Joe Kraus is a general partner at Google Ventures, and he was on a panel at the Virtual Reality Intelligence conference in San Francisco talking about VC investment trends in virtual reality. Joe predicts that 2016 will be a “perceptual year of despair” for virtual reality where the market won’t really start to take off in a big way until 2017. He says that for VR start-ups, the key will be to conserve cash and survive 2016 until 2017 when the VR market will start to really take off. Joe talks about some of the VR investments that Google Ventures has made, and some of his predictions for the future of VR and AR.
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Each year, Google Ventures has a total of about $300 million to invest into early-stage companies, and Joe Kraus has been looking into virtual reality for the past 14 months. Google Ventures has already made investments into Jaunt VR for cinematic capture and distribution of VR experiences, the social VR companies of High Fidelity and AltSpaceVR, the casual gaming company of Resolution Games started by Candy Crush designer Tommy Palm, as well as Emergent VR life capture and sharing with friends. Google’s investment into Magic Leap came from the corporate headquarters rather than Google Ventures.
Joe says that even though the desktop market is going to be the first out of the gate with gamers, he sees that the long-term mobile market is going to be more lucrative than desktop VR because the total cost of ownership is going to be a lot more manageable.
This stage of VR reminds Joe of the early days of the world wide web back in 1993 where the market was willed into existence, and there was a lot of collaboration in order to initiate the virtual reality market. Joe mentions the quote from Michael Abrash saying that this time in VR is going to be seen as the “good old days,” and that the technology and experiences are going to continue to improve.
Looking back to the lessons of the mobile app ecosystem, Joe suggests that perhaps the best investment strategy for the iOS app ecosystem was to go to sleep for three years and then start investing. Even though some of the early companies has good exits, the big winners didn’t emerge until after the initial wave of companies and applications. That said, Joe still believes that it’s really important to be investing into VR now because there is a learning curve for what works and doesn’t work in VR as it evolves and it’s really important to be involved now.
Joe sees that some of the key drivers for VR adoption include gaming for desktop VR, adult entertainment for mobile VR, and 360 videos and photos which will drive user-generated content as that medium finally can be fully appreciated with these fully-immersive VR HMDs.
Joe says that just as the user-generated content has been a horizontal feature within the web experience, social will also be a key part of most of the VR experiences. Google Ventures has made investments into two different social VR companies, and he sees High Fidelity as being more about building experiences in VR while AltSpace VR is more about engagement and doing things within a virtual environment.
When deciding what to invest in, Joe says that venture capitalists look for a magical combination of the team, market, and product and ultimately a viable business plan. The problem with VR right now is that there is no market yet, and so it’s a promise of big market. So they’re looking for a breakthrough product with an audience to get sustained audience and sustained behavior that has the possibility of having a defensible business model with a team who can actually do it. It’s a risky time to be investing in VR, and so Google Ventures mitigates their risk by syndicating their deals with other VCs and they also tend to write smaller checks.
Joe sees that Google Cardboard has a really important contribution to the VR ecosystem because you need a range of solutions ranging from expensive and high performant solutions to more affordable and accessible solutions like Cardboard. VR is an experiential platform, and you have to give people a taste of VR in order for people to really understand it.
One of the biggest mistakes that Joe sees VR entrepreneurs make is that they mistake novelty for value. The medium of VR is so new that people are likely to get a lot of strong reactions to the shock and novelty of VR, and it’s easy to mistake that for something that’s going to create something of sustained value.
In the future, Joe sees that virtual reality is taking us down a path towards augmented reality, and that they both have a role. Ultimately, Joe wants a contact lens that’s possible to do full transparency and selective occlusion to do remote telepresence with AR, and he also wants lights-out VR to be able to completely transport himself into a virtual environment. He recognizes that the laws of physics may prevent this vision of coming true, but that we’ll be able to get pretty close with glasses or something akin to wearable ski goggles.
Joe predicts that we’ll be able to experience the full spectrum of VR to reality to AR within the next 10-15 years, and he’s confident that this will happen because of the consumer demand for storytelling to experience wonder and escapism. He imagines a time where you’ll be able to transport yourself to anywhere on the planet to see what’s happening in real-time. It would be hard for people in 1993 to imagine all of world’s knowledge being accessible from your pocket, and we were able to achieve that within just 15 years. So Joe is confident that within the next 15 years we’ll be able to be transported to anywhere on the planet with AR or VR.
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