Bloomberg News

Facebook Oculus Deal Boosts Allure of Virtual-Reality Startups

March 27, 2014

In the hours after Facebook Inc. (FB:US) announced plans to buy Oculus VR Inc., messages came pouring in at Virtuix Omni.

“My inbox has been flooded by investors who want to touch base,” said Jan Goetgeluk, 30, founder and chief executive officer at the startup, which makes a treadmill-like device that lets users move their feet to navigate within computer games. Goetgeluk is in talks to raise $2 million of venture funding from private and institutional investors.

Facebook’s $2 billion deal for Oculus, whose virtual-reality goggles have yet to go on sale, has given Virtuix Omni and the burgeoning industry an instant boost. In announcing the purchase, Facebook CEO Mark Zuckerberg touted virtual reality as the next big computing platform after mobile. Avegant Corp. and Vuzix Corp. said they’ve already been contacted by larger companies, and interest is only increasing.

“A big player like Facebook entering the space is a great validation on how virtual reality will be a mass-market medium, reaching mass-market audience,” Goetgeluk said.

Like Oculus, his Houston-based startup raised its initial financing -- $1.1 million for Virtuix Omni -- through crowdfunding site Kickstarter Inc. Now, the 2-year-old company needs money to bring the product, which can be preordered online for $499, to market, Goetgeluk said.

Roger Entner, an analyst at Recon Analytics LLC, said Virtuix Omni may be a takeover target for potential acquirers including Sony Corp. (6758) and Microsoft Corp. (MSFT:US), which could use the device to complement their existing video-game products, or Google Inc., maker of Glass Web-connected spectacles.

Chasing Opportunities

“There are not that many companies” in the virtual-reality space, Entner said. “Right now, there’s more money chasing good opportunities since the last time we had a bubble.”

Virtuix Omni has booked 3,000 orders, yet so far hasn’t received any takeover approaches, Goetgeluk said.

“If we received an offer, we would assess it then,” he said.

With Oculus, Facebook follows Google in scouting for growth beyond smartphones and tablets. While Apple Inc. (AAPL:US)’s iPhone and Google’s Android dominate in mobile devices today, developers are looking for new gadgets to showcase their wares and are focusing on more lifelike experiences.

Potential Buyers

As other technology companies seek innovative ways to reach consumers, traditional game makers such as Activision Blizzard Inc. and Nintendo Co. might also be virtual-reality acquirers, according Nic Mitham, CEO of KZero Worldswide, a consulting firm.

Wayne Hickey, a spokesman for Microsoft, declined to comment on potential acquisitions, as did Leslie Miller, a spokeswoman for Google, and a representative of Nintendo. Maryanne Lataif, a spokeswoman for Activision Blizzard, didn’t immediately return an e-mail seeking comment, nor did Dan Race, a spokesman for Sony.

“We’ve talked with a lot of companies that are very interested in what we are doing,” said Ed Tang, CEO of Avegant, which makes a head-mounted device called Glyph, used to play games and watch movies. “It’s anyone from the military to the medical industry to security.”

Glyph projects images directly onto a person’s retina, which the company says helps avoid the side-effect of nausea typical of many virtual-reality experiences. The Ann Arbor, Michigan-based company, which raised $1.5 million on Kickstarter, gets past the scarcity of content for virtual-reality players by being compatible with all kinds of devices, Tang said.

“You can plug into your iPod, you can plug into your PlayStation,” he said. “This is the beginning of the next generation of computers.”

Interest Climbing

Paul Travers, CEO of Rochester, New York-based Vuzix (VUZI:US), which makes virtual-reality glasses for defense, enterprise and consumer applications, said he has received takeover approaches.

“The level of interest is only climbing, and I can’t say that we’ve not been approached,” he said in an interview.

Travers said he was surprised by the price Facebook paid for Oculus, which was valued at $300 million in December, according to people familiar with the company. Shares of Vuzix, which was founded in 1997, rose 7.1 percent yesterday to $3 in New York, giving the company a market value of $28.6 million.

“I think it’s just fantastic,” Travers said. “From virtual reality to augmented reality to wearable displays, it’s going to change the world in so many ways.”

Digital World

Spark Capital, the Boston-based venture capital firm that helped fund Oculus along with Matrix Partners and Andreessen Horowitz, also invested in Thalmic Labs Inc., another maker of wearable devices for the virtual world.

The Canadian company, whose armbands replace a computer mouse by translating movements into digital inputs, is among “the wearable devices which will take over the digital world,” said Santo Politi, a partner at Spark who led the firm’s investment in Oculus and sits on the board.

Not all virtual-reality creators are as optimistic about Facebook’s purchase of Oculus, which only recently began selling an updated version of the Rift headset to developers for $350. Rish Mitra, co-founder and CEO of Blippar, an augmented-reality mobile application that lets its 5 million users browse and interact with objects, says Oculus sold too early, and he wouldn’t have done the same.

Developer Trust

“Oculus’s product is a promise which has not been realized,” said Mitra, a 34-year-old native of New Delhi. “Being bought by a company which the games developers don’t trust might hurt them.”

Blippar has turned down investments from Silicon Valley venture capital firms and rebuffed takeover approaches, Mitra said. The company he co-founded two years ago in London raised $300,000 from Qualcomm Ventures and is already profitable, thanks to revenue from advertisers and publishers.

“In five to 10 years the Internet will be merged in the physical world,” he said. “Blippar can dominate the Internet when it gets there.”

Facebook’s push into virtual reality might also make it tougher for the rest of the nascent industry to compete, said Kobie Fuller, a venture capitalist at Accel Partners.

“It’s hard to see anyone who comes close to what Oculus is doing,” said Fuller, who personally invested in Oculus’s first round of financing before joining Accel in July. “Facebook entering the space is just going to make it harder for those who want to keep up.”

To contact the reporters on this story: Serena Saitto in New York at ssaitto@bloomberg.net; Olga Kharif in Portland at okharif@bloomberg.net

To contact the editors responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net Jillian Ward, Stephen West


The Good Business Issue
LIMITED-TIME OFFER SUBSCRIBE NOW

Companies Mentioned

  • FB
    (Facebook Inc)
    • $80.77 USD
    • 0.16
    • 0.2%
  • MSFT
    (Microsoft Corp)
    • $48.14 USD
    • -0.31
    • -0.64%
Market data is delayed at least 15 minutes.
 
blog comments powered by Disqus