VR 20/20: Unknowns Abound in Virtual and Augmented Reality Market

Timing is everything for venture capitalists eyeing emerging sector, says Luma Partners CEO

NEW YORK -- Like any emerging market, timing is everything for venture capitalists.  Being too late is a missed opportunity, and being too early is a good way to flush funds down the drain.

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And when it comes to virtual reality and augmented reality, there are so many unknowns involved that this timing remains extremely tricky for VCs that are trying to pin down these emerging, and potentially lucrative, markets, said Terence Kawaja, founder and CEO of Luma Partners, the opening keynoter here Monday at VR 20/20, the first event for NewBay Media’s NYC Television & Video Week.

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And a lot of smart people are trying to put some big round numbers on that opportunity, Kawaja said, pointing a “base case” prediction that VR will be worth $80 billion ($35 billion for software and $45 in hardware) by 2025. However, others see that opportunity to be as low as $23 billion to as high as $182 billion in that general timeframe. 

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“Timing this is really important for venture capitalists,” Kawaja said. In terms of financial returns, “being early has the same financial profile as being wrong…It’s like flushing your money.”

And while VR has more “firm” funding opportunities than AR, he said his firm believes that AR has a larger opportunity, citing the dollars flowing into (and the secrecy surrounding) AR startup Magic Leap, as one example.

He also believes that the AR sector, which he expects to feature more “mainstream” applications, will take longer to develop than VR, and that about $3.3 billion in funding has gone into 375 companies across AR and VR.

“AR will become like an application layer to basically everything we do,” Kawaja said, noting that while “VR replaces your experience…AR amplifies it.”

AR also has a lower bar and requires less of a “wow” factor than VR, he explained, with Pokémon Go being his case in point.

“We were promised Iron Man, and we ended up with Pokémon Go,” Kawaja joked. Snapchat is another example of a “1.0” version of AR that is already aided by a large user base.

At the same time, he understands why Google started out at the “bottom” with Cardboard, a platform that works with smartphones and inexpensive viewers and could serve as the starting point for upgrades to more capable and pricey platforms. Google is about to release the higher-end Daydream platform, which must also be paired with smartphones that are optimized for it. 

“You need to experience VR,” he said. “You have to start somewhere.”

Kawaja said AR an dVR both have huge potential, but remain a “high beta opportunity” due in part to the current stage of market development, consumer adoption and app development.