際際滷

際際滷Share a Scribd company logo

Where to invest money and time in VR & AR - Andrew Lacy

Andrew Lacy
Andrew Lacy

A high level guide for investors and entrepreneurs looking to invest their money or start a company in the virtual reality and augmented reality space.

1 of 26
Where to invest money (and time) in VR/AR? October 2016 image 息 Maurizio Pesce
Investors Entrepreneurs Form your own investment thesis rather than follow the herd! Decide where you want to invest the next 10 years of your life! Why is this important? Caveat: dont always listen to these guys image 息 Adrian Brooks, Imagewise Limited image 息 svetlinnikolaev
VR is the next social platform Zuckerberg Augmented/Virtual Reality to hit $150 billion by 2020, disrupting mobile Digi-Capital + VR and AR is the next computing platform Goldman Sachs image 息 Mike Licht image 息 Digi-Capital Many are claiming that this is the next big disruptive platform so what can we learn from the platform that preceded it? images 息 Facebook, Mike Licht and Digi-Capital
So what can we learn from the mobile wave that preceded it?
2. Speed? 1. Enormity? 3. Composition? I want to look brie鍖y at three components of value creation how big will it actually be? how fast will it grow? what are the themes, business models, verticals?
1. Enormity - Mobile was big because it didnt directly compete with other platforms ate low utility free time enabled completely new use cases = no readily available substitutes = muted competition = virgin grow the pie revenues Mobile
1. Enormity - VR and AR arguably impact a much wider set of industries and platforms but has large substitutes and hence competitors eats hardcore gaming and enables new use cases = direct substitute for console/PC gaming VR AR potentially eats mobile potentially eats computers potentially eats televisions and enables new use cases = direct substitute for several industries
images 息 MIT media lab, Magic Leap If it could replace . the phone the computer the TV $350B industry $375B industry $115B industry + + = $840B of addressable hardware to disrupt 1. Enormity - This large potential comfortably supports the large valuation of companies like magic Leap so a 3% of capturing 30% market share of that is already worth $10b!
2. Timing - Mobile actually took a lot longer to grow than we remember 0 350 700 1050 1400 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Million devices NTT DoCoMo poor data speeds poor interface not rich very closed platform Crackberry better interface poor data speeds not rich very closed platform iPhone better interface good data speeds rich, touch-based closed platform (until 2008) Android better interface good data speeds rich, touch-based open platform BOOM!!!!
2. Timing - VR and AR feels like mobile 2004, not yet 2008 Million devices 0 350 700 1050 1400 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Oculus DK poor experience poor portability expensive lack of content Magic Leap good experience better portability expensive lack of content Vive/Oculus better experience poor portability expensive lack of content iPhonesque great interface portable cheap closed Androidesque great interface portable cheap open BOOM!!!! ? ?
other than they both involve putting cool stuff on your head images 息 Jason Farrell & Gamer Story 3. Composition - Caveat - VR and AR are not all that similar!
images 息 Jason Farrell & Gamer Story VR is about being somewhere else and wanting to transport yourself to content AR is about making me more productive or bringing utility by bringing content to where I am 3. Composition - One creates presence while the other one takes it away What places do I currently have to be that I really dont want to or cannot physical be? What content could I bring to where I am physically to enhance my experience?
images 息 Jason Farrell & Gamer Story What places do I currently have to be that I really dont want to or cannot physical be? What content could I bring to where I am physically to enhance my experience? 3. Composition - Each leads to very different use cases - At work? tele-working - At school? education - In hazardous environments? training - At experiences? sport, concerts, travel - At work? noti鍖cations, process-oriented ef鍖ciency improvements, device replacements, training - At home? device replacements, interior decoration
Applications Hardware Platform HMDs Inputs Haptics Distribution Engines Capture Advertising Analytics Test Games Travel Sports/Live Entertainment Healthcare Education Entertainment 360 Video Enterprise Social Virtual Spaces Telecommuting Training Dating Real Estate See @tipatap for a great overview of companies in each vertical 3. Composition - I look at VR and AR opportunities as largely falling into three categories
Hardware Platform Entertainment Enterprise Social Investment required Very high (manufacturing) Medium/high (must grow with platform) Low (dev cost only) Low/medium (often funded by enterprises) Very high (rarely directly monetized) Time to market Slow (R&D) Fast (Low initial expectations) Fast (low initial expectations) Medium (often captive to clients) Slow (complicated, network effects) Revenue model Unit sales (+ distribution) Free (later SAAS) Paid (later freemium) Paid (later SAAS) Free (later indirect) Barriers to entry High (expensive to start & differentiate) Medium (customer lockin) Low (constant churn of interests) Medium (customer lockin) High (network effects) # Winners Very few Few per category Many (though few for long) Few per category Few Degree of competition Low Medium High Medium Low Breakeven customers High (low margin, amortized R&D) Medium/high ( depends on competition) Medium, later high (competition erodes) Few, later high (productization drives subscription) All (scale unlocks other options) 3. Composition - These categories each have quite different business models
3. Composition - Hardware - really a bet to be the next Apple, Samsung, Sony Investment required Time to market Revenue model Barriers to entry # Winners Degree of competition Very high (manufacturing) Slow (R&D) Unit sales (+ distribution) High (expensive to start & differentiate) Very few Low Breakeven customers High (low margin, amortized R&D) $350B $150B $80B $34B Mobile wave success cases: What you have to believe: That VR and AR hardware evolves to be fully integrated platforms not just peripherals That the underlying technology is novel enough and can be effectively protected by patents, creating barriers to entry That open source efforts (eg Tango) dont destroy too much value That you can credibly raise A LOT of money to get off the ground or you can alternately focus on smaller hardware components that larger players might want $390M $121M $278M $356M Integrated Component
3. Composition - Platform - lots of medium size company, pragmatic approach Investment required Time to market Revenue model Barriers to entry # Winners Degree of competition Medium/high (must grow with platform) Fast (Low initial expectations) Free (later SAAS) Medium (customer lockin) Few per category Medium Breakeven customers Medium/high ( depends on competition) Mobile wave success cases: $750M $275M $200M $350M $104M $250M $100M What you have to believe: The VR & AR will require similar platform development as mobile did (likely) Incumbents on other platforms are slow to take up AR & VR (likely) Likely candidates include VR/AR versions of existing platform plays - ad systems, analytics, development tool chains, performance monitoring, testing, security - as well as platform elements unique to VR/AR - avatar systems, broadcast platforms, face tracking, emotion, etc
3. Composition - Entertainment - likely too early to support meaningful exits Investment required Time to market Revenue model Barriers to entry # Winners Degree of competition Breakeven customers $7B $3B $5B $2B Mobile wave success cases: What you have to believe: That VR and AR gaming/entertainment will be more like console and high MSRPs and several unicorns That the market exists to support the budgets required to make compelling games (presently this is not the case) That building games this early in the platform growth cycle will create platform possibilities That there is defensible platform know-how that is dif鍖cult to emulate Low (dev cost only) Fast (low initial expectations) Paid (later freemium) Low (constant churn of interests) Many (though few for long) High Medium, later high (competition erodes) $1B $1B
Investment required Time to market Revenue model Barriers to entry # Winners Degree of competition Breakeven customers $4B What you have to believe: That an enterprise play is a smart way to fund fund your R&D that that can be later be productized (less need for VC/Angel investment) That enterprise customers are more willing to experiment with VR and AR and hence can be early adopters That you can build meaningful revenues form a smaller number of customers (you don't necessarily need mass adoption to build something valuable) Low/medium (often funded by enterprises) Medium (often captive to clients) Paid (later SAAS) Medium (customer lock-in) Few per category Medium Few, later high (productization drives subscription) NB: Most enterprise mobile application tend to be multi-platform and part of larger companies Mobile wave success cases: 3. Composition - Enterprise - a smart model for European VR & AR companies
Investment required Time to market Revenue model Barriers to entry # Winners Degree of competition Breakeven customers $25B $18B $1B Mobile wave success cases: What you have to believe: That VR & AR will grow faster than expected, as social networks because exponentially more valuable the more users you have That Facebook, WeChat and WhatsApp will not successful transition to this new platform That you can hunker down for many years without any signi鍖cant revenue streams Very high (rarely directly monetized) Slow (complicated, network effects) Free (later indirect) High (network effects) Few Low All (scale unlocks other options) 3. Composition - Social - potentially big, but very early today as requires scale $85B
Applications Hardware Platform Entertainment Enterprise Social AR Hardware 0.8B VR Hardware 0.15B Video 0.2B Solutions 0.2B Games 0.2B Advertising 0.1B Distribution 0.1B Peripherals 0.03B Social 0.05B 58% 12% 24% 12% 3% Probably Under-invested Way too early Pre-requisite Over-invested at this stage Under-invested 3. Composition - Where investment money as of Q2 2016 has gone
Some critical investing questions I ask High uncertainty especially as to speed and how any one vertical my evolve? Situation In addition to the standard questions I might ask a startup, I focus on two critical ones: 1. How fundamentally strong is the product use case? (ie. real value or gimmick) 2. What degree of pivotability does the startups/founders o鍖er?
Will 360 video really be the next broadway or will it always be a novelty niche? Will immersive biology replace textbooks, or just satisfy our inner voyeur? Will VR sports really substitute for actually being there? Will with VR social experience be better or worse than real life? 1. How fundamentally strong is the product use case? What of what we are seeing will be tomorrows fad?
2008 Now 1. How fundamentally strong is the product use case? Much of what was successful in early mobile never stood the test of time
2. What degree of pivotability does the startup o鍖er? Many mobile winners underwent signi鍖cant pivots TapDefense Tapjoy tower defense game global incentivized install network AuroraFeint weird tetris-like game OpenFeint social mobile gaming network
andrewl@gmail.com andrewllacy andrewlacy Andrew Lacy Advisor | Investor | Entrepreneur San Francisco | London THANKS

More Related Content

Where to invest money and time in VR & AR - Andrew Lacy

  • 1. Where to invest money (and time) in VR/AR? October 2016 image 息 Maurizio Pesce
  • 2. Investors Entrepreneurs Form your own investment thesis rather than follow the herd! Decide where you want to invest the next 10 years of your life! Why is this important? Caveat: dont always listen to these guys image 息 Adrian Brooks, Imagewise Limited image 息 svetlinnikolaev
  • 3. VR is the next social platform Zuckerberg Augmented/Virtual Reality to hit $150 billion by 2020, disrupting mobile Digi-Capital + VR and AR is the next computing platform Goldman Sachs image 息 Mike Licht image 息 Digi-Capital Many are claiming that this is the next big disruptive platform so what can we learn from the platform that preceded it? images 息 Facebook, Mike Licht and Digi-Capital
  • 4. So what can we learn from the mobile wave that preceded it?
  • 5. 2. Speed? 1. Enormity? 3. Composition? I want to look brie鍖y at three components of value creation how big will it actually be? how fast will it grow? what are the themes, business models, verticals?
  • 6. 1. Enormity - Mobile was big because it didnt directly compete with other platforms ate low utility free time enabled completely new use cases = no readily available substitutes = muted competition = virgin grow the pie revenues Mobile
  • 7. 1. Enormity - VR and AR arguably impact a much wider set of industries and platforms but has large substitutes and hence competitors eats hardcore gaming and enables new use cases = direct substitute for console/PC gaming VR AR potentially eats mobile potentially eats computers potentially eats televisions and enables new use cases = direct substitute for several industries
  • 8. images 息 MIT media lab, Magic Leap If it could replace . the phone the computer the TV $350B industry $375B industry $115B industry + + = $840B of addressable hardware to disrupt 1. Enormity - This large potential comfortably supports the large valuation of companies like magic Leap so a 3% of capturing 30% market share of that is already worth $10b!
  • 9. 2. Timing - Mobile actually took a lot longer to grow than we remember 0 350 700 1050 1400 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Million devices NTT DoCoMo poor data speeds poor interface not rich very closed platform Crackberry better interface poor data speeds not rich very closed platform iPhone better interface good data speeds rich, touch-based closed platform (until 2008) Android better interface good data speeds rich, touch-based open platform BOOM!!!!
  • 10. 2. Timing - VR and AR feels like mobile 2004, not yet 2008 Million devices 0 350 700 1050 1400 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Oculus DK poor experience poor portability expensive lack of content Magic Leap good experience better portability expensive lack of content Vive/Oculus better experience poor portability expensive lack of content iPhonesque great interface portable cheap closed Androidesque great interface portable cheap open BOOM!!!! ? ?
  • 11. other than they both involve putting cool stuff on your head images 息 Jason Farrell & Gamer Story 3. Composition - Caveat - VR and AR are not all that similar!
  • 12. images 息 Jason Farrell & Gamer Story VR is about being somewhere else and wanting to transport yourself to content AR is about making me more productive or bringing utility by bringing content to where I am 3. Composition - One creates presence while the other one takes it away What places do I currently have to be that I really dont want to or cannot physical be? What content could I bring to where I am physically to enhance my experience?
  • 13. images 息 Jason Farrell & Gamer Story What places do I currently have to be that I really dont want to or cannot physical be? What content could I bring to where I am physically to enhance my experience? 3. Composition - Each leads to very different use cases - At work? tele-working - At school? education - In hazardous environments? training - At experiences? sport, concerts, travel - At work? noti鍖cations, process-oriented ef鍖ciency improvements, device replacements, training - At home? device replacements, interior decoration
  • 14. Applications Hardware Platform HMDs Inputs Haptics Distribution Engines Capture Advertising Analytics Test Games Travel Sports/Live Entertainment Healthcare Education Entertainment 360 Video Enterprise Social Virtual Spaces Telecommuting Training Dating Real Estate See @tipatap for a great overview of companies in each vertical 3. Composition - I look at VR and AR opportunities as largely falling into three categories
  • 15. Hardware Platform Entertainment Enterprise Social Investment required Very high (manufacturing) Medium/high (must grow with platform) Low (dev cost only) Low/medium (often funded by enterprises) Very high (rarely directly monetized) Time to market Slow (R&D) Fast (Low initial expectations) Fast (low initial expectations) Medium (often captive to clients) Slow (complicated, network effects) Revenue model Unit sales (+ distribution) Free (later SAAS) Paid (later freemium) Paid (later SAAS) Free (later indirect) Barriers to entry High (expensive to start & differentiate) Medium (customer lockin) Low (constant churn of interests) Medium (customer lockin) High (network effects) # Winners Very few Few per category Many (though few for long) Few per category Few Degree of competition Low Medium High Medium Low Breakeven customers High (low margin, amortized R&D) Medium/high ( depends on competition) Medium, later high (competition erodes) Few, later high (productization drives subscription) All (scale unlocks other options) 3. Composition - These categories each have quite different business models
  • 16. 3. Composition - Hardware - really a bet to be the next Apple, Samsung, Sony Investment required Time to market Revenue model Barriers to entry # Winners Degree of competition Very high (manufacturing) Slow (R&D) Unit sales (+ distribution) High (expensive to start & differentiate) Very few Low Breakeven customers High (low margin, amortized R&D) $350B $150B $80B $34B Mobile wave success cases: What you have to believe: That VR and AR hardware evolves to be fully integrated platforms not just peripherals That the underlying technology is novel enough and can be effectively protected by patents, creating barriers to entry That open source efforts (eg Tango) dont destroy too much value That you can credibly raise A LOT of money to get off the ground or you can alternately focus on smaller hardware components that larger players might want $390M $121M $278M $356M Integrated Component
  • 17. 3. Composition - Platform - lots of medium size company, pragmatic approach Investment required Time to market Revenue model Barriers to entry # Winners Degree of competition Medium/high (must grow with platform) Fast (Low initial expectations) Free (later SAAS) Medium (customer lockin) Few per category Medium Breakeven customers Medium/high ( depends on competition) Mobile wave success cases: $750M $275M $200M $350M $104M $250M $100M What you have to believe: The VR & AR will require similar platform development as mobile did (likely) Incumbents on other platforms are slow to take up AR & VR (likely) Likely candidates include VR/AR versions of existing platform plays - ad systems, analytics, development tool chains, performance monitoring, testing, security - as well as platform elements unique to VR/AR - avatar systems, broadcast platforms, face tracking, emotion, etc
  • 18. 3. Composition - Entertainment - likely too early to support meaningful exits Investment required Time to market Revenue model Barriers to entry # Winners Degree of competition Breakeven customers $7B $3B $5B $2B Mobile wave success cases: What you have to believe: That VR and AR gaming/entertainment will be more like console and high MSRPs and several unicorns That the market exists to support the budgets required to make compelling games (presently this is not the case) That building games this early in the platform growth cycle will create platform possibilities That there is defensible platform know-how that is dif鍖cult to emulate Low (dev cost only) Fast (low initial expectations) Paid (later freemium) Low (constant churn of interests) Many (though few for long) High Medium, later high (competition erodes) $1B $1B
  • 19. Investment required Time to market Revenue model Barriers to entry # Winners Degree of competition Breakeven customers $4B What you have to believe: That an enterprise play is a smart way to fund fund your R&D that that can be later be productized (less need for VC/Angel investment) That enterprise customers are more willing to experiment with VR and AR and hence can be early adopters That you can build meaningful revenues form a smaller number of customers (you don't necessarily need mass adoption to build something valuable) Low/medium (often funded by enterprises) Medium (often captive to clients) Paid (later SAAS) Medium (customer lock-in) Few per category Medium Few, later high (productization drives subscription) NB: Most enterprise mobile application tend to be multi-platform and part of larger companies Mobile wave success cases: 3. Composition - Enterprise - a smart model for European VR & AR companies
  • 20. Investment required Time to market Revenue model Barriers to entry # Winners Degree of competition Breakeven customers $25B $18B $1B Mobile wave success cases: What you have to believe: That VR & AR will grow faster than expected, as social networks because exponentially more valuable the more users you have That Facebook, WeChat and WhatsApp will not successful transition to this new platform That you can hunker down for many years without any signi鍖cant revenue streams Very high (rarely directly monetized) Slow (complicated, network effects) Free (later indirect) High (network effects) Few Low All (scale unlocks other options) 3. Composition - Social - potentially big, but very early today as requires scale $85B
  • 21. Applications Hardware Platform Entertainment Enterprise Social AR Hardware 0.8B VR Hardware 0.15B Video 0.2B Solutions 0.2B Games 0.2B Advertising 0.1B Distribution 0.1B Peripherals 0.03B Social 0.05B 58% 12% 24% 12% 3% Probably Under-invested Way too early Pre-requisite Over-invested at this stage Under-invested 3. Composition - Where investment money as of Q2 2016 has gone
  • 22. Some critical investing questions I ask High uncertainty especially as to speed and how any one vertical my evolve? Situation In addition to the standard questions I might ask a startup, I focus on two critical ones: 1. How fundamentally strong is the product use case? (ie. real value or gimmick) 2. What degree of pivotability does the startups/founders o鍖er?
  • 23. Will 360 video really be the next broadway or will it always be a novelty niche? Will immersive biology replace textbooks, or just satisfy our inner voyeur? Will VR sports really substitute for actually being there? Will with VR social experience be better or worse than real life? 1. How fundamentally strong is the product use case? What of what we are seeing will be tomorrows fad?
  • 24. 2008 Now 1. How fundamentally strong is the product use case? Much of what was successful in early mobile never stood the test of time
  • 25. 2. What degree of pivotability does the startup o鍖er? Many mobile winners underwent signi鍖cant pivots TapDefense Tapjoy tower defense game global incentivized install network AuroraFeint weird tetris-like game OpenFeint social mobile gaming network
  • 26. andrewl@gmail.com andrewllacy andrewlacy Andrew Lacy Advisor | Investor | Entrepreneur San Francisco | London THANKS