“Gotta catch ’em all”
Pokémon Go isn’t the only breakout AR/VR success this year. Early stage VCs and corporates invested a record $2 billion into AR/VR startups in the last 12 months, despite the market still being in its earliest stages.
As the fourth wave of platform change (after PC, online and mobile) kicked off this year, the smart money is making significant bets on companies with the potential to survive the early stage market and dominate in the long term. Fortune favors the brave in early stage investment markets, and nobody wants to be part of the “Oops I missed it again” crowd (as Qualcomm Ventures Jason Ball puts it). The FOMO is strong with this one.
One small step for VC, one Magic Leap for VC-kind
Even though DFJ Partner Bubba Murarka says,“not all VCs have taken the red pill yet”, the VR Venture Capital Alliance was set up in the second quarter with 30 VC firms and over $10 billion in deployable capital. This isn’t coming just from corporates with a vested interest and specialist VR/AR VCs, but big name firms including DCM, GGV Capital, Matrix Partners, Redpoint Ventures and Sequoia. VR/AR investment is now moving beyond AR/VR innovator VCs to early adopter VCs, and the next 12 months could see early majority VCs joining in the fun.
While Magic Leap’s $794 million round took the headlines, that mammoth investment was only 40% of the total invested in the 12 months to June 2016. The remaining 60% went into AR/VR video, hardware, solutions and services, games, apps, advertising/marketing, tech, distribution and peripherals. The AR/VR investment market is now at an annual run rate over $1 billion even without the Magic Leap investment. This is beginning to look like a long term trend.
Buy, buy blackbird
AR/VR M&A has started to kick-off at scale, with major corporates buying their way towards leapfrogging the competition. The last 12 months to Q2 2016 saw $849 million of AR/VR acquisitions, with over half a billion dollars of AR/VR M&A in the second quarter alone. The biggest deals were in AR/VR tech, video and solutions/services, as well as advertising/marketing and games.
Digi-Capital‘s AR/VR M&A advisory business is seeing increasing demand from sellers looking for strong corporate platforms, and corporates looking to buy their way into the next big thing. If this level of deal flow continues, AR/VR’s M&A annual run rate could top the billion dollar mark by year’s end.
Up, up and away
While the market remains early stage, AR/VR leaders seem set to continue to raise significant rounds and be bought up by corporate acquirers. The runaway success of Pokémon Go reinforces what we’ve been saying since the start of last year. VR could be big, AR could be bigger and take longer.
Time to take the red pill.
You can read about all the AR/VR investments and M&As (including who is investing/acquiring and where the money is going) in Digi-Capital’s new Augmented/Virtual Reality Report Q2 2016 and bundled deals database