Magic Leap, a secretive company making wearable technology for mixing digital imagery with the real world, is seeking to raise $827 million. Jaunt, maker of a 3-D camera for filming virtual reality video, has nabbed a total of $100 million, including $65 million in September. And 8i, which makes technology that lets people interact with video of humans as though they were in the same room, has raised nearly $15 million.
None of these start-ups is a household name. Few members of the public have had an opportunity to interact with - much less buy - the virtual and augmented reality technology that these companies are developing.
Yet investors and entrepreneurs believe that headsets made to immerse people in digital worlds are the next giant moneymakers in technology, setting off an investor frenzy rarely seen since the early days of the web and mobile markets. Virtual reality start-ups are multiplying, venture capital is pouring into them and the believers are expressing blue-sky thinking about how the new products could reshape entertainment, communications and work.
"Every decade or so there's a next-generation hardware platform," said Matt McIlwain, a venture capitalist at Madrona Venture Group. "Our view is the smart headset is going to be the platform of the next decade that changes the way a lot of stuff gets done." There are good reasons to be sceptical that virtual reality will change technology the way smartphones did, at least in the near term. While the latest headsets and software can make for dazzling demonstrations, even many fans of virtual reality say they still have not experienced a must-have game or application. The required headsets are expected to cost $300 to $500, in addition to the $1,000 or more it will cost for a powerful PC that some will require. And the virtual worlds inside the headsets have induced motion sickness in some people.
What makes the virtual reality investment craze even more speculative is that few members of the general public actually own or have tried the headsets.
High-profile products from Oculus, owned by Facebook, as well as HTC and Sony will not go on sale until next year. (More rudimentary, less expensive devices that rely on a user's smartphone screen are now available, such as Gear VR, from Samsung, and Google Cardboard.) By the time many top investors began putting money into mobile start-ups, in contrast, there were already millions of smartphones in use.
But none of that is stopping the enthusiasm or the outpouring of money. In the first nine months of this year, virtual and augmented reality companies raised a total of $408 million, up from $145 million during the first nine months of 2014, according to CB Insights, a research firm that tracks venture capital investments. Since the start of 2012, companies in the sector have raised nearly $1.5 billion in total, the firm estimates.
One of the biggest players so far is Magic Leap. The company's plans for a large new funding round, revealed in a corporate filing obtained last week by VC Experts, a provider of private market data, is on top of $542 million the company raised last year in an investment led by Google.
Augmented reality devices like the one Magic Leap is developing do not block users' view of their physical environment the way virtual reality headsets do, but instead insert game characters and other images into a person's field of vision.
A spokesman for Magic Leap declined to comment. Forbes reported on the filing last week.
Two smaller virtual reality start-ups plan to announce funding on Monday, including Dreams, a virtual reality video game studio in the United Kingdom that has raised $3 million from Mercia Technologies. The other, Pixvana, is a Seattle-based business that is developing a cloud-based technology to improve the quality of virtual reality video and the speed at which it is delivered over the Internet.
Pixvana, founded by former employees of Microsoft, Apple and Lucasfilm, raised $6 million from Madrona, Vulcan Capital and angel investors.
"I can't imagine a world in five to 10 years where this isn't a primary means of entertainment and communication," said Forest Key, chief executive of Pixvana.
Why are virtual reality's acolytes so certain about its imminence?
The promise of virtual reality has been a staple of science-fiction dreams for decades. But until recently, the headsets were primitive and cost tens of thousands of dollars. The explosion of mobile devices has sharply reduced the price of many of the components that are essential to virtual reality headsets, including high-quality screens and motion sensors, as well as improving the experiences.
"There really is a transformational moment for people when they put these things on," said Tony Garcia, chief revenue officer at Unity Technologies, a company that supplies a key software component called a game engine to virtual reality developers. "It's unlike anything I've seen in a long time."
Virtual reality also has the kind of broad applicability that excites investors, who see it changing everything from online education to corporate meetings to video games. Big bets on virtual and augmented reality by Google, Microsoft and Sony have stimulated investments.
But the biggest catalyst of all was Facebook's $2 billion purchase of Oculus last year. In announcing the deal, Mark Zuckerberg, chief executive of Facebook, portrayed virtual reality as the next big paradigm shift in technology after mobile. "Oculus's mission is to enable you to experience the impossible," he wrote in a Facebook post. "Their technology opens up the possibility of completely new kinds of experiences."
Still unsettled is the question of which experiences will be most compelling. Like many people who have gotten a taste of virtual reality, Ben Schachter, an analyst who follows the game industry at Macquarie Securities, is bullish on the technology. Yet when asked to name a compelling application for it, he struggled.
"I haven't seen that one thing that makes you want to stay in there for hours," Mr. Schachter said. "I'm frustrated I haven't seen it yet."
A lot of creative people are working to figure out what will be the most compelling virtual reality apps, whether games or movies. Some start-ups creating apps have received venture capital. Many investments now, though, are in companies providing tools to developers of virtual reality apps, the equivalent of suppliers to the miners during a gold rush.
The companies getting money are "the ones providing the shovels to the market," said Linc Gasking, chief executive of 8i, which is one such tool provider.
Chris Fralic, a partner at First Round Capital, a venture capital firm, has been hesitant to invest in virtual reality start-ups partly because they tend to raise more money than an early-stage investment firm like his normally contributes. But he does not plan to wait until there are millions of headsets in use before investing.
"There isn't a market today, but it's happening," he said. "Do you wait until that's proven or start to get smart as its developing?"
©2015 The New York Times News Service
