Dessy Levinson leads VR/AR investments at 645 Ventures. She is an investor, creator, and storyteller who helps XR founders build successful businesses and contribute to a growing immersive ecosystem.
Andy Fidel (AF): In general, how would you describe the current state of XR VC funding?
Dessy Levinson (DL): At the moment, we’re at a bit of a low. VR had tremendous hype two years ago. Then, industry interest moved toward the AR space (based in part on the success that Niantic had with Pokemon Go), and then it was overshadowed last year by AI/machine learning. Now, it seems that crypto/blockchain are at the forefront of technological popularity, and VR has taken a temporary backseat.
But investment hype is cyclical and AR is still hanging on. I believe that investors who are familiar with the industry (as opposed to fad-driven) understand that enterprise companies who have deeper pockets are already providing early opportunities for immersive businesses and even contributing to early successes until the consumer market scales. If I were to compare it to a year ago, investment is much slower. But, thankfully, there’s a bit of lift in 2018, especially in regard to enterprise VR and AR.
Generally-speaking, XR does seem to be more inclusive than other nascent technologies. My personal (perhaps biased) opinion is rooted in my belief that it’s a more creative and open industry. It’s a new, uncharted medium. We are moving toward screenless computing where all types of experiences can be reinvented and engage audience attention anew. Because there is no definitive way to do immersive yet, and because XR is not perceived as hard-tech as – for example – machine learning or crypto, it tends to be more inclusive. There are more opportunities for diversity in terms of people’s previous professional backgrounds and perspectives.
Investors, especially at the early stages, tend to seek what looks like the next gold rush. Objectively, VR and AR have not proven to be the large, immediate jackpot many anticipated.
In my opinion, a significant, culturally-impactful medium shift takes longer than two, three years. Two years ago, pundits were predicting that everyone would be wearing headsets nearly overnight and that is, quite frankly, unrealistic from both a psychological perspective and in terms of how user behavior adapts over time to new technology. Thankfully, there are still investors who have patience and historical memory of how technology tends to evolve. Headsets are actually selling well and people are indeed engaging with VR and AR; however, it’s a rational, steady growth that is slower than the predicted hockey-stick-chart adoption. As with mobile, it will take half a decade or so, and then the technology will begin to change behavior, and investors will likely re-enter the field en masse (similar to the way they did with mobile apps).
AF: Do you see a disparity between the number of female and male-led XR companies in the industry? In your experience, would you say there is a lack of funding for female-led XR companies?
DL: The lack of funding, in my opinion, relates to funding pulling out of XR in general as opposed to a bias against female-driven companies. Some of it is a matter of percentages. If you have fewer investors investing in XR and fewer female-led XR companies, then proportionality speaking, you will get significantly fewer female-led XR companies receiving funding.
That being said, I don’t believe investors are choosing not to invest in an XR company because it is led by women. I would even say that a number of investors go out of their way to pay extra attention to female-led companies because we want to help level the playing field. Women may currently have a small advantage in terms of getting an initial meeting, but not necessarily in terms of receiving funding. And sadly, at the end of the day, most dollars still go to male-led companies across the board, not just in XR.
Although it will take a while, if consumer behavior continues to trend upwards in the way that it has, then XR companies’ situation will improve. Do I see it drastically improving for female-led companies? That’s a significantly more complex question that I don’t think is specific to XR.
Awareness is certainly helping. Because most VCs are male, there’s a conscious or unconscious bias. I think that a fair number of them are aware of this and working to correct it. Once again, being a female-founder provides a slight advantage at the moment when it comes to getting that initial meeting. But just because the current zeitgeist encourages investors to support female founders, it doesn’t mean that the shift will persist. I hope it does.
What will ultimately change the status quo is women building and exiting successful companies. In order for this to happen, women have to lean heavily toward building sustainable businesses that will grow even without venture backing. Once there’s a number of female-founded companies that exhibit strong unit economics and reach meaningful exits, investors are bound to pay attention. Most investors go where the money is. What will help are a few pioneering founders who hack the system, bootstrap their business, acquire clients and corporate partners, and reach profitability.
In general, the advice I give to early-stage founders (regardless of gender) is to assume you will not get large amounts of outside funding. Build a business that makes fiscal sense, where you know how to acquire customers and, ideally, how you will turn a profit or at least break even from the get-go! In order to run an early-stage business, it is very important to figure out how to balance your budget, even if it’s ad-driven revenue where you are monetizing user eyeballs. Whatever you’re building, someone should be willing to pay you for it. You then have the option to raise funding on much better terms and – if you choose – sacrifice profitability to acquire strong user growth and go for a unicorn-level exit. Those should be choices you make because something is working. It’s very dangerous to acquire users at a loss in the hopes that monetization will figure itself out or future funding will materialize.
Nascent technology is, of course, riskier since there’s so much R&D involved. Founders need to figure out what works and that takes significantly longer because, in XR, the current addressable market is relatively small and still difficult to capture or monetize. At this moment, I tend to recommend targeting enterprise users first because they have deeper pockets and can keep you afloat. Also, if you are still at the discovery stage, don’t quit your day job for a while! Spend your time exploring and testing on the side until you figure out what works, and don’t expect venture funding to simply be there! A lot of early-stage companies who raised small rounds two years ago (during the VR hype) are now finding it very difficult to raise up-rounds for institutional seed or series A because the market has dried, and the money that people assumed would be there just isn’t. Investors’ attention has shifted.
AF: Do you foresee this situation improving?
DL: I think that XR is the most promising frontier technology because it can show us the world as it could be. It can present to us a future reality that gives us hope, in order to enable us to fix the present. The bind is that when you are setting out to build the future, it is difficult to constantly be distracted by trying to survive as a business in the present. I realize this is not a very pragmatic answer.
On a practical level, I think helping each other and cooperating instead of competing creates an inclusive community where everyone is propping up one-another. In NYC’s XR scene, I personally haven’t seen the competitiveness that is common in other verticals. Founders make investor and client introductions for each other. We understand that we are all working together to usher in a tide that will hopefully lift most boats. This also helps immensely in terms of diversity and helping female founders succeed.
XR is particularly inclusive here on the East Coast. There are still occasions of sexism, but my take has always been that we have to kick ass and prove that we can perform as well, if not better than everyone else. Of course, some of the challenges are still out of our control, such as waiting for the large addressable market to materialize. That depends on both technology appeal (pricing, comfort, appearance) and content. We are working on it. Helping each other remain inspired, survive, and thrive is what we should focus on right now.
Women in XR Series is an effort to highlight a conversation surrounding the current state of venture capital funding for female-led VR and AR companies. According to Greenlight Insights, VR and AR companies raised a record-breaking $2 billion in VC investment in 2017, but only about 8% of deals were for companies with a female CEO. Click here to download the free white paper by Greenlight Insights and The WXR Venture Fund.
Andy Fidel is a guest writer and a WXR Venture Fund fellow. She is a consultant in social media strategy, a visual media creator, and independent journalist. Fidel supports entrepreneurs in their quests for social impact as digital literacy instructor in Montréal, Québec.