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.

See more highlighted data points below. You can also preview our recent report on venture funding dynamics and insights from XR investors, or subscribe to read the whole thing.


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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.