The new reality of mobile AR and computer vision venture capital
Image Credits: Photo Courtesy of Digi-Capital
Mobile AR from Apple (ARKit), Google (ARCore) and Facebook (Camera Effects) and computer vision/machine learning (CV/ML) are focusing the minds and wallets of VCs in Silicon Valley, China and beyond. The $2.5 billion invested in AR/VR so far this year ($1 billion in October and November alone) was balanced across AR and VR, but now mobile AR and CV/ML are the new hotness (as VR has cooled).
Digi-Capital advises a broad range of VCs and startup CEOs, so I spoke to a few friends about how the investment market has evolved. You can read what nearly 30 prominent VCs had to say below, but for the TL;DR crowd:
- Mobile AR and CV/ML are at opposite ends of the spectrum — one delivering new UX/UI and the other powering a broad range of new applications (not just mobile AR).
- Mobile AR is very early stage, and could see $50 to $100 million exits in the next 18-24 months. Dominant companies will take time to emerge.
- CV/ML is more advanced, and could see dominant companies in the medium-term.
- It will take time for developers to learn what works and consumers/enterprises to adopt mobile AR at scale (note: Digi-Capital’s base case is mobile AR revenue won’t really take off until 2019, despite 900 million installed base by Q4 2018).
- VCs are looking for startups to dominate a vertical first, then turn that into a horizontal platform play (note to startup CEOs: VCs will laugh at your “we are a mobile AR platform” deck today).
- VCs are interested in native mobile AR, not ports from other platforms.
- VCs love CV/ML startups with real-world solutions to fundamentally disrupt industries, not research projects.
- VCs are investing in more than 20 different mobile AR and CV/ML sectors, but they’re not the same VCs (obvious note to startup CEOs: don’t spam; understand VCs as individuals and think about how you fit their portfolio — generalist VCs might make only one or two bets in this space).
- VCs themselves could pose a risk, with the potential for overfunding during the earliest stages of mobile AR.
That’s enough from me. Let’s hear from them.
Aydin Senkut, Felicis Ventures
Felicis Ventures Founder/Managing Director Aydin Senkut invests in both reinvention of existing industries and frontier tech opening new markets, and sees opportunities in mobile AR and CV/ML quite differently. “Mobile AR for us is a consumer opportunity, but one where there needs to be breakout hits to popularize the potential of ARKit and ARCore. That dynamic makes it harder to succeed, but the successes will be big when they get here. One of the challenges is avoiding what the major platforms will build themselves.”
“CV/ML has fewer pure platform plays, but many broad use cases as an enhancing technology across industries — it is genuinely disruptive.” Senkut’s approach with Felicis is all about “engineering serendipity” with “diverse, calculated, risk-adjusted bets in markets where there is a lower level of VC competition. We’re not so presumptuous to think that we know what the future looks like, but we’re confident that when it walks through the door we sometimes recognize it.”
Jenny Lee, GGV Capital
GGV Capital
With automation a priority for China, the combination of CV and AR offers unique opportunities. “My favorite example is the humble mushroom. With huge variety in China (several poisonous), picking and sorting mushrooms is done by teams with 10 to 20 years’ experience. We’ve seen startups using CV and machine learning for categorization and labeling mushrooms, then using AR to enable less-skilled workers to do the sorting and selection. Eventually combined with robotics, a traditional part of industry becomes more scalable.”
Lee also sees opportunities in the Chinese education market. “Publishers have no relationship with students, as after they buy the book they don’t come back. The addition of AR features using mobile AR gives publishers an ongoing relationship and a means for further monetization.” In other words, turning a business with 100 percent churn into one with lifetime value.
Matt Murphy, Menlo Ventures
Menlo Ventures
He sees the scale of ARKit and ARCore as somewhere between the two — not as big as a full platform change, but not as small as an API-driven incremental upgrade, either. “The opportunity for developers with ARKit and ARCore is to leverage a market that is already at scale. They don’t have the chicken and egg problem that most new platforms face, with a huge total addressable market at launch.”
Bill Malloy, Sway Ventures
Sway Ventures
In machine vision/ML, he sees the value in “capturing, cleaning and owning the data at scale, and then broadening out from vertical products into dominant horizontal platforms.” However, “the talent pool in this space is either in universities or working for Apple, Google or Facebook. So for CV startups, the biggest challenge is people.”
Dr. Shahin Farshchi, Lux Capital
Lux Capital
Jeff Clavier, Uncork Capital (formerly SoftTech VC)
Uncork Capital
Gene Munster, Loup Ventures
Munster co-founded Loup because he sees “AR as the next way that humans interact with machines, with investment opportunities in business apps, games, location-based AR (i.e. AR cloud) and medical sectors.” His investment thesis revolves around both short-term exits as well as long-term platform plays, “because it is such an early-stage market, we’re starting with app companies that can demonstrate traction, and, if they get it right, leverage that success to become dominant platforms.”
Richard Tapalaga, Qualcomm Ventures
Qualcomm Ventures
Tapalaga is investing in “core technology across cameras, sensors, ML, CV and AI. We’re also focused on mobile AR, particularly in the enterprise markets around business processes, healthcare, B2B and industrial applications. Consumer mobile AR startups doing something genuinely novel — native mobile AR, not just ports from other platforms — are also of interest to us. We prefer platforms built on top of ARKit and ARCore, much in the same way that Unity was built out on top of iOS and Android.” Tapalaga sees overinvestment as a risk, with the potential for “overfunding of startups during the early mobile AR market.”
Nabeel Hyatt, Spark Capital
Spark Capital
“ARKit is the next extension of what we want to do with our phones, putting them in context with the real world. AR will become ubiquitous over time.” Hyatt thinks the broader CV/ML opportunity is at the stage where huge value creation is happening, because “we’re already four years into the cycle. We’re just as passionate about the mobile AR space, but that market’s only a couple of months old.”
Niko Bonatsos, General Catalyst
General Catalyst
However, Bonatsos doesn’t see the path forward as smooth just yet. “Apple’s update of the app store to better promote developers is great, but distribution remains a bottleneck. Incumbent mobile players have a huge advantage over mobile AR newcomers, so the platforms need to take discovery further. Also, the first wave of mobile AR apps are largely derivative of related sectors rather than native mobile AR, and there’s also the physiology of UX to figure out. People don’t hold their phones up in front of their faces for long periods of time, so apps with high frequency, short sessions might prove successful.”
Jacob Mullins, Shasta Ventures
Shasta Ventures
Tim Haley, Redpoint Ventures
With a core AR/VR focus on Jaunt’s evolution (some of which is still under wraps), Haley is patient about where the next big opportunity will come from in the space. “Understanding what is in the domain of the platforms and what is in the domain for startups is key, and right now we’re seeing interesting platform opportunities across different parts of the stack. From a vertical perspective, we’ve been looking in medical, education, industrial and architecture/construction. We like to invest in hard solutions to hard problems.”
Kevin Spain, Emergence Capital
Emergence Capital
Ori Inbar, Matt Miesnieks and, Tom Emrich, Super Ventures
Super Ventures
Gavin Teo, B Capital
B Capital Partner Gavin Teo is “interested in CV for both enterprise and consumer businesses. CV/ML/AI will generate tens of billions of dollars of enterprise value by the end of the decade. Digi-Capital, the leading advisory firm for AR/VR, forecasts mobile AR to be just as big. With major players like Apple, Google and Facebook driving an emerging ecosystem to support innovation and new business models, it’s the sort of market that suits VC investment really well.”
Phil Sanderson, Ridge Ventures (formerly IDG Ventures)
Ridge Ventures
Sanderson has two mobile AR investments already, including public company Next Games, which doubled its market cap after announcing a mobile AR game based on The Walking Dead. The firm’s mobile AR focus is “entertainment software, but also industrial applications. Mobile publishers and enabling technologies are sweet spots for us.”
Amitt Mahajan, Presence Capital
Presence Capital
Focused on enterprise, infrastructure and B2B businesses, Mahajan is interested in “companies that are building missing AR infrastructure (such as the AR cloud) or companies using AR to help people learn or be more productive at their jobs.” Because of potential UI and distribution challenges, Mahajan sees mobile AR as a stepping stone on the way to smart glasses transforming “core apps such as messaging, mail, calendar, maps, etc.”
Guillaume Payan, Orange Silicon Valley
Orange Silicon Valley Principal Guillaume Payan believes that “all industries will be impacted by AR technologies. The technology has the potential to fundamentally transform the way we behave and interact, much as the smartphone already has because AR allows for a more integrated experience with our senses. There is no doubt large companies will emerge.”
Given Orange’s position as a telco, Payan explains how Orange is “making our networks deliver higher bandwidth and lower latency so that AR experiences can be frictionless. We are interested in any technology, service and product that connects people and organizations.”
Phil Chen, Horizons Ventures and Presence Capital
Horizons Ventures
Vab Goel, Norwest Venture Partners
Norwest Venture Partners
Alvin Wang Graylin, HTC
HTC Vive
Marco DeMiroz, The Venture Reality Fund
The Venture Reality Fund
Other views
Maven Ventures
Traction, traction, traction
Almost every VC I spoke to mentioned the next 12 to 18 months as a critical time for startups in this space. Mobile AR’s scale-distribution platforms and CV/ML’s real-world applications mean that traction is easy to compare to established benchmarks in mobile or enterprise apps more broadly. VCs are looking for genuine disruption from their frontier tech investments, and this market is no different.
No pressure there then.
(Thanks to Greycroft Venture Partner Jon Goldman and Venrock Investor Adam Wang-Levine for their contributions to this post.)