VC (venture capital) firms are generally interested in emerging technologies, including XR (extended reality) and other innovative technologies that have the potential to disrupt industries and generate significant financial returns.
The outlook for XR and other emerging technologies is positive, as these technologies are expected to continue to grow and evolve rapidly in the coming years. Many VC firms recognize the potential of XR and other technologies to create new markets and transform existing ones and are actively seeking out startups and projects that are focused on these areas.
Crunchbase reported that 2021 saw the second-best year ever for VR/AR investment, with nearly $3.9 billion of venture coming to start-ups. Extended reality technologies could potentially deliver a $1.5 trillion boost to the global economy by 2030, according to an economic impact assessment conducted by PwC economists. The value will include areas such as creating new customer experiences, speeding up product development, and improving workplace safety.
However, the level of interest and investment in XR and other emerging technologies may vary depending on the VC firm and their investment focus. Augmented reality (AR), virtual reality (VR) and mixed reality (MR) are a continuum of immersive technologies housed under the umbrella term extended reality (XR)- commingling of the physical and virtual worlds.
Some trends we see are:
There is a root trend around digital identity and virtual presence
Remote Collaboration in VR enables people to virtually come together and interact, irrespective of their physical location. This was a boon during the pandemic and PwC worked with many clients and held events, like our Emerging Tech Exchange, in collaborative VR.
Training and Upskilling in VR even at a time when training budgets may be shrinking and in-person training may be off the table. It also enables multiple users to experience the same content but as a customised experience depending upon each user’s expertise level.
Design teams can prototype, test and evaluate different concepts without investing in physical prototypes. This can help organisations bring higher-quality products to market faster. XR technologies such as VR offer a safe environment for trial and error without incurring damages or costs.
Overall, VC firms are likely to evaluate XR and other emerging technologies based on their potential to disrupt industries, generate significant returns, and create positive impact.
One reason the XR market could continue to see growth in 2022 would be down to “Metaverse FOMO.” Essentially, with all the talk of the Metaverse that has been flying around recently, investors, afraid to miss out on what could be a potential Metaverse Unicorn investment opportunity, have been taking a punt on companies that have some semblance of a Metaverse vision or plan.
What are investors looking for in XR startups?
Investors in XR (extended reality) startups are typically looking for several key factors that can indicate the potential for success and growth in the market.
When polling investors on what they like to see from startup pitches, a more valuable exercise is sometimes to explore what they don’t want to see. High up on that list are “name-dropping” buzzwords in an empty way. And the buzzword that’s taken the prize lately is “metaverse.” For companies developing metaverse building blocks, there’s nothing wrong with that, but it has to be backed up by business fundamentals.
Fundamentals include total addressable market, technological aptitude, product differentiation, founding team, and timing.
It’s also important to balance ambitions and long-term goals with near-term sustainability. In other words, XR isn’t mature, so how will you survive until it arrives? Be ready to discuss your current sales pipeline and what types of customers are out there that will buy your product today
From a commercial perspective, If you have a product or technology that aligns with the interests of tech giants, consider their corporate investment arms in your rounds of VC pitches. Corporate VCs are active and AR and VR investors across the board also have a mix of consumer (B2C) and enterprise (B2B) focus. There’s also opportunity in the best of both worlds, otherwise known as B2B2C.
The latter involves software for developers to build XR experiences for their customers. This can represent a sweet spot in AR and VR investing because it involves an enterprise buyer (more adaptive) for a given technology, but a consumer end-user (larger market).
Strong design, tech and business team: Investors are looking for a team with relevant experience, expertise, and a clear vision for how their technology can create value and impact in the market. The team should have a track record of success and be able to demonstrate their ability to execute on their plans. The team should be strong in storytelling since emerging tech is about making your audience imagine that art is possible.
Innovative technology: Investors are interested in startups that are developing innovative technology that has the potential to disrupt existing markets or create new ones. The technology should be scalable, reliable, and have a clear value proposition for customers
Market opportunity: Investors are looking for startups that are addressing a significant market opportunity with the potential for significant growth. The market should be large and growing, and the startup should have a clear strategy for capturing market share.
Business model: Investors are interested in startups with a sustainable business model that can generate revenue and profits. The business model should be scalable and have the potential for significant margins.
Competitive advantage: Investors are looking for startups with a competitive advantage, such as intellectual property, patents, or unique partnerships that can help them differentiate themselves from competitors and protect their market position.
Human and Technology relationship understanding While building immersive experiences in the Metaverse, it’s important to not only understand the business use case and the relevant XR technology to meet that need but also a deep understanding of the human and the ecosystem which will benefit from it.
Startups that can demonstrate these factors are more likely to attract investment and achieve success in the market.
Advice to XR startups looking to attract investment from VC
If you are a startup working in the extended reality (XR) space and looking to attract investment from venture capital firms, here are some key pieces of advice:
Build a strong team: Investors are looking for startups with a strong team with relevant experience, skills, and a track record of success. Make sure your team has the necessary skills and expertise to develop and bring your XR technology to market.
Focus on solving a real-world problem: Investors are interested in startups that are solving real-world problems with their XR technology. Identify a specific problem or pain point in the market and build your XR technology to address it. This will help you to demonstrate the value and potential impact of your technology to investors.
Develop a compelling value proposition: Clearly articulate the value proposition of your XR technology to investors. What problem does it solve? How does it differentiate from existing solutions in the market? What is the potential market size and opportunity?
Create a strong business plan: Investors want to see a clear and realistic business plan with a viable path to revenue and profitability. Develop a financial plan that includes projections for revenue, expenses, and cash flow, as well as a clear strategy for scaling your business.
Demonstrate your technology: Investors want to see your XR technology in action. Build a working prototype or demonstration that shows how your technology works and the potential impact it can have. This will help you to build credibility and gain investor interest.
Network and build relationships: Attend industry events, conferences, and meetups to build your network and connect with potential investors. Build relationships with investors and stay in touch with them as you develop your technology and business.
Be prepared to pivot: The XR market is rapidly evolving, and startups need to be agile and adaptable to stay ahead of the curve. Be prepared to pivot your business strategy or technology if market conditions or customer needs change.
By following these key pieces of advice, you increase your chances of attracting investments from venture capital firms and achieving success in the XR market.