Virtual reality
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Saar Gur is adept at identifying the next big consumer trends earlier than most: The San Francisco-based general partner at CRV has led investments into leading consumer internet companies like Niantic, DoorDash, Bird, Dropbox, Patreon, Kapwing and ClassPass.
His own experience stuck at home during the COVID-19 pandemic spurred his interest in three new investment themes focused on the next generation of games: those built for VR, those built on top of Twitch and those built for video chat environments as a socializing tool.
TechCrunch: We’ve been in a “VR winter,” as it’s been called in the industry, following the 2014-2017 wave of VC funding into VR drying up as the market failed to gain massive consumer adoption. You think VR could soon be hot again. Why?
Saar Gur: If you track revenues of third-party games on Oculus, the numbers are getting interesting. And we think the Quest is not quite the Xbox moment for Facebook, but the device and market response to the Quest have been great. So we are more engaged in looking at VR gaming startups than ever before.
What do you mean by “the Xbox moment,” and what will that look like for VR? Facebook hasn’t been able to keep up with demand for Oculus Quest headsets, and most VR headsets seem to have sold out during this pandemic as people seek entertainment at home. This seems like progress. When will we cross the threshold?
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Valve is calling it quits on macOS support for its virtual reality platform. A Valve employee posted an update to the company’s SteamVR forums, noting that “SteamVR has ended macOS support so our team can focus on Windows and Linux.”
Apple introduced “Metal for VR” back in June 2017 and highlighted a partnership with Valve. At the time, Valve was pushing VR as a platform and working with HTC on its Vive system; fast-forward to 2020 and Valve has its own high-end headset and has just released its highly-anticipated title “Half Life: Alyx.”
This impacts developers more so than actual gamers.
Almost no games supported Mac, and even Apple’s highest-end MacBook Pros failed to meet minimum specification requirements for Oculus or SteamVR. As the folks at Upload point out, Valve’s recent hardware survey showcases that just 4% of gamers on the platform use macOS to begin with, suggesting a pretty small sliver of actual gamers even fit in the Mac-owning VR user Venn diagram.
Game developers building VR content on Mac likely enjoyed the ability to develop and test on a single machine. As Apple aggressively chases professionals with high-priced gear like the Mac Pro and iMac Pro, it’s not a great look when a major software platform decides you’re not worth the effort.
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While some U.S. investors might have taken comfort from China’s rebound, we still find ourselves in the early innings of this period of uncertainty.
Some epidemiologists have estimated that COVID-19 cases will peak in April, but PitchBook reports that dealmaking was down -26% in March, compared to February’s weekly average. The decline is likely to continue in coming weeks — many of the deals that closed last month were initiated before the pandemic, and there is a lag between when deals are made and when they are announced.
However, there’s still hope. A recent report concluded that because valuations are lower and there’s less competition for deals, “the best-performing vintages tend to be those that invest at the nadir of a downturn and into the early stage of recovery.” There are countless examples from the 2008 recession, including many highly valued VC-backed businesses such as WhatsApp, Venmo, Groupon, Uber, Slack and Square. Other early-stage VCs seem to have arrived at a similar conclusion.
Also, early-stage investing seems more resilient. During the last recession, angel and seed activity increased 34% as interest in the stage boomed during a period of prolonged growth.
Image Credits: PitchBook (opens in a new window)
Furthermore, there is still capital to be deployed in categories that interested investors before the pandemic, which may set the new order in a post-COVID-19 world. According to data provider Preqin Ltd., VC dry powder rose for a seventh consecutive year to roughly $276 billion in 2019, and another $21 billion were raised last quarter. And looking at the deals on the early-stage side that were made year to date, especially in March, the vertical categories that garnered the most funding were enterprise SaaS, fintech, life sciences, healthcare IT, edtech and cybersecurity.
Image Credits: PitchBook
That said, if VCs have the capital to deploy and are able to overcome the obstacle of “having never met in person,” here are six investment trends that could emerge when the pandemic is over.
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As the venture landscape adjusts to the COVID-19 pandemic and seismic shifts in public markets, early-stage VCs are reassessing which bets they’re making, along with questions they’re asking of founders who are exploring bleeding-edge technology.
Anorak’s Greg Castle
Anorak Ventures is a small seed-investment firm that bets on emerging tech like AR/VR, machine learning and robotics. I recently hopped on a Zoom call with founder Greg Castle to talk about what he’s seen recently in seed investing and how the sector is responding to the crisis. Castle was an early investor in Oculus; his other bets at Anorak include Against Gravity, 6D.ai and Anduril.
Our conversation has been edited for length and clarity.
TechCrunch: Has this pandemic affected the types of companies that you’re looking at?
Greg Castle: From my experience as an investor thus far, being reactive as an investor and looking at “hot” areas has a lot of pitfalls to be mindful of. I think a lot of the areas that excite me as an investor could benefit from what’s going on here, those areas including robotics, automation, immersive entertainment and immersive computing.
Just generally, do you feel like a recession is likely to negatively impact emerging tech more so than other areas?
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The game developer behind Second Life has abandoned its grand efforts for a virtual reality follow-up to its early 2000s hit.
SF-based Linden Lab announced today that they’ve sold off assets related to Sansar to a small, little-known company called Wookey Search Technologies, which will take over development of the title. Linden Lab will continue developing and maintaining Second Life and it sounds like some of its employees will be joining Wookey. The deal was reported by Protocol.
The game studio had already announced layoffs last month.
Second Life has remained in the limelight of popular culture, and the studio claimed to still be hauling in substantial revenues from the game in recent years. That said, the failure of Sansar is a disaster for Linden Lab, which has focused considerable resources on the effort since it first teased the platform back in 2014.
When the title was announced, VR was at the peak of its hype following Facebook’s Oculus VR acquisition. Though Sansar launched in beta with support for both VR and desktop usage, the slow adoption of VR certainly didn’t help the title’s popularity. The studio’s leadership has detailed in interviews that the majority of Sansar’s users are desktop-based.
Given the evident turmoil at the studio, Sansar’s user base will likely be relieved to hear that the studio did their best to give the title a soft landing, though it’s unclear what resources its new acquirer has access to.
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After years of hype, the AR/VR space has certainly grown quieter as of late, but some investors are still coalescing behind a vision that the technologies could one day replace mobile if the technical kinks can be worked out.
Creal is a Swiss startup that’s working on some fundamental display technologies that could make VR and AR headsets more comfortable with more life-like optics.
The startup raised a $7.4 million Series A last year from Investiere and DAA Capital Partners. The company announced this week that they received grant funding from the European Union’s Horizon 2020 research and innovation program to continue working on their light-field display tech.
Light-field displays are a category of displays that are quite a bit different than anything you’ve seen. While existing AR and VR headsets can show you stereoscopic 3D by displaying slightly different images to each of your eyes, future headsets will allow you to change what’s in and out of focus based on where your eyes are looking. The big optics issue this solves for is called the vergence-accommodation conflict, and it allows for interacting with objects closer to your face and functionally makes reading in VR quite a bit more effective as well.
Here’s a “through-the-lens” demo of the startup’s technology from a video posted last year:
There are varying degrees of how the technology is implemented. Magic Leap rolled out a lightweight version of its technology in its headset that leverages a pair of focal planes that are switched between with eye-tracking. This “varifocal” approach is also something that Facebook is investing in; they’ve showcased prototype headsets that allow users to shift their focus between multiple planes.
Creal is having to deal with some of the same struggles as its big company counterparts have when it comes to making sacrifices in order to miniaturize the technology. Integrating their tech into a virtual reality headset is the nearest-term target for the company, though they have ambitions to integrate into lightweight AR headsets within the next several years.
Startups building tech like Creal may be particularly at risk to a global recession, when investment in frontier technologies typically takes a big hit. A prolonged period of economic instability will almost certainly tilt the scales in the favor of big tech companies like Facebook, as startups approaching the same advances will likely be forced to push out roadmaps and cut costs in order to survive.
While Oculus has seen some recent success in expanding the VR market niche, augmented reality hardware has been an incredibly tough sell for startups. A number of companies in the space shut down last year, including Meta, ODG and Daqri. Earlier this month, Bloomberg reported that Magic Leap was positioning itself for a sale after raising billions of dollars in funding.
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If you weren’t playing games when Half-Life came out, it’s hard to drive home just how shocking a departure it was from what had come before. Though some familiar mechanics served as a base to build off of, the injection of elaborately scripted sequences that put you into the action, mature humor and genuinely engaging set piece-driven plot put Half-Life into its own special section of the stratosphere.
It’s not often that you can say that a product changes everything in its category from that moment on. Half-Life did that.
And then when Half-Life 2 debuted, it did it again with its method of delivery, incredible building tools and yes, inventive-as-hell gameplay.
Half-Life: Alyx does that again for VR, making such a direct impact that this will be a demarcation line forever in the way we craft immersive virtual experiences.
Alyx begins in the period of time between Half-Life and Half-Life 2, taking place mostly just before the action in the latter. The world is familiar, as are most of the cast of characters (along with some bespoke new additions). Given their high-fidelity look and carefully stepped variety, even newbies to the Half-Life universe should be kept entertained as they encounter new threats.
Those of you returning will find a large part of the new experience in inhabiting the same virtually physical space as headcrabs, barnacles and combined forces. Let me tell you, seeing the underbelly mouth of a ‘crab flying toward your face in VR versus on your monitor definitely hits different.
That sense of presence that is so pivotal to VR is something Valve leaned into hard with Alyx. You are rewarded for treating environments and encounters as a place to pretend to be rather than progressing through. There are a variety of tricks that Alyx uses to make you comfortable existing in this world, not the least of which is the presence of a voice in your ear in the form of an engineer named Russell.
Played hilariously by Rhys Darby, Russell’s voice serves to mitigate issues that many VR aficionados may recognize. One of VR’s primary powers is that of embodiment — making the experience of being there so convincing that you generate real memories of presence. Along with that, though, comes isolation. Long VR sessions can make you feel cut off from reality, and horror experiences, especially, can become overwhelming. Having Russell there offering humanity and humor to punctuate the darkness of this supremely dystopian environment is a fantastic choice. You’re a solo operator, but you’re not alone.

The environmental intensity of Alyx is well paced, too. An intermix of heart-pounding horror with moments of harsh beauty and humor can often be a difficult cocktail.
“There’s a lot of different things that we give you the opportunity to do that give, I would argue, different types of players, different things to go deep on,” says Half-Life: Alyx character animator Christine Phelan. “With intentionality, we definitely spent a bunch of time trying to figure out what is that line?”
Phelan notes that when there are horror elements, VR is well-known to be an intense experience, and modulating that was key to not alienating players. Rather than a relentless onslaught, you are brought up and down.
I checked my Apple Watch heart rate data over the past week that I’ve been playing Alyx and, sure enough, there were the spikes in rate during my play sessions to prove the impact of those choices. Some of the more intense segments play like the best horror action movies you’ve seen — “Aliens” comes to mind, as well as more recent fare like “A Quiet Place.”
Keeping you engaged in that environment, of course, means that control schemes are incredibly critical. Valve’s choices on Alyx reflect a desire to make sure that the widest array of people can experience the game. They offer all of the accepted travel modes. including teleporting, a continuous travel mode like walking and, my favorite, shift — a sort of zooming snap that keeps a sense of context to your movement.
Personally, I am unable to walk continuously in VR without wanting to toss my cookies, and Alyx is no different here. In fact, the game takes a lot of pains to make sure it moves the character involuntarily as little as possible, even offering a “toggle barnacle lift” setting to avoid the motion sickness some people may feel being virtually hoisted in the air. A wise choice, as there’s a lot going on in Alyx already, with some encounters forcing you to move rapidly through the environment to combat enemies or solve puzzles.

The sheer accessibility of Alyx’s options speaks to the desire by the team to make sure it accommodated as many people as possible. Standing, seated, either hand, choice of dominant eye, room-scale or not — if there’s a way to play a VR game, Valve has you covered.
One of the biggest effective bits is the presence of Alyx’s hands in the game world. Because most people interact with the world via their hands (though not all), Phelan notes that you get a lot “for free” when you make those the primary interaction method. People already know what to expect when they do things with their hands and at that point your job just becomes to make them act exactly as you’d expect in as many situations as possible.
And they do. Your hands realistically grasp, tap, push and poke the environment (and there is a lot of environment with the most interactive objects I’ve ever seen in a VR game).
The hands even adapt to the contours of things, curving or turning corners as you slide them across objects. The fingers are used to tell you that you really can’t interact with this, but you can feel it — this is not an action point for you. But then, when there is an action point, the hand naturally curves around something, and you get the message “Oh, yeah, I can grab this.”
A lot has been said about the Knuckles controllers that come with the Valve Index headset, and they’re great. But the marquee feature for me is the soft hand strap that keeps them attached to you. This frees you up to make grabbing and grasping motions with your whole hand, as you would normally.

I have the Vive controllers, the Oculus controllers and the Knuckles. Certainly, the Knuckles, with the individual finger control, absolutely locks it in, I think, for people on the hand interaction. If every company doesn’t dupe the work that Valve has done with these, they’re dumb.
“I think the Knuckles and the Index broadly is essentially Valve’s attempt to say, ‘This is pointing towards a heightened VR experience. This is what we think of as a really great direction for this hardware to go,’ ” says Valve’s Chris Remo, who also added that they did a lot of work to make sure all the compatible VR hardware turned out a great play experience. “It was obviously pretty important that this wasn’t a Valve Index game. It’s a VR game. We genuinely tried our best to support those features, [including] all the finger tracking the Index does on the Knuckles controllers and everything else.”
A lot of the work on interactions mirrors what other creatives have done in VR, but polishes it up a level. And a lot of that work is hidden unless you look very hard for it. Doors open in the direction of your hand’s travel, for instance. Magically outwardly opening doors that open inward is a perfect affordance. Most people will never notice. The people that care will, and that’s fine, but most people will just have a better time of going through this way versus that way without fussing too much.

The gravity gloves shown off prominently in the gameplay trailers are another such affordance. They neatly avoid the VR problem of people constantly inching out or down and ramming into things outside of their play area while trying to grab objects on the ground or inside containers. They also give the player the ability to quickly utilize the environment to fend off enemies or distract them with a speed and agility that you’d never be able to realize otherwise.
Call it fate or design that Half-Life 2’s gravity gun offered the perfect in-world explanation, but it works incredibly here. Grabbing a gas mask off the ground and attaching it to your face, fending off a headcrab with a trash can lid, throwing a brick to stagger a zombie, it’s all possible with Russell.
“You can move through a space just as quickly physically, but people do end up taking longer, because you’re naturally invited to do so,” says Remo. “You can look around something in a physical way that just, there’s no equivalent to that in a non-VR game. It also meant that you can get up close to props in a way that isn’t really possible or feasible as much in a non-VR game, which meant that all that stuff has to actually hold up and be worthwhile.”
I can vouch for the time put in. At one point I grabbed a random half-crushed water bottle laying in a corner and looked inside the mouth to find the interior dimples of the bottom lovingly rendered. One person’s trash, etc.
There are so many other things that I could talk about here. The use of spatial audio anchored in what seem to be Gaussian spheres that attach sound and (incredible) music to environments, with nested encounter scores inside. The dynamic loot system that keeps the balance of the resources you have available to you tuned so that the game remains fun. The encounters that take those early scripted scenes in Half-Life and plus them to create a symphony that taxes and rewards the player for creative and thoughtful gameplay.
It’s not so much that Valve has executed One Weird Trick for making VR good. Many of these major ideas has been tried by one team or another over the past few years. But the execution has never been more precise and thoughtful. One after another the good choices keep coming — and the whole adds up to something truly special and bar-setting.
Inventive, clever and completely engaging, Half-Life: Alyx is the first masterwork of VR gaming.
But that could actually be understating its eventual impact on VR, if that’s possible. Though the template for what a truly A-list title looks like has now been truly sketched, it has always been Valve’s willingness to share its tools that has made the most impact on the gaming scene at large.
That’s why I’m looking forward to an eventual SDK. Hammer 2 is easily one of the best game-building tools ever created. Valve is already going to ship Source 2 tools for building new VR levels in Alyx, but as fans of history will remember, the level building scene really took off once the deeper tools to craft a game became available. The ripple effect on the industry will be felt long after people have dissected every sliver of what makes this game so fun. You can trace a major portion of the $1 billion esports industry directly back to mods enabled by Valve being generous with their internal tools.
Imagine what that kind of impact looks like for VR, a field that has been experimenting like mad but has no real coda of best practices for building. It could be massive, and though members of the team have said that they’re not currently planning to release an SDK, my hopes are high.
Until then, we have Alyx, and it is good.
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We’ve been diligently following the development of virtual worlds, also known as the “metaverse,” on TechCrunch.
Hanging out within the virtual worlds of games has become more popular in recent years with the growth of platforms like Roblox and open-world games like Fortnite, but it still isn’t a mainstream way to socialize outside of the young-adult demographic.
Three weeks ago, TechCrunch media columnist Eric Peckham published an in-depth report that positioned virtual worlds as the next era of social media. In an eight-part series, he looked at the history of virtual worlds and why games are already social networks, why social networks want more gaming, what the next few years looks like for the industry and why isn’t it mainstream already, how these virtual worlds will lead to healthier social relations, what the future of virtual economies will be and which companies are poised for success in this new market.
Given all that has changed in just the last three weeks — who would have thought that large swaths of the knowledge economy would suddenly find themselves entirely interacting virtually? — I wanted to get a sense of what the rising popularity of virtual worlds looks like in the midst of the outbreak of novel coronavirus. Eric and I had a call to discuss this and decided to share our conversation publicly.
Danny Crichton: So let’s talk about timing a bit. You wrote this eight-article series around virtual worlds and then all of a sudden post-publication there is this massive event — the novel coronavirus pandemic — causing a large portion of the human population to stay at home and interact only online. What’s happening now in the space?
Eric Peckham: I wrote my series on the multiverse because I was already seeing a surge of interest, both in terms of consumer demand for open-world MMO games and in terms of social media giants like Facebook and Snap trying to incorporate virtual worlds and social games into their platforms. Large companies are planning for virtual worlds in a way that is actionable and not just a futuristic vision. Over the last couple of years there has also been a lot of VC investment into a handful of startups focused on building next-generation virtual worlds for people to spend time in, virtual worlds with complex societies shaped by users’ contributions.
Talking to founders and investors in the gaming space, there has been a huge increase in usage over the last few weeks as more people hang out at home playing games, whether it’s on the adult side or the kid side.
Most of these next-generation virtual worlds are still in private beta but already popular platforms like Roblox, Minecraft, and Fortnite are getting substantially more use than normal. A large portion of people stuck at home are escaping via the virtual worlds of games.
You wrote this whole analysis before you knew the extent of the pandemic — how has the outlook changed for this industry?
This accelerates the timeline of virtual worlds being a mainstream place to hang out and socialize in daily life. I think people will be at home for multiple months, not just a couple of weeks, and it’s going to change people’s perspectives on socializing and working from home.
That’s a really powerful cultural shift. It’s getting more people beyond the core gaming community excited about spending time in virtual worlds and hanging out with their friends there.
We have seen this most heavily with the youngest generation of internet users. The majority of kids 9-12 years old are users of Minecraft and Roblox who hang out there with friends after school. We’ll see that expand to older demographics more quickly than it was going to before.
One of the complaints that I’ve seen on Twitter is that even though we have one of the largest global human lockdowns of all time, all the VR headsets are basically gone. Is VR a key component of virtual worlds?
Well, you don’t need VR headsets in order to spend meaningful time with others in a virtual space. Hundreds of millions of people already do it through their mobile phones and through PCs and consoles.
This is at the heart of the gaming industry: creating virtual worlds for people to spend time in, both pursuing the mission of whatever a game is designed for but also interacting with others. Among the most popular mobile and PC games last year were massively multiplayer online (MMO) games.
Talking about gaming, one facet of the story that I thought was particularly interesting was the fact that gaming was still not that high in terms of market penetration in the population.
More than two billion people play video games in the context of a year. There’s incredible market penetration in that sense. But, at least for the data I’ve seen for the U.S., the percent of the population who play games on a given day is still much lower than the percent of the population who use social media on a given day.
The more that games become virtual worlds for socializing and hanging out beyond just the mission of the gameplay, the more who will turn to virtual worlds as a social and entertainment outlet when they have five minutes free to do something on their phone. Social media fills these small moments in life. MMO games right now don’t because they are so oriented around the gameplay, which takes time and uninterrupted focus. Virtual worlds in the vein of those on Roblox where you just hang out and explore with friends compete for that time with Instagram more directly.
Theater chains like Regal and AMC announced this week that they are entirely shutting down to wait out the pandemic. Is that going to affect these virtual world companies?
I think they are separate parts of media. Cinema attendance has been declining quite substantially for years, and the way the industry has made up for that is trying to turn cinemas into these premium experiences and increasing ticket prices. Kids are just as likely, if not more likely, to play a game together on a Friday night as they are to go to the cinema. Cinemas are less culturally relevant to young people than they once were.
We’ve seen a massive experiment in work from home, which is a form of virtual world, or at least, a virtual workplace. When it comes to popularizing virtual worlds, is it going to come from the entertainment side or the more productivity-oriented platforms?
It will come from the entertainment side, and from younger people using it to socialize, in part because there’s less fear around cultural etiquette compared to people meeting in a business setting who are worried about a virtual world context not feeling as professional. Over time, as virtual worlds become pervasive in our social lives they will become more natural places to chat with people about business as well.
As more and more people are working online and interacting virtually, a big question is how you get beyond Zoom calls or the technology that’s currently in the market for virtual conferences to something that feels more like walking around and chatting with people in person. It’s tough to do without the ability to walk around a virtual space. You can’t have those unplanned small group or one-on-one interactions with people you don’t know if you’re just boxes within a Zoom call or some other broadcast. It will be interesting to see what develops around virtual business conferences that stems from virtual world technology. I’ve seen a few teams exploring this.
Last question here, but we are looking at a major recession in the economy, and so how does the landscape of people earning money from virtual worlds change with coronavirus?
The second-to-last article in my series is about the virtual economies around virtual worlds. Any virtual world inherently has commerce and people have already been making real-world money from games and from early virtual worlds like Second Life.
Both people staying home amid the coronavirus and the recession that we seem to be entering are pressures that will push more people to look online for ways to make money. That will only increase the activity of virtual economies around some of these worlds, whether those are formally built into the game or they’re happening in a gray or black market around the games (which is more common).
Thanks, Eric.
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The novel coronavirus pandemic has rapidly moved companies into a remote-first world.
Nearly all of the world’s largest events have been canceled, put on pause or pivoted to online-only. In the tech world, event cancellations thus far have included SXSW, GDC, Mobile World Congress, Google I/O, Facebook F8, E3 and others.
As more and more hosts consider staging fully remote events as possible alternatives, we decided to take a deeper look into the venture-backed startups focused on supporting large-scale virtual gatherings, like Hopin and Run The World. To further understand the impact of COVID-19, we asked five leading VCs who have invested in or have knowledge of startups focused on remote events to update us on the state of the market and to share where they see opportunity in the sector:
Which trends in remote events/conferencing excite you the most from an investing perspective?
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Throughout this series on the rise of multiverse virtual worlds, I have outlined the collision of gaming and social media into a new multiverse era of social media within virtual worlds due to technological and cultural changes. The result will be a healthier ecosystem of social media than what currently exists and the economic development of these virtual worlds such that many people turn to them as sources of income.
The critical question that remains in this final part of the series: Who will be the dominant companies of this multiverse era who build the most popular virtual worlds? Will one virtual world achieve a monopoly or will there be many worlds we hop between on a daily basis? Will the most influential company be the developer of a certain world or an infrastructure layer underpinning many worlds?
(This is the final column in a seven-part series about “multiverse” virtual worlds.)
There are three categories of competitors in position for this new stage: gaming incumbents, social media incumbents and new virtual world startups.
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