Advisers and investors should be thinking about making virtual reality their investment reality
The recent Spielberg film – Ready Player One – explored a possible future world where life in general and leisure time in particular was dominated by virtual reality (VR) headsets. Watching it from the point of view of an industry investor, Barry Downes – Chief Investment Officer of Sure Ventures – was struck by how much of the actual VR content was not that far ahead of its time, closer to 2025 than the film’s setting of 2045.
‘The film highlights the future potential of VR, immersive VR content, VR education and cutting edge technology to immerse the user such as motion platforms or haptics. In fact we see many of these things even today,’ he said.
‘For example Sure Ventures has invested in the leading VR education platform VR Education Holdings, the leading VR experience and motion platform IMMotion Group and the leading VR and augmented reality (AR) games studio WarDucks. In addition early versions of haptic technologies such as VR gloves have started to make their way from research labs into commercial prototypes and AR technologies are moving rapidly into consumer, industry and enterprise markets.
‘Our view is that the time to invest in VR and AR is now, as by 2025 most of what Ready Player One shows will be mainstream and widely adopted by users and the enterprise.’
But surely we’ve had this false dawn before? Given the volatility associated with the tech sector, why is AR/VR now a credible opportunity?
Our view is that the time to invest in VR and AR is now, as by 2025 most of what Ready Player One shows will be mainstream and widely adopted by users and the enterprise
For a start, the market opportunity is huge. Numerous analysts have predicted the AR/VR sector to grow from an early stage market now, at around $2-3 billion, to around $100 billion in five years’ time. Downes commented: ‘As a venture capitalist, our time horizon encompasses a five year period of making seed investments and a further five years of growth and exit which means timing wise, we are very well placed. This rapid, exponential market growth will create a tailwind behind our investee companies.’
But why now? VR has been around for years and – to date – hasn’t delivered on its potential. Quite simply, the technology to produce and host content has – until now – been unable to faithfully realise the full potential of the concept. But with giant strides in hardware; such as those made by Nvidia’s graphics chips and the multiple vendors of VR headsets, we are now very much in a position where AR/VR can actively meet and exceed user expectations.
Even all-conquering Google doesn’t get it right every time: Google Glass, the AR enabled hardware, launched back in 2014 is a classic example of launching a consumer product too soon. The first version of the project had basic features, poor positioning and lack of software content and as a result, sentiment conspired against success. But ‘Glass’ isn’t on the scrapheap – far from it. The concept is evolving at breakneck pace with multiple applications being found in the industrial, manufacturing and enterprise space to unlock the value of augmented reality where human capabilities are meshed with computing power.
The evolutionary path of tech is a well-trodden one. The PC was a slow burn during the early monopoly enjoyed by IBM, but picked up rapidly in the late 80s begetting a number of super software brands (Microsoft, Oracle). This in turn was succeeded by the establishment of the internet age; Cisco dominated hardware with its routers, enabling the creation of the software behemoths we know now (Google, Amazon, Facebook, Netflix). The ensuing post-millennium mobile wave further bolstered these firms positions as well as adding innovative ‘on the go’ mobile apps driven by the Apple and Google mobile platforms and apps such as Uber and Spotify, Whattsapp and WeChat. And so we find ourselves at the start of a new wave. But how can investors access this nascent market amongst the angels and private funds? And how can winners be identified in the ever-changing environment of emerging technology?
How To Access It
High growth tech can be a great investment but it is usually volatile; the potential for big rewards is accompanied by similar size risk. Many people remember the boom and bust in the sector in 2000/01, plus there have been substantial gains in the last few years. As such, avoiding the losers is as important as finding the next Google.
That’s the driver behind Sure Ventures’ investment strategy and offering, providing easy investor access to a broad portfolio of vetted, high growth companies. It uses the majority of its capital, know-how and network contacts to invest into seed stage start-ups in the AR/VR arena, as well as strategic investments in the ‘Internet of Things’ and fintech sectors. The goal is to build each company into a successful, scalable business. Sure Ventures is an investment trust which listed on the London Stock Exchange in January 2018 with shares that trade on the stock market under ticker SURE.
‘Target identification and validation is the most important part of the VC jigsaw,’ said Downes, whose team’s rigorous vetting process results in only about 1%-2% of companies making the grade after initial consideration.
‘Clearly our investment process is very much our own IP, but certainly my years being involved in these sectors/ along with my financial and software enterprise background and global network means I’m in a strong position to make an informed decision.
‘In the first instance, they need to have an experienced team in place; they need a validated product in the market; and they need to be revenue generating.’
The strategy is clearly paying off: of the seven current portfolio companies, two have already made a successful debut on the London AIM market, while there is a steady pipeline of deal flow from Ireland and the UK. It is also worth bearing in mind that UK-based companies listing off the back of Sure Ventures support could be eligible for EIS.
Why The UK And Ireland?
The uninitiated may well think that Silicon Valley is going to be the key gestation venue for emerging AR/VR players. So it may be surprising to hear that the UK is geographically at the forefront of development in this space with sector growth at 22% year on year. ‘The UK is a global hotspot for gaming companies; this is important because the technology and tools, which enable the production of high quality VR and AR graphics, have emerged from the gaming community,’ said Downes.
And this industry is not centred in any one location, but instead consists of 1,900 companies clustered in key cities across the UK; they are emerging in London yes, but also in Bristol, Brighton, Manchester, Newcastle and other regional centres. In Ireland there are also a number of key clusters led by Dublin, where a who’s who of Silicon Valley companies have located, and Belfast.
While video games will be a big sub-sector within the AR/VR market (currently the global gaming industry is estimated to be around $110 billion and is larger than the film industry), the nature of the technology means there are multiple applications across consumer and enterprise markets. General content consumption such as TV, video or live events can be given a whole new dimension as 325,000 VR viewers enjoyed with the BBC VR app during the World Cup. The benefits extend across the travel industry too with virtual tours being brought to life with incredible realism.
And in the field of education and training users can be brought together in virtual classrooms, drawn into virtual worlds, resulting in a far greater engagement than previously. History lessons will never be the same! Likewise, in AR, the enterprise space is already starting to embrace ‘Smartglass’ technology, with an expected take-up rate forecast to be relatively balanced across 11 different core sectors; from retail and manufacturing, through to transport and construction. However, the greatest success in AR thus far was the 500 million who played mobile game Pokemon Go, so there is clearly scope to mirror business applications in the consumer space.
“For a bunch of hairless apes, we’ve actually managed to invent some pretty incredible things” Ernest Cline, Ready Player One
‘The breadth of opportunity across the sectors means Sure Ventures is able to build an extensive and diverse portfolio. We expect to end the year with 10-12 companies, but are looking to build this to 30. Clearly this is sensible for investors, but in doing so we also create an ecosystem which has mutual synergies for our investee companies and can drive further innovation and collaboration,’ said Downes.
The next wave of mass technology adoption will be in the AR/VR space. This presents investors and advisers with an interesting choice. Get in early with a higher degree of risk, but where there is potential to reap greater reward; or await the safer mass adoption phase, where the key players are more obvious but the core growth phase has been missed.
But consider the benefits of a diversified capital growth portfolio, with a clear and focused investment strategy in key sectors, uncorrelated with other asset classes and tradable due to its listed status. So plug into Sure Ventures and a very real opportunity which augments the reality of broader investment portfolios…
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