoption of VR, which is seen by some as cumbersome and socially isolating?

AM: I think it’s enabling. If the iPhone 8 has an OLED screen, for example, because of AR requirements, it also enables VR applications to run on those devices. Sometimes you want AR and sometimes you want to be fully immersed; I view them as simply different tools that are used to solve different problems.

X: How can VCs and startups cope with the constantly shifting landscape of AR/VR device formats?

AM: For startups, they need to raise enough capital and pick a macro that ideally works independent of device changes. For example, Scope AR builds … Next Page »

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