Content is king in VR as we and others have examined. But investing in VR content companies isn’t as definitive. This was the theme of a recent investment-focused panel discussion that ARtillry attended (video below).

First, investors should manage expectations about timing and upside. Often it’s not a quick return, nor a revenue scale that’s typical of venture-backed companies. But content companies can build longer term value and recurring revenue in other ways (think: merchandising).

“The possibility for venture scale returns can be pretty limited,” said Betaworks partner Peter Rojas. “Content isn’t necessarily enough to build a massive and scalable multi-billion dollar venture business, but we see it as being an entry point into a bigger opportunity.”

Presence Capital’s Amitt Mahajan agrees: His portfolio company Harmonix makes Rock Band VR, which offers “music packs” that create recurring revenue. And Baobab Studios creates characters and stories that are VR-first, but have many more avenues for monetization.

“We’re viewing it as building reusable network-effect IPs,” he said. “It’s similar what Disney has done, where their movies are two-hour commercials for theme parks, books, merchandise and the other stuff they monetize. We think of content as a lead into something much larger.”

AR and VR also have to follow a longstanding content playbook. That includes things like production quality and packaging, especially in a Google and Facebook-dominated world. It really has to be good to compete, says Rojas, citing folded portfolio company Vrideo.

“When YouTube and Facebook introduced 360 video, Vrideo’s product wasn’t 10x better,” he said. “It was maybe a little better, maybe even twice as good. But to shift consumer behavior or get them to adopt a new brand they’re not familiar with, you have to be a lot better.”

Other factors that should signal investor caution include revenue models that aren’t diversified enough. Risk is heightened when large shares of a company’s revenue are allocated to a few major deals. And it’s especially detrimental when those deals are non-recurring.

“When we meet enterprise companies, there are quite a few that say they’ve been doing studio and client work,” said Venture Reality Fund’s Tipatat Chennavasin. “They have huge customers and are bringing in revenue, but they’re one-off projects, not necessarily repeatable or scalable.”

This issue of recurring revenue — often a key investment and valuation metric — is mostly endemic to enterprise-focused VR companies. Though enterprise is a nearer-term opportunity, challenges like this should be acknowledged, along with organizational barriers.

“There’s another aspect to enterprise that’s not unique to AR, which is sales cycles,” said DigiCapital’s Tim Merel. “Selling to enterprises takes a long time. When you have an education element, it takes longer. So investors in enterprise AR need to have a long-term approach.”

This of course requires patience and risk tolerance for investors. This is always true in content-based businesses but is especially so in the current VR environment when growth has been gated by relatively disappointing hardware adoption, especially on the consumer side.

“Consumer adoption of VR has been slower than everyone thought,” said Majajan. “So keep your burn low and extend your runway as long as possible, because the market will come but it will take longer. So we’re seeing people get into a funding crunch as a result of that.”

See the full session below including moderation and insights from our friend Clifton Dawson at Greenlight Insights. You can also see ARtillry’s recent interview with Amitt Mahajan here, including deeper insights on the enterprise AR opportunity.

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Disclosure: ARtillry has no financial stake in the companies mentioned in this post, nor received payment for its production. Disclosure and ethics policy can be seen here.