Investing in Europe’s Immersive Tech Sector
2016 was said to be Year Zero for immersive tech, and quite an impressive one too, with $2.3bn being poured into the sector. Forecasts are equally bullish. But while there is a tendency for analysts to overestimate the short term, we run the risk of dramatically underestimating the long-term impact of these new technologies. That’s why I’m cautiously bullish on the sector and believe that investing both time and money into the space now will ultimately pay dividends.
However, as an investor looking for good deal flow, it’s easy to feel that Europe is lagging too far behind the US right now. Things are definitely starting to happen. Europe’s VR ecosystem now comprises of nearly 300 companies, 116 of which made it on to Venture Reality Fund’s recently published VR Landscape Europe map.
We already have strong companies across a number of sectors, including gaming (Resolution), health (Mindmaze), 360 video (Splash, VideoStitch), audio (Two Big Ears), augmented reality (Blippar), simulation (Improbable), webVR (Vizor) and the list goes on.
But compared to the US and Asia there is a marked difference. In looking at the investment dollars that went into the sector over the past 4 years, we see just 5% of overall funding being invested in UK, with France behind that on 3%.
There’s clearly a funding gap. But I don’t think it’s a general lack of venture capital in Europe right now. There has arguably never been a better time for founders to raise money, with an increased amount of angel activity and new funds being announced on a regular basis. So why the shortfall in investment activity in the sector and what can we do to improve the investment outlook for immersive tech in Europe?
Investor appetite must increase
Last year, I organized and moderated an investor panel at the VRX conference in London and struggled to find any local investors that had actually already made bets in the space.
The reality facing any European founder in this sector is that investors on this side of the pond still tend to be more risk averse than our US counterparts. A large number of European funds are more comfortable doubling down on proven business models than investing at the frontier.
Individuals at those funds that are perhaps more willing to take bets in this emerging sector may still hesitate to bring deals in front of their investment committees. This could be exacerbated later in the year if we start to see some of the early, well-funded US startups falter amidst slower than anticipated adoption.
The good news is that I’m starting to see signs of several funds taking more notice (Felix Capital, BGF, Balderton and Backed.vc to name a few). They’re meeting companies, organizing networking dinners and expressing increased interest. But more can be done to both educate investors about the sector and turn more of them into believers.
Ambition levels must increase
Whatever the funding environment, or level of excitement from investors, we’re ultimately all looking for great dealflow. At Seedcamp, we want to back founders who are building the huge, global companies of tomorrow. But when it comes to immersive tech this isn’t so easy in Europe right now.
We have a lot of exceptional talent. But my hunch is that a lot of the teams with the most potential either jump on a plane to the US, where the funding is less risk averse, or they look for more immediate commercial opportunities, working for brands, building agencies or setting up media projects. There’s nothing wrong with that per se, but it’s a totally different mindset to the US.
To give you just one example, early last year I met two founders who were working on almost identical projects. The first, in the UK, had taken a small grant to work part-time on the project whilst spending the rest of his time on agency work to pay the bills. The second, US-based, spent three months raising a round and now has several million dollars in the bank to build out a team, accelerate development and carve-out early mindshare in the market.
We’re not lacking creative ambition in Europe, but we need to create an environment where founders feel they have the support they need to go and build a very large business too.
Connectivity must increase
Although capital is key, one of the most important things we can do to help is in making connections. A strong ecosystem is key to developing strong companies.
That means connecting talent. Whether it’s potential founders meeting potential co-founders. Or whether it’s founders meeting mentors with specific industry expertise and a track record of building large companies. It also means making sure that European startups have connections into all the main industry players — HTC, Microsoft Hololens, AMD, Nvidia, Google Daydream et al — as well as large European enterprises — Rolls-Royce, Tesco, Boeing. We must also shine a spotlight on great companies in the space, celebrating their progress and providing them with coverage.
When it comes to capital, we will also need to build bridges not just in Europe, but also to the US. The largest players in the space are either based in the US or have a significant presence there. Whilst this technology is still in its ‘installation phase’ even the best startups will require a healthy runway for demand for their products to catchup with supply (especially with non-gaming, consumer offerings). Ideally we can reduce the need for founders to waste time and money jumping on a plane to the US on day 1. But this does mean that founders will likely need to look outside of Europe for funding at some point.
Playing to our strengths
At the end of the day, Europe isn’t the same as the US. London, Berlin or Amsterdam are never going to be the same as San Francisco or LA. So whatever happens we need to play to our strengths. I’m still learning what these are when it comes to the immersive sector, but many I’ve spoken to have pointed to things like strong academic research and facilities, a pool of nascent talent from the gaming sector, expertise in sound and audio, a history of producing large valuable startups in entertainment and fashion, as well as a number of large incumbent enterprises ready to innovate existing processes through the use of immersive tech. Let’s figure out what we’re really good at and leverage that as a competitive advantage.
Announcing Augmentor
Given all this, I’m excited to announce that Seedcamp is launching Augmentor, in partnership with the Digital Catapult and HTC. Augmentor is a 10-week, equity free program supporting start-ups working with immersive technologies — AR, VR and mixed reality.
We hope to find 5 ambitious startups and provide them with both business and technical mentorship, as well as access to capital, exposure to investors and space at the Catapult’s state-of-the-art immersive lab in the centre of London, from which they can work and collaborate.
This is the first program that I know of in London, focused on immersive tech, and I hope to see much more support develop besides. At Seedcamp we have done two deals in the space so far. By investing time (and not just our money) in developing the ecosystem, I hope we can go on to fund many more startups building large valuable immersive-tech companies in the next few years.
We have belief, but we certainly don’t have all the answers (yet). To make this work, we need your support.
Founders — please apply for the program here. It’s equity free so you have everything to gain
Mentors — if you think you have expertise to bring, whether that’s in building companies, or more specific operating experience relevant to the VR or AR industries then please tell us here
Investors — if you’re a VC or angel investor interested then please tell us here
Amplifiers — if you’re in the press or media and would like to write about Augmentor or the companies we want to help then please just spread the word.
I’d love to hear from anyone who has thoughts on how to catalyse the European immersive tech sector even further. Feel free to drop me a message on dave[at]seedcamp[dot] com or hit me up over at LinkedIn or Twitter.
