Has Silicon Valley’s Love of Augmented Reality Died Out?

As American AR investments dwindle, money is flowing in from China

Last Updated: October 9, 2018 @ 2:29 PM

Is Silicon Valley’s love affair with augmented reality over, or just on hiatus?

According to a report by Digi-Capital on Monday, U.S. venture capital enthusiasm for AR — the combining of computer images with the real world — has “softened significantly,” with $120 million invested during Q3 of 2018, cratering 90 percent from the $1.5 billion spent during the fourth quarter of 2017.

The amount of AR deals has “declined steadily by 10 percent per quarter over the last 12 months, and was around two-thirds the level in Q3 2018 that it was in Q4 2017,” added Tim Merel, Digi-Capital managing director. “Most of the decline happened in the US and Europe, where VCs increasingly stayed on the sidelines by looking for short-term traction as a sign of long-term growth.”

In other words, American investors have been waiting for more signs the AR  industry is taking off before doubling down.

But the saving grace for AR startups has been big money flowing in from Asia. The “inverse relationship” between American and Asian investment has seen a flood of funding coming from the east as it’s dried up in the States, according to Digi-Capital. Even with the shortage of American dollars, the AR industry hit a new quarterly record of more than $2 billion invested during Q3 2018, buoyed largely by China.

That continued a steady uptick in Asian investment: of the $7.2 billion in AR funding in the last year, $3.9 billion has come from China.

Where is the money going? Digi-Capital data showed “well over” $1 billion went into smartglasses, with Magic Leap, the secretive startup with backing from Google, Andreessen Horowitz, and Warner Bros., grabbing the lion’s share. Another $400 million went into AR games.

While American VCs might have cooled on AR, there are still several Silicon Valley stalwarts placing their bets. Apple, which launched its AR-enabled apps last year, expects the technology to become a mobile fixture in the years to come — with CEO Tim Cook saying, “I am so excited about it, I just want to yell out and scream.”

Facebook also sees AR as a key cog in its 10-year plan. The social network looks at AR games as a way to boost its ad sales — with the longer users stay on its platform, the more ads they can serve them.

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