Some of the best industry knowledge often comes from investors. That’s simply because they they’re making high-stakes bets, and need to be well-informed and data-backed. And in the process of due diligence for any one investment decision, they get smart fast on sector dynamics.

Investors in the AR and VR sectors are no exception. In our experiences interacting with investors in these areas, they tend to know what they’re talking about, and show that they’ve done their homework. This goes for various flavors of investors, from angels to series-A-focused VCs.

Another subdivision in the world of venture capital is strategic/corporate investors versus financial investors. The former includes investment arms of tech companies, such as Google Ventures and Qualcomm ventures. Often their investments align with corporate goals.

Altogether, investors come in all shapes & sizes including sector focus, stage, deal size, and goals. A mix of these perspectives is always valuable for a well-rounded analysis, which was on display during an investor panel at AWE USA – the subject of this week’s XR Talks.

Will XR Revenue Exceed $100 Billion by 2026?

Best of Both Worlds

Verizon Ventures is in the strategic investing bucket noted above, investing in companies that advance or validate applications for 5G. Therefore, managing director Kristina Serafim tends to invest in AR and VR startups that can grow the market for telco-delivered 5G services.

The lesson? If you have a product or technology that aligns with the interests of tech giants, consider their corporate investment arms in your rounds of VC pitches. This can be an often-overlooked investing class that has lots of capital and business development resources.

AR and VR investors across the board also have a mix of consumer (B2C) and enterprise (B2B) focus. B2C represents larger markets… but B2B has greater near-term adoption and demand. There’s also opportunity in the best of both worlds, otherwise known as B2B2C.

The latter involves software for developers to build XR experiences for their customers. This can represent a sweet spot in AR and VR investing because it involves an enterprise buyer (more adaptive) for a given technology, but a consumer end-user (larger market).

One example of B2B2C is AR marketing, such as sponsored lenses in Snapchat and TikTok. Brands create – and pay for – these AR experiences for their customers and marketing targets. The brand-sponsored approach is smart, as consumers aren’t yet willing to pay for AR en masse.

What’s the Sales Outlook for AR Glasses?

Fundamentals Win

When polling investors on what they like to see from startup pitches, a more valuable exercise is sometimes to explore what they don’t want to see. High up on that list is “name-dropping” buzzwords in an empty way. And the buzzword that’s taken the prize lately is “metaverse.”

For companies developing metaverse building blocks, there’s nothing wrong with that… but it has to be backed up by business fundamentals. No investor is going to write a check, just because you flashed the M-word several times. Traditional investing metrics still rule the day.

So what are those fundamentals? They include total addressable market, technological aptitude, product differentiation, founding team, and timing. The latter is an oft-missed attribute that can make or break a funding decision. You don’t want to be too early or late to any market.

It’s also important to balance ambitions and long-term goals with near-term sustainability. In other words, XR isn’t mature… so how will you survive until it arrives? Be ready to discuss your current sales pipeline and what types of customers are out there that will buy your product today.

Lastly, as Mark Cuban always likes to say, don’t invoke the old “This market is X size… if we can just capture one percent of that, we’ll see massive returns.” That reductionist and top-down assessment ignores the reality of bottom-up execution. Any good investor will see right through it.

We’ll end on that note and cue the full video below… 

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