VR/AR investment: China surges, US dries up

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Digi-Capital’s Augmented/Virtual Reality Report Q4 2018 tracked Chinese computer vision/AR market investment surging to $3.9 billion in the last 12 months, while North American AR/VR market investment fell from nearly $1.5 billion in Q4 2017 to less than $120 million in Q3 2018. At the same time, VC sentiment on VR softened significantly.

Tim Merel, MD of the Silicon Valley AR/VR/XR adviser Digi-Capital, commented: “Deal volume (the number of deals) declined steadily by 10 per cent per quarter over the last 12 months, and was around two-thirds the level in Q3 2018 that it was in Q4 2017. Most of the decline happened in the US and Europe, where VCs increasingly stayed on the sidelines by looking for short-term traction as a sign of long-term growth. The biggest casualties of this short-termist approach have been early stage startups raising Seed (deal volume down by more than half) and some Series A (deal volume down by a quarter) rounds. This trend has been strongest in North America and Europe, but even Asia has not been entirely immune from some early stage deal volume decline.”

“While deal volume is a great indicator of early-stage investment market trends, deal value (dollars invested) gives a clearer picture of where the big money has been going over the last 12 months. Global investment hit its previous quarterly record over $2 billion in Q4 2017, driven by a few very large deals. It then dropped back to around $1 billion in the first quarter of this year. Since then deal value has steadily climbed quarter-on-quarter, to reach a new record high well over $2 billion in Q3 2018.”

“Over $4 billion of the total $7.2 billion in the last 12 months was invested in computer vision/AR tech, with well over $1 billion going into smartglasses (the bulk of that into Magic Leap). The next largest sectors were games around $400 million and advertising/marketing at a quarter of a billion dollars. The remaining 22 industry sectors raised in the low hundreds of millions of dollars down to single digit millions in the last 12 months.”

“American and Chinese investment had an inverse relationship in the last 12 months. American investors increasingly chose to stay on the sidelines, while Chinese investor confidence grew to back up clear vision with long-term investments. The differences in the data couldn’t be starker.”

“North American investment was almost triple Asian investment in Q4 2017, with a record high of nearly $1.5 billion for the quarter. Despite 2018 being a transitional year for the market (Digi-Capital forecast that market revenue was unlikely to accelerate until 2019), North American quarterly investment fell over 90 per cent to less than $120 million in Q3 2018. American VCs appear to have taken a long-term solution to a short-term problem.”

“Chinese VCs have been focused on the long-term potential of the intersection between computer vision and augmented reality, with later-stage Series C and Series D rounds raising hundreds of millions of dollars a time. This trend increased dramatically in the last 12 months, with SenseTime Group raising over $2 billion in multiple rounds and Megvii close behind at over $1 billion (also multiple rounds). Smaller investments (by Chinese standards) in the hundreds of millions have gone into companies Westerners might not know, including Beijing Moviebook Technology, Kujiale and more. All this saw Chinese quarterly investment grow 3x in the last 12 months,” he concluded.


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