Instead, we鈥檙e still glued to our cell phones, as VR headset makers . While consumers snapped up over 200 million iPhones last year, they bought just a few million headsets. For 2017, those ratios aren鈥檛 expected to improve much.

Yet while virtual and augmented reality uptake may be slower than boosters expected or hoped, venture investment hasn鈥檛 slackened. Funding for VR and AR startups in 2017 is roughly on par with 2016 levels, a SA国际传媒 News analysis finds. The year got off to a sluggish start in the first quarter, but investment in the past three quarters has accelerated enough to make up for the deficit.

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Investors showed their optimism this week with a $200 million round for , whose Pokemon Go augmented reality game is the best-known hit for the medium. (Its popularity was no doubt buoyed by the fact that it can be played on a regular smartphone). Niantic鈥檚 mega-round comes as the company prepares to release a new game based on the Harry Potter series.

In total, at least 217 companies in the AR and VR space have raised funding rounds this year, bringing in $2.1 billion, according to SA国际传媒 data. Of that, more than $900 million went to two companies: and .

VR And AR Over The Years

In the chart below, we look at annual investment venture totals for virtual and augmented reality startups, including seed through growth stage.1

It shows that the number of completed rounds for VR and AR-focused startups peaked in 2016 and has trended down in 2017, though some of that may be attributed to lag time commonly seen for reporting of recent seed-stage financings. Investment totals, meanwhile, peaked last year and look on track to stay about flat in 2017.

In the next chart, we look at quarterly investment totals for the past two years. It shows that total investment peaked in Q1 of 2016, mostly due to a single massive round of $800 million for Magic Leap, the stealthy, Florida-based developer of cinematic VR technology. After slowing down late last year, funding totals started picking up in the second quarter of 2017 and have continued to rise.

Following The Money

As one might expect, a few companies accounted for the bulk of invested capital. We mentioned Magic Leap and Niantic, as well as Unity Technologies, provider of a platform for developing augmented and virtual reality games.

In all, there are at least eleven AR and VR startups that have raised total financing of about $100 million or more. We list them below:

Exits Trickle In

Investors keep putting money into VR and AR companies, but they鈥檙e still not getting much back.

We haven鈥檛 seen a really big acquisition in the space since Facebook鈥檚 $2 billion purchase of Oculus in 2014. Venture-backed virtual and augmented reality companies haven鈥檛 gone public yet either. It鈥檚 hard to find candidates that may even go public in the short term, given that many are pre-revenue.

That said, acquirers are snapping up early-stage companies at a decent clip, with some big tech players entering the fray.

Earlier this month, for instance, Apple bought , the Canadian developer of an augmented reality headset, for a reported $30 million. Over the summer, Google picked up , a venture-backed VR game developer.

Given that all of the 鈥淏ig Five鈥� largest U.S. technology companies (and most of the global Top 20) are dedicating significant development efforts around VR and AR, it鈥檚 not unrealistic to expect a speedier pace of acquisitions ahead.

It鈥檚 Not About The Hype

So where are we now in the VR/AR venture cycle? Seeing the sharp gains last year in VR funding, coupled with disappointing headset sales, it鈥檚 easy to slip into a narrative about the space being overhyped.

What this kind of simplification misses, however, is that VR and AR are technologies with an innate coolness factor. Magic Leap, for instance, has a studio where it can create life-size reproductions of a T-Rex. MindMaze connects the brain to virtual worlds. It鈥檚 expected that this kind of stuff will generate excitement in entrepreneur and investor circles.

But when will excitement finally lead to adoption? Clearly, VR and AR haven鈥檛 reached the masses yet. But it seems the technology鈥檚 most devoted and deep-pocketed fans still see it headed in that direction.

The built up a reputation as an up-and-coming early stage investor a few years ago, based on bold bets on virtual reality, a flashy marketing strategy, and its well-connected namesake and founder, . Between 2012 and 2016, the San Francisco firm participated in funding rounds for more than 100 early-stage companies, commonly investing alongside top-tier VCs.

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But last year, amid charges that its founder spent beyond his means, failed to pay staff, and misappropriated investor funds for a side project. Lawsuits ensued, along with a name change (since changed back), an SEC investigation, and a lot of unflattering profiles casting the now 33-year-old Rothenberg as a sort of modern-day Gatsby.

So it hasn鈥檛 been a good year for Mike Rothenberg. But what about the Rothenberg Ventures portfolio?

In an effort to see how firm- and investor-specific scandals might affect portfolio companies, SA国际传媒 News took a look at the performance of Rothenberg Ventures-backed startups. We looked at exits and up rounds, as well as closures and apparent down rounds.

Overall, the Rothenberg portfolio seems to be doing well. It鈥檚 seen multiple exits at what appear to be favorable returns, a lot of up rounds, and not too many high profile flops. It probably helps that most portfolio companies had a number of other investors. The vast majority that raised cash from Rothenberg Ventures did so as part of a larger investor syndicate, and those startups weren鈥檛 relying on the firm as a major provider of follow-on capital.

With that in mind, here鈥檚 what the portfolio looks like now.

Exits

At least 13 Rothenberg-backed companies have gone on to exit, according to SA国际传媒 data. Point-of-sale systems company sold a majority stake to private equity firm Welsh, Carson, Anderson & Stowe.

All of the exits were through acquisitions, and most of those exits involved early-stage companies selling for undisclosed amounts. Typically, Rothenberg was a non-lead investor in a syndicate for these startups. Most had raised a few million dollars prior to exit, though a few had raised larger rounds.

Generally speaking, if an early-stage company that is not known to be in distress gets acquired, backers make money. 聽This seems to be the pattern for most of the Rothenberg portfolio company acquisitions to date. The list includes , a provider of local search tools that sold to Gannett, , a provider of software for paying contractors that sold to Stripe, and , a platform for updating apps that sold to Palantir. One of the few deals with a disclosed price was a celebrity-heavy investment, , a women-focused online media startup that sold to Time for $30 million in 2015. (You can view the full list of acquisitions .)

A couple acquisitions involved companies that had already stopped offering their services. , a social VR platform closed over the summer, was snapped up Microsoft in October. And , a valet parking app, had also shut down before it sold to Volvo in September.

So far, the firm鈥檚 big bets on virtual reality have yet to produce lucrative exits, though some have raised follow-on rounds, which we鈥檒l look at next.

Up Rounds

Seed investments take a long time to mature, so it鈥檚 not surprising to see the majority of viable portfolio companies still in follow-on fundraising mode.

To date, the Rothenberg portfolio has a number of companies that have gone on to raise much larger follow-on rounds, presumably at marked-up valuations. We assembled 30 of them .

The portfolio includes some unicorns. Mike Rothenberg that there are three companies in the portfolio that have surpassed the $1 billion valuation mark, but did not name them. It seems clear looking at the firm鈥檚 list of investments that one unicorn is , the zero commission platform for buying stocks, which raised its last round at a $1.3 billion valuation. The firm is a non-lead investor and one of at least 28 known backers.

It鈥檚 unclear whether counts as one of the unicorns. Rothenberg invested in a 2012 Series D, but SpaceX already had a multi-billion dollar valuation at the time, (although its value has since multiplied). We couldn鈥檛 identify an additional potential unicorn, so probably we either missed it or it鈥檚 a company whose billion-plus private valuation hasn鈥檛 been publicly disclosed.

There were also a number of companies that raised early-stage funding from Rothenberg that have secured significantly larger follow-on rounds in the past couple years. Some of the bigger ones are , an online platform for sponsoring artists, , a VR software developer, , a tool for finding African tech talent, and , a garment care service.

Flops

Most seed-stage startup efforts don鈥檛 end in success, so we鈥檇 expect that any firm operating this stage for a few years would have some flops.

Rothenberg is no exception. SA国际传媒 turned up a few portfolio investments that raised small sums a few years ago and have since closed, like , an app for making new friends, , a Bitcoin startup, and , an app for managing leads at trade shows. There are certainly more, though putting together a full list is challenging, as many startups prefer to quietly fade away rather than officially announce their closure. Also, seed investors commonly don鈥檛 disclose all their micro-investments, particularly for stealth startups.

The firm鈥檚 most high-profile potentially troubled asset is River Studios, a virtual reality production house Rothenberg launched in 2015. The investment came under fire last year, reporting that River hadn鈥檛 been properly green-lit by investors, lost money, and was behind on rent.

The current status of River Studios is unclear. Its blog hasn鈥檛 been updated since mid-2016, and there are no open positions listed on its site.

Takeaway

Overall, the takeaway seems to be that Rothenberg Ventures downturn hasn鈥檛 extended to its portfolio companies in a meaningful way.

The firm鈥檚 performance seems similar to those of other funds of a similar vintage and approach. That is, it鈥檚 largely what we would expect from a well-connected Silicon Valley angel or VC participating in large investor syndicates for hot seed and early stage startups in hot sectors. Rothenberg was somewhat of an outlier in its heavy focus on virtual reality, a sector that continues to attract reasonable funding but has yet to produce fat exits. VR hasn鈥檛 produced any big outcomes for Rothenberg either yet.

Given the long time horizons that seed-stage startups require to mature, however, it鈥檚 still early innings for the bulk of the portfolio. The biggest exits and biggest flops are probably yet to come.

iStockPhoto / honglouwawa

But even though some of the world鈥檚 largest companies are diving headfirst into both AR and VR, the categories remain nascent. Aside from Snap filters and occasional enterprise use cases, both AR and VR have yet to disrupt the ways in which we compute. However, Apple, Google, Facebook, Microsoft, and others think that mainstream adoption is a matter of when, not if.

Therefore, it wouldn鈥檛 be surprising to see increased acquisition activity for startups operating in similar spaces. And while acquisition activity is up, the bark is bigger than the bite.

VR And AR Present Mixed Acquisition Picture

Using SA国际传媒 data, we looked at both AR and VR startups that were acquired during and after 2012. These are startups that work on creating hardware, software, or content for VR and AR endeavors. Prior to 2012, few acquisitions in either space were made, likely due to the nascency of the tech. Here鈥檚 the chart showing the pace of acquisitions below.

In total, SA国际传媒 records 53 known acquisitions deals from 2012 to 2017 YTD. Of those 53 deals, 14 deals had disclosed prices totaling to $2.4 billion. Over half the acquisitions made in this time period were in 2016 and 2017 YTD, with 35 known deals being made in the time period.

Overall, it鈥檚 a disappointing metric when compared to other hot sectors in tech. For instance, artificial intelligence startups have seen a total of in the same time period. In 2016, which is, so far, AR and VR鈥檚 most active year with 18 known acquisitions, AI startups pounced by a multiple of 4.5.

Of course, disappointing news is not a surprise to those in the VR and AR industry. Techcrunch declared only a couple of months ago that . MagicLeap, , still has yet to release its AR technology. And SA国际传媒 News鈥檚 own Joanna Glasner reported earlier in the year that VCs have lost interest in funding VR startups.

But despite comparatively modest activity and short-term prospects that don’t look much better, there are still some interesting notes we can pull from the acquisition data.

Big Tech Fuel Big Exits

Likely the largest of known acquisitions in the VR/AR category was made by Facebook, which acquired Oculus for $2 billion in 2014. Initially funded as a Kickstarter project, Facebook continues to run the virtual reality company as its own division. But the results of the acquisition, unlike Instagram and Whatsapp, are likely disappointing for Facebook.

Even with prices dropping for headsets, there does not appear to be much demand for Oculus鈥檚 products. Still, the social media company appears to be standing behind the VR movement. Likely to support Oculus鈥檚 VR gaming efforts, Facebook also has acquired Two Big Ears Ltd., which creates 鈥渆fficient audio toolkits for game and virtual reality developers.鈥�

But while virtual reality has gotten a lot of attention, Apple has looked towards augmented reality not only in the form of ARKit, but in its acquisitions as well.

The company has acquired two AR companies for undisclosed sums. Metaio, which was acquired in 2015, was founded in 2003. The company made AR tech for retail purposes, and it also had over 150,000 users worldwide, .

Following Apple鈥檚 Metaio acquisition was Flyby Media in 2016. The startup raised a total $19.1 million for its AR app that could identify objects. According to its SA国际传媒 profile, the company also claimed to be working on 鈥渋ndoor navigation, sensor fusion, image recognition, and 3D tracking.鈥� It鈥檚 likely that some of its tech, or its team, has made into some of iPhone X鈥檚 suite of AR and face-tracking features.

However, other than one high-priced acquisition in the form of Oculus, and a few big name acquirees, there鈥檚 not much positive to be said for AR and VR startups looking to exit. Whether this is because developing such tech is out of reach for most startups, or the category is just not worth acquiring for is hard to parse. What we can tell you is that big tech seems insistent on propping up AR and VR tech in hopes of winning the future of computing. But so far, consumers seem very content to let them hold their breath.

Perhaps you a recall the short, recent period when virtual reality (VR) was hot. Indeed, VR had quite a moment. The sector’s highlights聽came聽from tech’s biggest players: Facebook , and, in early 2015, Microsoft , an augmented-reality nerd helmet that brought another giant into the race.

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Along the way, other players ducked in, and the space became sufficiently The Next Thing. Eventually,聽a venture firm actually invested its investors’ capital in . (It 聽amidst fraud allegations, but fool me thrice, shame on the market.)

The VR/AR space slowed over the following years. That slow descent finally led to , , a season capped off by a good piece from TechCrunch’s own Natasha Lomas entitled “.”

The Lomas piece is worth reading as a compendium of data points about the VR market, but it also quoted another 聽that is a must-read:

Over the past several months it鈥檚 become clear that the war is no longer HTC and Oculus trying to discover who is Betamax and who is VHS, now they鈥檙e just trying to ensure that high-end VR doesn鈥檛 turn out to be LaserDisc. Though few of the big players are keen to readily admit it, many investors and analysts have been less than thrilled with the pace of headset sales over the past year

In light of all that, you might expect that tech’s largest players would be slowing their move into the space and its related-genres. Today’s news implies the opposite.

Recall that Microsoft, despite being in the middle of an enterprise-cloud-SaaS push, is also working to聽. That work included the promise of “” back in May.

Those headsets are now far better fleshed out. Two sample headlines from this morning’s media cycle:

We selected those for two reasons. First, that the headset mix will include lower-priced hardware. Throw in a holiday discount and the cost of headsets could be slowly lowering itself into the mass-market range.

Second, that the content question is looking less like an existential query and more like a discussion of future scale. With Steam, Minecraft, and Halo, Microsoft has enough titles to claim a partially-mature platform.

None of the above is enough to change the VR world overnight. But it shows that, even though consumer market response was more muted than initially expected, work continues. I hold by the view that, at some point inside the next 10 years, I will spend a decent portion of my day inside of a visor of sorts.

When that day comes still isn’t clear.

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