How to invest in virtual reality

There are still significant hurdles for both VR and AR that stand in the way of mass consumer adoption. High-end devices are very expensive and still quite bulky and uncomfortable. It will take some time for the industry to overcome these issues. We are now eight years into the mobile wave that was started by Apple with its iPhone and the App Store; but the device Apple launched in 2008 had already ticked many of the boxes that made mobile a viable platform. VR and AR devices today are more like Blackberry circa 2004. It had the internet but it was clunky. It had a keyboard but it was difficult to do much other than type messages. That puts us four to five years from a device that could be mass adopted and then probably another eight years to get to where mobile is today. 

Ask yourself the following questions. Do the founders have realistic expectations about how the company's revenues will build? Can this company continue to raise money for five years until mass adoption kicks in? Are the founders fundamentally enamoured by the platform such that they can weather that period or will they get bored and move on? There is a danger of investing in people who are simply following what's cool.

Any investor interested in making VR and AR investments should take time to better understand the market. Every day in London and San Francisco there are meetups on VR and AR topics which give an opportunity to meet with entrepreneurs and investors. As it is relatively new, it won’t take long before you get a sense of the market. Attending events like the VR & AR World, taking place in London in October, are important for both learning about the market and meeting many of the European start-ups that you might have the opportunity to invest in. Investors need to get beyond the hype and understand why a particular business idea could be disruptive. Too many investors without their own VR and AR equipment are easy to "wow" with a slick demo. And without a doubt the first time you try VR you will be blown away. The question is "once the wow factor wears off, what value is there?" 

Outside hardware, the next biggest category of investment is entertainment, broadly broken down into 360 video and gaming. This is a really new market which will not scale for several years. Historically, entertainment properties retain value poorly and it is questionable whether any early winners will continue to be successful when the platform has scale. For example, no iPhone game that was huge in 2008 when the App Store launched is still with us on the platform, and the vast majority of uber-successful mobile games today were released in the last 18 months. The average shelf life of an entertainment property is two-to-three years. There is no reason to think that VR and AR will be any different.

You don’t need a million pounds to invest in Virtual Reality. Software as a service (SaaS) where users pay to use software on devices (e.g. Dropbox or Google Drive) has been a fertile source for growth on mobile and there’s no reason the same shouldn’t go for VR.  So far there has been very little investment in SaaS in a VR and AR format and any investment you do make will naturally become more valuable as these technologies continue to grow. Getting initial customers and awareness is also likely to be easier as consumers have fewer expectations than you would expect from a mature platform like mobile.

"With so many indicators pointing towards rapid growth, this is an area rich in possibilities. It’s an excellent time to learn more about this technology and where it will take us in the future. Already, VR and AR technologies look set to change every aspect of our lives, which make them a hugely attractive prospect for investors. At VR & AR World, we are seeing interest in the new technology gathering pace across all sectors, with our conference attendees spanning the fields of education, entertainment, transport, health, manufacturing, retail, engineering, real estate, oil and gas, construction, automotive and aerospace, all keen to determine the best VR or AR solutions for their particular needs and committed to developing the technology further in years to come. The number of unique use cases for VR and AR is rising on a daily basis, as innovators find ever more creative ways to incorporate Virtual and Augmented Reality technologies into business and personal life."