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Investing in the Future of the VR Ecosystem – with Vive X Accelerator Senior Manager Peggy Yuan

· Founders and VCs,VIVE,Accelerator,AR,VR
A portrait of Peggy Yuan

The Harbinger recently spoke with Peggy Yuan, Senior Investment and Program Manager from Vive X Accelerator. Vive X Accelerator is a 100 million USD global fund that invests in innovative and impactful applications of VR/AR technology and content start-ups. In this interview, Peggy shares her insights into what makes a good VR startup, the unique position of this accelerator, the future of VR, and a discussion of the VR market in China.

Transcribed by Yamini Bhandari; Edited by Jordan Schneider

[Editor's note: this interview has been edited and condensed for clarity]

An image of spaceship exploring the universe, displaying VIVE X in the middle

***

Understanding Vive X Accelerator

Yamini: Can you tell us about HTC Vive, the accelerator, and your mission?

Peggy: HTC Vive is the VR business in HTC and the Vive is our first PC-based VR product, which is the most immersive room-scale VR system in the market.

Vive X is global accelerator initiative by Vive. Our mission is to help cultivate, foster and grow the global VR/AR eco-system by investing in early-stage VR/AR start-ups. We then help accelerate their growth by providing them with education, mentorship, technical support and industry resources through a four-month accelerator program. We recruit twice a year, and at the conclusion of each batch, we host Demo Days across the locations to showcase teams’ achievements and connect them with media and potential investors.

We currently operate in 5 locations, including Beijing, Shenzhen, San Francisco, Taipei and Tel Aviv, with an investible fund of $100M.

Yamini: What separates HTC Vive’s accelerator from other accelerators?

Peggy: One is that we are AR/VR focused, and because of Vive’s position as a market leader, we can leverage tremendous industry resources to help our portfolio companies grow. For instance, Vive is one of the key initiators of the Industry of Virtual Reality Alliance (IVRA) whose membership covers the entire VR eco-system in China. Our portfolio companies can easily get access to this network to forge partnership or acquire clients. We also have the Virtual Reality Venture Capital Alliance (VRVCA), which is a consortium of top VCs that invest in VR/AR. And our portfolio companies benefit a lot from this network when they do fund-raising. Internally, we have the whole Vive team to leverage to help our portfolios from product, tech, marketing, PR and so on. In other words, we have a whole eco-system to support those companies, and this is something very unique compared to any other VR/AR focused accelerator.

Further, Vive X itself is a great community of start-ups. We tried very hard to build a sense of community, and as a result of it, many good partnerships have been forged between our portfolio companies.

***

Who and What to Invest In

Yamini: Can you tell us about some of your portfolio companies? I understand that you’ve had three batches so far?

Peggy: Over the past one and a half years, we’ve invested in over 80+ VR/AR start-ups globally, many of which have become industry leaders in their respective sectors. We are very proud of what our portfolios have achieved: teams like ObEN, 7Invensun, TPCast, vDesign, Directive Games, Immersv, among others have raised new rounds, acquired very high-profile clients or released award-winning products since Vive X.

TPCast is one of our stars from Batch I. They are the first company in the market that provides wireless solutions for PC VR. VR requires a huge amount of data processing power, so it’s challenging to transmit the data wirelessly from computers to headsets. TPCast came to us with a solid solution early last year, even though they just had a rough prototype at that time. Our hardware department provided a lot of technical support to make sure their product is well compatible with Vive. After they were ready to release the product, we helped promote their product by doing a joint press release, pushed their sales through our channels, showcasing their product together with Vive at CES among many other efforts.

There’s another company ObEN; they are making an AI-driven personal avatar for everyone. Their technology allows you to take a selfie and have it transformed into a 3-D image of you. They also have the technology to mimic your voice; the avatar can actually speak in your voice and can interact with you intelligently. When they came to us last year, they had good technology and a great team with a lot of PhDs, and they were looking to find user scenarios to have the technology applied in VR/AR. During the program, we had a lot of brainstorming session and discussions with them. Even though they are based in LA, we had conference calls a few times a week and discussed how they could apply this technology in VR. ObEN and Vive also worked together and developed the first app that integrates WeChat experience in VR. ObEN recently raised new rounds from Tencent, Softbank, and CMC, forged joint venture company with Korea’s biggest entertainment company, and incorporated blockchain technology into their new line of products.

Grey: I would love to learn more about how you select these companies. What do you look for in a company, how do you select them, and what stipulations do you have? You mentioned that some of these technologies have to work with Vive Headsets, are they exclusive to HTC Vives? How is that negotiated?

Peggy: Yes, we don’t limit our selection to any stage nor segment; instead we are looking for the best teams in the world to push the frontiers of VR/AR together. The portfolio companies are selected from thousands of applications, and we evaluate their candidacy from two main angles. First, we are an investor, so we look at companies from a regular investor point of view: whether these companies solve real problems and whether their solution makes sense, whether the team has a proven track record to show that they can deliver the product, whether their addressable market is big enough and if their business model makes sense. So that’s our initial criteria.

On the other hand, because we are an AR/VR focused fund we also take a strategic point of view, we will consider whether their product can enhance the whole VR ecosystem. That means that sometimes when the idea might be a bit immature or risk from a regular VC point of view, it might be a lead that we’ll consider. We’ll have a higher tolerance, especially if the work is pioneering. Also, we will look to see if their business model or their products can actually enhance Vive’s ecosystem. Because we ultimately want to help those companies and if there’s not a lot of synergy between Vive and them, they’re probably not the best fit.

Regarding your second question, we will only require the company’s products to be compatible with Vive and be exclusive to Vive for a period of time. But we won’t set the limitation that it can only work with Vive. We don't want to limit their market scale, but instead, we want them to grow and enhance the whole ecosystem.

Grey: How do you analyze this risk tolerance? For example, when a company comes to you and they have a potentially amazing idea, but maybe their team isn’t exactly what it should be, or they don't have a great business model for profit, but the idea is fantastic and could help the ecosystem, how do you assess that? Do you have a rubric of looking through an idea, assessing and valuing it through HTC as a whole?

Peggy: I think the tolerance is more for the solution’s potential than actually tackling the world problem. VR is in its early stage, and there are many challenges and unsolved problems out there that will impact the solution that teams are trying to provide. A lot of startups are trying to find good user scenarios for this technology, and some of the needs aren’t validated yet. It takes time. It’s a process. So our tolerance is more “this might be cool,” and we want to give them a chance and support them and see if it works. Say, for example, social VR, a lot of companies are doing social VR including Facebook, but no one knows in 2 years or 3 years whether it will be developed into a market where consumers really accept this solution. We don’t know if we all want to spend our whole day in the VR environment to interact with our friends. For now, Facebook wants to invest in this direction, it may be successful, but it may fail as well. For some of our ideas, we want to give it a try, that's why we say we want to enhance the ecosystem. Startups are risky, especially for frontier technology with a lot of challenges. There is a lot of trial and error, and you need a lot of courage even to give it a shot.

***

Future of VR

An image of a male wearing VIVE and two handles, controlling a virtual drill

Yamini: So the next topic we wanted to talk about was really the future of VR, you alluded to this earlier, but I think a big question on a lot of our minds is what can spur mainstream adoption of VR technology in different technologies? From your experience working with so many different companies, what are the key pitfalls?

Peggy: Right now the biggest problem for the market is consumer penetration isn’t big enough. The VR device needs to be upgraded to a lighter, cheaper and more portable one with enough good content to attract consumers to spend time and money on it. It takes time, and we need some patience. Good news is that in 2018, more high-end VR stand-alone devices will be available in the market. Vive just launched Vive Focus, which is a standalone device.

Yamini: What was the real reason people decided not to invest this year?

Peggy: I think people over-expected with this market last year. It was only the first year when the first versions of consumer VR headsets were released, Oculus and Vive, but it is really early stage. This industry will continue to grow for 10 -20 years, that’s when people will be able to sell those amazing experiences. People expect it to happen overnight. There are still a lot of unsolved challenges. A lot of investors are too short-term, they have other opportunities to invest that will bring a lot more profit, so they shift their attention.

Yamini: The third stream you mentioned was enterprise solutions, can you talk about some of the different examples of use cases there and ones that your portfolio companies are involved in?

Peggy: Operating more broadly, enterprise solutions in some specific industries, VR can solve those problems. Training is one of them, especially education in China. It's growing well, I’ve talked to a lot of VR education companies, there are basically two different businesses: for K-12, they provide VR education solutions to primary school, middle school, and sometimes high school. Their products use VR to demonstrate certain concepts, for example, geography demonstrates the earth. Some of them are more for STEM, for creativity, people can draw a car; they sell those solutions to schools. Schools in China are receptive to this new technology. They set up VR classrooms in their school so students can have 1-2 classes a week in the VR classroom.

We have this company, VITO. They are providing middle school and high school k-12 courses. In our new batch, we have JuDaoEdu and Lenqiy. JuDaoEdu is very interesting, as they are doing VR labs, like chemistry experiments. It’s sometimes dangerous to do those experiments on their own for students, so you can actually simulate this in VR. They’ve been doing those experiments in 2-D for many years, so they have a lot of existing courses they transformed into VR. They’ve sold those solutions to many schools already. Lenqjy is for creative VR courses. They allow students to code in VR and control a robot.

Also, industry training is a big part, I’ve met companies doing training for oil drilling or mining to offer those big machines. Sometimes it can be dangerous, and for those companies they have training, so VR isn’t incentivizing them to do the training. They used to do it differently before, teachers would teach in 2-D or on an iPad or a computer, but with VR they can simulate the environment as if you were operating in the real world before they are put into the field. These firms already have the training budget; it’s just that VR provides better solutions, so those companies have better revenues because it solves a pain point.

Grey: In education in China there are channels, so you sell your product to a channel and that channel sells it to a school. What ends up happening is that the best product is not always chosen because of the incentives. Have you seen any solutions that go straight to the consumer? And how do they deal with the challenge that a huge majority of consumers don’t have headsets, so you can’t just sell the software?

Peggy: You’re right that they sell through the channels and I don't see a lot of solutions selling to consumers directly. I think because hardware penetration isn’t big enough to incentivize those companies to do a consumer product. Most of the companies sell to schools. It takes time before consumer product is coming.

Mobile VR has accelerated the process. In America, there might be a couple of companies that sell the solution directly to consumers.

Grey: What about cost? For HTC Vive you would need a computer to run the VR headset, it’s like $1400?

Peggy: Usually those companies are really big, like China Petroleum, those kinds of companies. Oil drilling and mining companies, they’re not sensitive to costs. Those costs for them are okay. Standalone VR is also a very good option for vertical industries that need, for example, high-definition viewing rather than high-accuracy lighthouse tracking.

Yamini: What about the schools that have opted for this technology?

Peggy: It depends because some schools in China have a lot of money, those schools are willing to try and buy.

Other industry solutions like real estate; a lot of companies are creating an environment in VR where consumers can view houses. We have companies creating a tool for designers to decorate or design rooms, vDesign. They’re doing that. When you put on the headset you enter the room; there’s a sofa, lights, you can choose and decorate your room, and also we just recruited a company called PanguVR. The company allows 3-D files to be transformed into VR environment in a few minutes. When designers complete their plan, consumers can view the solution in VR with a better sense of scale.

There are also healthcare companies. Vive hasn’t yet invested in healthcare, but HTC principal investment in San Francisco invested in a company called Surgical Theater, for VR surgical training. So VR is trying to apply its technology to different spaces.

There’s also VR e-commerce that the San Francisco office invested in which was pretty good. I tried their product, there are certain products are suitable for VR, and they found a fit. They do a demo to sell drones. You can choose different drones, and VR can transport you into different settings, using you VR you can feel like you are flying the drone into different settings, on beaches and mountains. There’s a TV and you can see what the drone’s camera shoots. It’s hard for you in the real world to try drones in different environments, but that experience is awesome.

***

Engines of Product Improvement

A picture showing using gesture in virtual world

Yamini: We’ve been talking about VR breaking into some different industries, but has there been improvements in the underlying technology to allow for this?

Peggy: The improvement in technology takes time and cannot happen overnight. We do invest in a couple of core technology companies that are trying to improve the solutions. We’ve invested in one company that’s doing eye checking. Eye tracking technology can be applied in a number of different applications, for example, you can use your eye as a mouse on a computer. They’re using it for education for when students are learning in a VR environment, teachers can track their attention according to their eye movement and analyze how good students move their eyes.

Others are trying to solve the data processing problem, because VR data is really big, especially for 360 videos. A lot of companies are trying to stream 360 videos, but the experience is not good. The data is too big for the current bandwidth to process. Eye tracking provides a solution to this too because it’s using this technology for foveated rendering, which means it can track your eye's attention and only render what you see. For example what’s behind you can be blurry without impacting your experience.

Gesture tracking is another really important aspect of the technology because it allows for better user interaction. There are companies out there trying to provide better solutions. Leap Motion is a big one investing in this area.

***

China VR Market

Yamini: The last thing we wanted to learn about was VR in China specifically, what is your take on the market in China for VR versus the US?

Peggy: I think China’s market has some uniqueness. Right now in the overall global market, there are larger consumers in the US and Europe because they’re more hardcore gamers or PC console gamers. In China, because businesses are incentivized to allow consumers to experience VR, there are a lot of arcades. That phenomenon is not seen in the US or anywhere. That’s quite interesting and for enterprise solutions, education is really big and booming in China, especially from later last year to this year. In terms of the core technology, there are maybe more companies focusing on core technology in the US. There is probably more innovation on the product side in the US as well.

In China there’s more innovation in the business model. On tech side, overall the US has better technology, but China is catching up. There are a lot Chinese companies solving core technology problems.

The opinions expressed in this article are Peggy's own and do not reflect the views of Vive X Accelerator

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