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Metaverse And Augmented Reality Remain Unpopular With VCs

Illustration of man floating in the metaverse.

The metaverse is not getting funded.

That was the unsurprising finding from our latest data dive regarding investment in startups innovating around the metaverse, virtual reality and augmented reality.

The space, which was significantly buzzier a few years ago, has apparently lost its cachet with VCs. Dwindling investment comes on the heels of disappointing adoption for the gear and leading metaverse platforms.

Even Apple’s U.S. introduction earlier this year of the Vision Pro headset, marketed as a “spatial computing” device, didn’t produce a notable turn in sentiment. Demand for the $3,500 device is reportedly cooling, with Apple said to have cut its shipment forecast.

Back in startupland, the investment climate seems downright chilly. Per Crunchbase data, [footnote]Funding totals from prior years differ somewhat from those in our January story, Startup Investors Have Fled The Metaverse. This is due to possible changes in Crunchbase categorization methodology as well as a stepped-up effort by the author to remove some of the larger funding rounds for companies that are not explicitly developing AR/VR/metaverse technologies.[/footnote] roughly $464 million this year has gone into seed- through growth-stage funding rounds for companies tied to AR, VR and the metaverse. That puts 2024 on track for the lowest funding total in years.

Most of the startups that raised the biggest financings during the peak funding of 2021 have not closed new rounds since then. This includes headset maker Magic Leap and augmented reality game developer Niantic.

This year, while activity is muted, some sizable financings are still getting done.

So far in 2024, the largest AR-related round went to Rokid, a maker of augmented reality glasses that raised $70 million in a January financing. Redwood City, California-based Rokid primarily markets its products for workplace and industrial use cases, but also has a consumer offering.

Another good-sized financing went to Beijing-based Xreal, a maker of mixed-reality glasses that  raised $60 million in a January round at a value of $1 billion. The company pitches itself as a lower-cost competitor to Meta’s Quest and Apple’s Vision Pro.

Fading buzzwords

In addition to lackluster uptake for virtual- and mixed-reality gear and platforms, another factor behind seemingly slower funding tallies may be that the buzzwords themselves have fallen out of favor.

A few years ago, describing oneself as a metaverse company might have helped spike interest from venture investors. Today that’s no longer the case. Startups prefer, for example, to emphasize their artificial intelligence focus. Even Apple studiously avoided using the term metaverse in promoting Vision Pro, opting instead to talk up the device’s spatial computing capability.

Should adoption of virtual and mixed reality devices accelerate, venture investors will likely give the space renewed attention — and bigger checks. But perhaps by then, the ambitious startups will be using different buzzwords, like AI-enabled video simulations or spatial computing environments.

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