VR creative studio Future Lighthouse has announced in a Medium post it is closing its doors after three years of operation. Although the studio has produced multiple well-received VR short films and episodic content, the company reports it did not raise sufficient funding in 2017 to keep the lights on. The company cited investors being conservative when investing in content as the main issue.

Future Lighthouse, based in Los Angeles, CA and Madrid, Spain, was founded in 2015 and has worked on 18 VR productions. That includes Melita, an animated story for Oculus Rift and Gear VR as well as several projects created in partnership with other companies like Sony’s Crackle streaming service.

Most recently, Future Lighthouse announced that Ministry of Time, an episodic VR series, was downloaded 100,000 times in 12 weeks on the European PlayStation Store. The VR game was downloaded on average over 1,000 times a day and over 300 times an hour in a small market, on one platform. These are impressive stats for any studio creating immersive entertainment.

How can a VR studio create popular content, raise VC investment, earn industry recognition and still fail?

In 2017, the VR/AR industry saw a record-breaking $1.9 billion in investment, but the average deal size declined sharply by 35%, according to Greenlight Insights’ annual year-end analysis of individual venture capital deals dating back to 2011. The wave of initial VR excitement is over and startups are having a harder time getting significant funding.

VR companies raising a seed round in 2017 averaged $550,350 a deal. For VR content creators, the average deal size was lower at $368,733.

Content creators' struggles raising venture capital is not new. Investors are skeptical to invest in content. VR/AR technology vendors, such as hardware manufacturers or distribution platforms, have been investors more successful as they have a clear path to growth, which makes the risky business of venture investing easier. For content creators, the outlook is harder to grasp and return on investments are harder to evaluate. The skepticism leaves content creators finding fewer investors or waiting longer to prove the company's worth.

Future Lighthouse was actually one of few studios to raise an above average venture round, which is why their closure is so troublesome. The studio's path to monetizing its portfolio of immersive entertainment was textbook: raise venture capital, create paid-for content, and license content to VR arcades. But this is the reality of an early industry before mass adoption: it is brutal. There is no clear formula for companies to succeed.