If today's AR / VR investment / merger and acquisition dynamics continue, it could be a one-year to 18-month window for corporate and VC's "smart money" to make deals with AR / VR leaders at sensible valuations. And if the market begins to take off at the end of 2020 – potentially driven by Apple, Facebook and others – early-stage dealers can reap the benefits.
Digi-Capitals AR / VR Analytics platform and new 360-page magnified / virtual reality report Q3 2019 tracked over $ 5.4 billion increased reality investment and virtual reality investment in the last 12 months to Q2 2019, with Chinese companies increasing over 2.5 times the dollar (or RMB) of their North American counterparts. Global contract value, or dollar invested, rises in Q2 201
(Note: Late Phase C + Exclusive Series Early Early AR / VR Investment Up to Series B rose to $ 346 million in Q2 2019 for a total of $ 1.2 billion over the past 12 months.
AR / VR Investment Value
AR / VR Feature Startup continued to raise funds in the first half, although 2019 is a transition year before a potential marketplace move next year – especially if Apple smartglasses start in the 4th quarter of 2020 that Digi-Capital has forecast since 2016. (It is worth noting that only Tim Cook and his inner circle really know if it will happen and if so, how it might look) . The contract volume in Q2 2019 fell to its lowest level in four years, especially Pre-Seed (Q2 2019 down 71% against Q2 2018), Seed (Q2 2019 down 25% against Q2 2018) and Series A (Q2 2019 down 23% towards Q2 2018).
Digi Capital's AR / VR Analytics Platform analyzes thousands of individual AR / VR agreement ratings to provide start-up values and averages by category, scene and country. These data show that AR / VR Angel through Seed round-average valuations grew through 2018, but began to fall in the first half of 2019 (again referring to average round valuations based on thousands of individual contract values that vary significantly).  This does not mean that early phase AR / VR companies are forced to downsides where valuations are lower than previous rounds, or that there are still no robust valuations for solid companies. Rather, this average decline reflects a shift in the balance of power from the early stage AR / VR startup to its investors, with corporate funds and VCs that can drive harder purchases. It is worth noting that the AR / VR start-up with the traction force to increase series A and B rounds gave higher average valuations in the first half compared to last year – then fluctuations and roundabouts.
Digi Capital's AR / VR Analytics Platform also analyzes thousands of VC and corporate funds that have made thousands of AR / VR investments. These are the fund's changing behaviors that appear to run lower average estimates of early scenes.
There were fewer individual corporate and VC investment funds actively investing in early-stage AR / VR rounds up to seed in the first half of 2019 compared to 2018 (Note: This applies even when it is extrapolated for the whole year). A smaller investor pool this year helps to explain lower average valuations for these stages, with lower competition between fewer investors for fewer deals, ie fewer investors x fewer agreements concluded α lower average valuations.
Series A investors do not seem to follow the same trend, with continued investor appetite for AR / VR start-up with traction. The Series B investor pool also remains in the order of last year, but down to the 2017 level. Series C + investors are a relatively small pool to begin with, so the weak decline in these stages can only be due to inherently higher variance.
AR / VR number of investors by category H1 2019
The largest number of VC and investment funds continued to focus on the core AR / VR technology startup, as they have in recent years. As in other early markets, some investors manage investment risk by focusing on "picking and spitting" startups that support the ecosystem. These were followed by investors in AR / VR games, smart glasses, education, lifestyle and medical as well as fewer investors in 17 other categories.
AR / VR number of acquirers by category
(Note: Investment is companies that collect funds from VC / strategic investors – that is, new M&A are companies that buy other companies or investments in them – ie the purchase of shares from existing shareholders).
AR / VR has seen relatively few M&A agreements compared to other technology sectors due to the early stage of the market. Although this may change if there is an inflection point next year, it is not an obvious catalyst for running large-scale M&A in the next 12 to 18 months.
There has also been a limited selection of acquirers in each AR / VR category, with the largest numbers in the core AR / VR technology, games, solutions / services and photo / video (as well as fewer acquirers in 19 other categories) . The most active AR / VR takeovers to date include:
- Magic Leap
- ] PTC
- ] MindMaze
Each of the top 10 has a different acquisition focus, although the core businesses AR / VR technology have been significant for many. As Digi Capital's investment bank arm recently completed the sale of an AR startup to a major acquirer has shown, knowing what buyers are looking for and building the right relationships is critical to any exit.
And as always delivering return on investment, timing is all.
Tim Merel is managing director of AR / VR consultant Digi-Capital