Another half a billion dollars was invested into virtual and augmented reality startups in the third quarter of this year, with a record $2.3 billion dollars invested in the last 12 months. Q3 2016 saw the 9th straight quarter of investment trending upwards, as the money flowing into AR/VR is now being driven by major Sand Hill Road VCs and corporate investors. With check sizes averaging $9.3 million (or $16.4 million excluding seed deals) in the quarter, AR/VR investment is rapidly going mainstream. Details are in Digi-Capital’s new Augmented/Virtual Reality Report and Deals Database Q3 2016.
The mainline VC and corporate world accounted for 86% of the number of investors in AR/VR startups in the third quarter. The big name financial investors included Fidelity, Intel Capital, Softbank, Kleiner Perkins Caufield and Byers, Sequoia, DCM, Qualcomm Ventures, Raine, CITIC and more. The roster of corporate investors joining the fun added Amazon, Alibaba and News Corp. So while specialist AR/VR VCs drove the early investment market, growing confidence and check sizes have led to the number of mainstream investors accelerating.
Excluding Magic Leap’s massive rounds in 2014 and at the start of this year, the overall growth trend for AR/VR investment has now been upwards for over 2 years. In the context of more general concerns about tech market investment, that continued confidence on the part of serious investors that virtual, augmented and mixed reality are the fourth wave of consumer technology change is even more impressive.
As investment has continued to grow, the balance of where the money is going has become broader. While Magic Leap’s $793.5 million round was astonishing, it took less than $4 of every $10 invested into the market. VR/AR solutions/services was the next largest category, with video following close behind including NextVR’s $80 million round from heavyweights like CITIC, Netease and Softbank. Moving beyond AR head mounted displays (“HMDs”), VR HMDs still took in a respectable level of investment despite the presence of major corporate competitors like Facebook, Samsung, Sony and HTC/Valve. AR/VR peripherals, games, advertising/marketing, applications, tech and distribution startups also raised substantial amounts.
As the AR/VR market goes through the well-trodden path of hype cycle, facing reality, liftoff and maturity, the smart money is looking to the long term. VR will be big. AR will be bigger (and take longer). While exact market timing is impossible to predict (as evidenced by the unanticipated success of Pokémon Go), folks who know how early stage investment markets work are betting increasingly heavily on AR/VR’s potential.
To help foster growing AR/VR investment, Digi-Capital is holding its private quarterly Reality Check forum for AR/VR CEOs, corporate divisional heads and VC General Partners to do deals and solve industry issues in October. A few free tickets remain for startup CEOs, so contact realitycheck @ digi-capital.com to find out more.