Venture Capital Deals Slow— Timing of Augmented Reality Reaching a Critical Mass an Issue

Paresh Dave reported in today’s Los Angeles Times that, “Excluding an outlying $1-billion financing of Snapchat Inc., Los Angeles start-ups pulled in 57% less cash from venture capitalists in the second quarter compared with a year earlier.

“The number of investments also dropped 42%, according to Dow Jones VentureSource data released Thursday.

“Though steeper in the Los Angeles region, the decline in venture capital activity is reflected nationwide and continues a yearlong trend. Last summer, investors turned more cautious after realizing they were valuing start-ups too richly. At such prices, the companies could struggle to go public or find a buyer – especially at a time of global economic uncertainty.”

Today’s article explained that, “But in recent weeks, venture capitalists have pointed to a second cause for the slowdown.

Many say they are placing fewer bets on tried-and-true smartphone apps, which had attracted more than $50 billion worldwide during a four-year period running through 2015. Apps for virtual and augmented reality devices could become an investment target. But fund managers are unsure about when the technologies will reach a critical mass. Amid that uncertainty, a deals shortage has emerged…[T]he problem with mobile, venture capitalists say, is that people can spend only so much time on their phones.”

The L.A. Times article added that, “Some early successes suggest that it’ll be smart to bet on augmented reality, which generally involves being able to overlay virtual objects onto someone’s field of view. Snapchat’s broadly adored Lens feature places dog ears, panda faces and other masks on images of people in real-time. The new game app ‘Pokemon Go,’ which injects virtual critters into the real world, has gone viral in a week…[M]ergers and acquisitions advisor Digi-Capital estimates the augmented reality market will be worth $90 billion by 2020. But it could take until 2025 for the new technology to become as normal as the smartphone experience people have grown accustomed to over the last decade, according to a forecast issued this week by the firm.”

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