AR and VR sectors received just under $3 billion in venture funding in 2017, which is up 12 percent from 2016 and 3x from 2015. This is according to a new report from VRVCA.
As for the deal composition, building block technologies continue to attract venture dollars, for all the reasons we recently examined. In this case, hardware and “tools & tech” received 70 percent of funding. Enterprise XR meanwhile saw the greatest quantity of deals with 52 percent.
That’s the good news. The slightly-less positive news is that funding was consolidated to a few outliers like Magic leap, Improbable and Unity. It’s also notable that outside of those deals, the rest of the market is seeing larger seed rounds and less series A rounds.
This series A falloff creates a funding crunch which in turn leads to a shakeout. XR startups will fail is by not securing series A rounds after exhausting seed funding. Series A dollars are meanwhile more scrutinizing, due to soft consumer adoption which has tempered investor hunger.
The path to revenue is also longer for XR startups which has likewise lessened series A deals — typically the stage where revenue and product/market fit need to be validated. Less series A deals can also be attributed to larger seed rounds which allays the need for more cash.
There’s also limited exit potential, with only a few likely acquirers — the usual suspects building XR arsenals (Google, Apple & Microsoft). And there again, its all about “building block” technologies. Deals are typically under $100 million with a 20x average investor return.
Looking forward, the majority of investors polled (67 percent) believe that overall funding levels will be flat, year-over-year. But positive signals include continued investment from tech giants, as well as consumer adoption accelerants like standalone VR, as we’ve examined.
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.