Blog

An Immersive Look at the Virtual Reality Market

by Diego Lanao

  • 31 Jul 2019
  • VC

VR is here to stay, but accessibility still difficult

As new advancements are continually presented, the technology industry has evolved and expanded to serve unique and creative purposes. One sector in particular, virtual reality (VR), has attracted considerable public interest. VR technologies present simulated experiences which allow individuals to immerse themselves in scenarios they would have never imagined being part of, such as journeying to space or living inside a video game.

The entertainment and media industries are major players in the VR sector, encouraging an awareness of VR technology’s potential use in areas such as film-making and news coverage. Other industries including healthcare, defense and aviation have also begun incorporating this advanced technology into their work practice.

For several years, VR start-ups were highly desired companies to invest in for future returns. More recently, though, the market has taken a volatile turn. From 2016 to 2017 the number of venture capital deals completed in VR-related companies dropped by 16%. This trend continued into 2018 with a 27% decrease in the number of investments compared with 2017. With H1 2019 recording a further 37% decrease in deals relative to the same period in 2018, it appears that investors are beginning to lose interest as the VR hype wanes.

Dominant Players in the VR Market
Over the past decade, North America and Asia together account for 79% of the total number of venture capital deals completed in the VR sector. Overall, from 2009 to H1 2019, the total value of VR deals in North America is 866% greater than for deals in Asia. Looking at 2019 thus far, North America constitutes 84% of the total amount invested in VR-related companies globally, having made the largest venture capital VR financing to date with a $1.25bn Series A/Round 1 investment in Epic Games, Inc. in October 2018.

 

Amount of Capital Invested Can Be Misleading
Looking at the two dominant regions investing in the VR market, Asia has begun to creep up on North America in terms of the number of venture capital deals completed per year. In 2016, Asia recorded its largest number of VR deals completed in any year, and at a total only 21% lower than that of North America. In subsequent years, the annual number of VR investments has dropped off for each region, as has the difference between them. While the number of investments in each region appears to be levelling, there is still a significant disparity in the size of deals for North American and Asian VR companies, as seen in the chart above.

The aggregate value of VR-related deals reached a high in both regions in 2018, with North American deals valued at an average of $2.3bn, compared with $383mn in Asia. Although aggregate deal value has increased throughout the years, it does not correlate with the decrease in number of deals completed each year in the VR industry. The expensive cost of the equipment or potential health concerns, such as cybersickness as a potential side effect when taking part in VR simulations, can factor into investors' waning interest.

Questionable Timeframe: VR Merging with Reality
The VR sector will not be disappearing anytime soon, however. Surgeons and military personnel are huge supporters of the technology: it assists them in training sessions and medical operations. The social science and psychology fields are also promoting the usage of VR in rehabilitation and therapeutic advancements for individuals with mental health disorders.

The pressing question is this: when will VR be able to integrate itself in daily activities, rather than high-cost projects? While there have been attempts to make VR more accessible to the public, there is still a high consumer cost attached. Software companies, which are typically able to take on more ambitious and riskier projects than healthcare companies operating in the VR space, have received the majority of VR funding. While VR continues to make an impact – whether it be in entertainment, content, education, health or engineering – it will be some time before we see VR technology as a staple in every household.

Preqin Pro contains detailed information and analysis on the VR deals sector. Take a demo today to find out how our data can help you.

Continue browsing industry reports, publications, conferences, blogs and more on Preqin Insights