The virtual reality (VR) ecosystem is one of the most widely discussed topics in today's technology circles. The rising significance of VR has led to widespread research in this area, driven by its dominant presence in the entertainment industry and a trend toward its integration into and application to manufacturing and healthcare. The use of VR in consumer applications has been key in driving the growth of the market as a whole. VR development is still in its early stages, however, and a lack of cross-platform communication has impeded certain advancements. The VR market is also relatively fragmented, but it will eventually consolidate as the market grows and matures over the next decade. Consumers will help drive this process by favoring devices on platforms where the volume and quality of content are high. VR developers, in turn, will focus on platforms where they can best monetize their content.
In such a nascent and fast-evolving market, assessing the intellectual property (IP) landscape and safeguarding your assets subject to IP protections are critical strategies for both established VR market players and newcomers alike. VR companies should understand the types of IP protections available to them and be deliberate about the assets for which they seek IP protection – in addition to the specific type of IP protection that they are seeking. As a general matter, VR companies should focus their R&D asset development efforts on innovations that are essential to their core offering and ideally eligible for strong IP asset protection strategies. Those that can be quickly developed or productized as a complete offering or a key add-on to an existing solution should be pursued as well. IP assets that are readily available in the market, or more efficiently created by others, should be licensed or acquired under terms consistent with the company's strategy. Ultimately, an IP strategy should be informed by the above and structured to maximize legal protections while minimizing risk and liability on the actual IP assets.
The growing availability of such high-value, protectable IP assets has attracted financial and strategic investors to VR, and, as a result, there has been significant M&A activity and venture-backed funding in the space over the past few years. A large social media firm's $2 billion acquisition of a popular VR hardware and software products company is the biggest transaction in this domain yet, and the acquirer has indicated that it could spend over $3 billion in the next decade to improve VR and make it more accessible to the public. Magic Leap, a startup focused on developing a head-mounted device that superimposes 3D computer-generated imagery over real-world objects, raised $793.5 million in a Series C round of funding, at a valuation of $4.5 billion post-money. The Series C was led by e-commerce giant Alibaba, with participation from existing investors.
What about your funding for augmented and virtual reality companies? Indeed, the years 2014-2016 have seen venture firms take up VR as a theme in deploying their capital, and such firms have invested across stages and in varied amounts. For example, angel/seed capital invested in VR has nearly quadrupled from 2012 to 2016. It is important for early-stage companies to keep in mind that, while the general principles related to fundraising apply, prospective investors may still be trying to understand the competitive landscape and growth proposition of a VR business. As such, the task of seeking out the right institutional partner may occur in fits and starts when compared to other verticals.