This article features the latest episode of The AR Show. Based on a new collaboration, episode coverage now joins AR Insider’s editorial flow including narrative insights and audio. See past and future episodes here or subscribe.

Throughout the short life of the current wave of spatial computing, we’ve seen wide variance in excitement and investment. We’ve seen Facebook acquire Oculus then amplify its internal R&D and product innovation. And we’ve seen a fair amount of skepticism and talk of a “VR winter”.

These ebbs and flows are typical in early stages of any industry as things take form. Meanwhile, there’s no standardized playbook, but there are best practices and historical lessons to note. And one of the best vantage points can be from those who put investment dollars in play.

In spatial computing, there’s a handful of investors with this focused perspective, one of whom is Anorak Ventures‘ Greg Castle. As an early Oculus investor, he breaks down his observations and advice with Jason McDowall on the latest episode of the AR Show (listen or subscribe below).

One of the ongoing themes in our AR Show coverage is how executives today exercise the muscles developed in early-career cross-training. That’s everything from Scott Montgomery building software after school to Jeri Ellsworth’s early experiences building and racing cars.

For Greg Castle, one lasting career lessons came in a do-or-die moment for his fast-casual restaurant chain. To get people in the door, he had to pass out flyers at public transit stations. The lesson: executives have to do anything to make the business work, and can’t be “above” any task.

Beyond a wow factor, it was this quality that Castle saw in Oculus’ that swayed him to invest. Also important was the team’s discipline to follow the product road map and deflect distractions like the typical Silicon Valley pastime of discovery meetings and constant requests to “grab coffee.”

More important is avoiding temptations that offset the product course. This happened when the Oculus founding team eschewed interest from a major airline who wanted to test VR for in-flight entertainment. First peeved at their lack of interest, Castle months later recognized the genius.

“There was still an abundance that was left to be desired in terms of creating a good experience for VR… a bunch of core problems that needed to be solved. They didn’t want to be off designing overhead bin chargers or things like that. They felt that the core problems that they needed to solve were the most important problems for them at the time, and would have all kinds of other implications that would benefit the company in the long run.”

Of course, every situation is different and depends on lots of situational variables. For Oculus at the time, they were in a position to not have to chase short term revenue at the cost of deviating from their road map. And their well-devised research told them airlines aren’t their customer.

“They weren’t running out of cash […] so it wasn’t as though they needed this […] It really depends on your ability to raise cash, your runway, and how divergent the requests are from your core roadmap. I would add one caveat which is if you have conviction about where the product should go, [it] should come from extensive customer conversations. One of the big mistakes that I see loads of founders make is having this internal conviction that is not validated by the outside world.”

This combination of discipline, vision and technical chops is what made Oculus such an early success. And it’s what got Facebook’s attention… and ultimately a $2 billion check. This was a huge step for VR, given Facebook’s resources and subsequent financial commitment.

“This is a very new technology. And it’s going to take a lot of resources to get it to where it needs to be. Facebook has those resources. And so I think that it was a very good thing for the future of XR that that acquisition took place. There’s no doubt in my mind that had that acquisition not taken place, things could have gotten hairy for Oculus in the long run.”

These challenges can be seen in the trials faced by nearly every other company — and a handful of flameouts — in the current environment. Oculus can survive as a product in these early days of VR with the help of Facebook’s sizeable financial commitment, including its loss-leader approach.

“Facebook is willing to sell these headsets with $100 bills strapped around them. They’re losing money on every headset they sell, and they’re fine with it. It’s very difficult to compete with that as a startup. Components that are being developed for VR are starting to become more prevalent and the price is starting to come down. But it’s still relatively young and they’re just still quite expensive to develop. Hardware notoriously is just a difficult space to be in.”

Facebook’s approach also benefits consumers, as we’ve examined, as they get access to VR headsets that shouldn’t exist at that price point. But Oculus’ solo lead in the VR sector could be a bad thing in terms of precluding the competition of a two-horse race, a la iOS and Android.

“It’s not good for the future of VR that Facebook is willing to lose money on every headset and is really becoming the dominant platform. You’d really like to see at least two platforms. […] And so it’s been a bit disappointing to see Microsoft’s place in VR. There was a while where I was really bullish on Microsoft. And I was kind of like… Oculus is [like] iOS, creating a closed platform on its own hardware. Microsoft is going to be more like Android and work on the underlying software and work with a whole load of headset providers […] And then it just seems like they just went quiet. They’re not that interested in it anymore, which is really disappointing.”

Going forward, the areas of spatial computing Castle is most excited about not surprisingly map to his investments. That includes Vantage Point’s immersive sexual harassment training that can transform HR programs. He also sees lots of opportunity in scalable 3D asset creation.

“Creating digital twins of objects is a very time consuming, cumbersome process. We need to figure out more ways to digitize objects. So people who are working on that problem is another area that I’m very interested in. eCommerce is of course probably the most obvious of these areas, but construction and architecture are also in need of a solution to this problem.”

As for the types of companies he looks for, that goes back to some of the early attributes he detected from the Oculus team. It’s all about having a genuine interest and drive, clear path to market and lots of disciplined focus. That joins the typical factors like market size and fit.

“Focus on the underlying tenets of their fabric: what drives them? And that it is authentic and aligned with where the business is going? If you use that as your North Star, that is a good starting point […] Then from there, you need to expand outward to the market sizing and whether or not it’s interesting. When investing through a fund versus an angel investor, the odds are is that most of my companies are going to fail, but I need to make sure that the companies that succeed have the opportunity to return the fund. So I’m targeting really substantial potential outcomes.”

Beyond just investment targets, Castle is intrigued by emerging forms of spatial computing like visual search. Contextualizing real-world items could transform the way we learn and can be an all-day utility, sort of like what search itself has become but more effective and intuitive.

“Being able to get information about the world around you is going to be really interesting, especially for aspiring and growing young minds to be able to look at different things and get information about them […] There’s too much friction today in doing that [by] opening up your phone and Googling an item […] Having that be a seamless situation where you could look at people playing a game or an animal and get more information on it, I think is going to be incredibly interesting.” 

Listen or subscribe to the full episode at The AR Show or below, and see our archive of past and future episode coverage here.

For deeper XR data and intelligence, join ARtillery PRO and subscribe to the free AR Insider Weekly newsletter.

Disclosure: AR Insider 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.