A syndicate of Asian technology companies and investment funds are pouring money into a Laguna Beach, Calif., company that broadcasts events live in virtual reality.
NextVR Inc. has raised $80 million in Series B funding to expand its platform that has broadcast events, including a Coldplay concert, presidential debates and the Kentucky Derby, in virtual reality. As startups seek to make content for the nascent virtual-reality industry, corporate investors—especially from China—are behind some of the largest deals.
“The U.S. is excited about VR,” said NextVR Executive Chairman Brad Allen. “But China is even more excited about VR.”
New investors include China Assets Holdings Ltd., Citic Guoan Information Industry Co., CMC Holdings Ltd. of Hong Kong, Founder H Fund Co., NetEase Inc. and VMS Investment Group Ltd., all of China; as well as Japan’s SoftBank Corp. and San Francisco-based Spectrum 28 Capital LLC.
“Smart Chinese money wants early access to the best VR companies in order to drive this trend in China,” said Michael Yang, Comcast Ventures managing director and NextVR investor.
Mr. Allen, of NextVR, said there are more than 100 companies in China that are developing head-mounted displays and that many of those devices are powered by mobile phones. He compared them to the Samsung Gear VR, a popular phone-powered headset in the U.S. He said many in China view the medium as the next computing platform.
Currently consumers need a Samsung phone and Gear VR headset to watch NextVR but the company is expanding to other head-mounted displays.
“China looks at this as an opportunity to be in on the ground floor,” he said.
Two other California companies that make movie-like experiences in VR grabbed funding from China in recent months. Jaunt Inc. raised $65 million with participation from China Media Capital. The company recently launched Jaunt China with CMC and Shanghai Media Group. The Virtual Reality Co., first backed by Steven Spielberg, raised $23 million from Hengxin Mobile Business Co.
On the head-mounted display side, Alibaba Group Holding Ltd. is among the investors that have poured more than $1 billion into Magic Leap Inc., a maker of mixed-reality glasses.
To be sure, there will be challenges for NextVR as it seeks to navigate an extremely fragmented market with many head-mounted-display manufacturers. Mr. Allen said having strategic investors in Chinese technology, media and entertainment will help the company understand the sector.
“It’s not unlike the early days of the web browsers or flip phones, where you would’ve had to write your app multiple times to multiple platforms,” said Mr. Yang, of Comcast Ventures.
According to industry data tracker Dow Jones VentureSource, virtual- and augmented-reality startups have raised $985.17 million across 29 deals in the first half of 2016. This is a sharp increase from a year earlier, when investment totaled $157 million. Much of the increase was driven by a large investment in Magic Leap.
In the U.S., traditional venture capitalists continue to hold back on writing large checks for later-stage virtual-reality companies. Though most believe a market for virtual reality will materialize, it is unclear when the market will take off. Virtual reality hasn’t exactly achieved mass-market appeal and is still considered years away from being able to do so.
There is a classic chicken-and-egg problem at the core of unlocking virtual reality’s market potential.
Virtual-reality headsets won’t be in many households until there is either engaging content to watch on them or a “killer app” that makes consumers feel they need to buy them. But it is risky to invest in content before enough people get access to headsets to experience it.
Many say more opportunities lie with companies creating the “picks and shovels” that will create virtual-reality content. That funding cuts across hardware or software categories because many of these companies are blended models—building the cameras to capture video, the programs to edit and stitch it in 360 degrees and the software that renders and distributes content across various head-mounted displays.
“You look at most of Sand Hill, and they’re sitting on their hands,” Mr. Yang said in a recent interview, referring to the Silicon Valley venture capital community in Menlo Park, Calif. “A lot of the big funds and traditionals are waiting for [head-mounted display] rollout and numbers to be meaningful.”
NextVR previously raised about $30 million in funding from U.S. investors, which all participated in this second $80 million round. They include Formation Group, Time Warner Investments, Comcast Ventures, Stephen Ross’s RSE Ventures, Mandalay Entertainment CEO Peter Guber, Madison Square Garden Co. and Dick Clark Productions Inc.