We asked seven venture capitalists if the metaverse is the next big thing or just a lot of hype
What is the metaverse? How far off is it? And will this represent a tectonic technological platform shift — along the lines of the internet and mobile revolutions — or is it simply a lot of hot air?
We’ve certainly heard a lot of chatter about the metaverse recently. In fact, Axios reported last week that the term had been used 128 times in investor presentations this year, up from seven in the prior year.
Of course, no one likes to talk about this immersive and interactive virtual world more than Facebook CEO — sorry, we meant Meta CEO — Mark Zuckerberg.
The embattled tech executive — who’d probably like to escape into a utopian metaverse — dropped the term 18 times in his founder’s letter last month in which he dreamily said things like: “In the metaverse, you’ll be able to do almost anything you can imagine.”
To get a better sense of the metaverse, we chatted with a group of Seattle-area venture capitalists to better understand this nebulous technological shift, one that traces its roots back three decades to Seattle sci-fi author Neal Stephenson.
Andy Liu, partner at Unlock Venture Partners
In your words, describe the metaverse. “It’s the intersection of the physical and digital worlds, where augmented reality, virtual reality, blockchain-based environments enable people to develop and live in new ‘worlds’ — a fully immersive experience to express themselves, connect, interact, conduct commerce, and experience a whole new reality.”
Do you think the metaverse represents a real opportunity for cutting-edge innovation and significant startup returns or is this just the latest overhyped buzzword of the day? “The metaverse has been around for a while (i.e. esports, Second Life, etc.). We think it is a massive opportunity from transforming how people gather together at work or conferences, to brands providing fully digital retail experiences, to digital-only assets that we’re already seeing in the NFT space, and of course, gaming. It’s a multi-trillion dollar opportunity.”
On a scale of 1-to-5 — one being completely overhyped and five being the hottest tech innovation in decades — where would you put your interest level in the metaverse? “5+. While we can’t predict what the metaverse will look like in 10 years, we know that digital experiences and the blending of physical/digital worlds will grow exponentially from here. There will be overhyped companies that won’t survive, but the space itself — while not new — is here to stay. We want to make sure we have strong investments in this space now.”
What makes you bullish or bearish on this as an innovation and investment concept? “Bullish. With the acceleration of broadband speeds across the world, many concepts that were just conceptual no longer have bandwidth constraints and can reach billions of people. Rapid development in 3D, AR, VR, new hardware, digital payments, etc., are the critical ‘picks and shovels’ to enable really useful and interesting experiences in the metaverse now.”
A number of venture capitalists made big bets on AR/VR 3-to-5 years ago, which didn’t pan out because the market had not yet developed. Has this changed? “Compared to 3-to-5 years ago, massive advancements in bandwidth, chips, software, and new (hardware) platforms … will improve adoption. Having gone through a worldwide pandemic has really changed and advanced people’s perceptions on how work, study, commerce, and life in general can be done in a compelling digital/hybrid format.”
Will the metaverse be dominated by big platforms — Meta, Microsoft, Roblox, etc.? Or do you see opportunities for startups to thrive? “We’re actively investing in startups in the space. It’s the perfect mix of big opportunity meets sharp entrepreneurs meets abundance of capital. Contrary to popular belief, we believe the large platforms will engage with startups to accelerate the adoption of the metaverse through new experiences and use cases and there will be some very big players to come that haven’t even started yet.”
Do you have any metaverse companies in your portfolio? “We’ve invested in DressX (digital clothing), Pixel Canvas (metaverse for events), Irreverent Labs (games), and Gen G (esports). All of them have components related to metaverse. We’re going to continue to invest in the next set of big and compelling companies in this space.”
Kirby Winfield, founding general partner of Ascend
In your words, describe the metaverse. “I think of the metaverse as the collective space where our digital identities stand in for our physical identities. Game spaces like Roblox, social spaces like Discord, digital conference spaces like Demio — to me these are all currently existing manifestations of the metaverse.”
Do you think the metaverse represents a real opportunity for cutting-edge innovation and significant startup returns or is this just the latest overhyped buzzword of the day? “I think the term ‘metaverse’ is largely just a rebranding exercise. This stuff has existed since the early Web (the Well, MMOGs, SecondLife) and was aggressively overfunded with the early adoption of AR/VR. The current ‘metaverse’ concept is just the latest evolution of this ongoing shift to an increasingly digital life. As always with startups, the key to outlier returns is discovering a use case that has previously been unable to be served due to technical limitations or macro sentiment/entrenched user behavior. Great founders and startups will build outside of the hype cycle.”
On a scale of 1-to-5 — one being completely overhyped and five being the hottest tech innovation in decades — where would you put your interest level in the metaverse? 2.5
What makes you bullish or bearish on this as an innovation and investment concept? “Probably the most interesting startups in the metaverse space will lean into the shift toward decentralized autonomous organizations (DAOs). I think shared ownership and distributed decision making are way more compelling than VR worlds in the near to mid term. That said, giant government and industrial contracts for headsets may be the spark that reignites the VR fire.”
A number of VCs made big bets on AR/VR 3-to-5 years ago, which didn’t pan out because the market had not yet developed. Has this changed? “My sentiment on AR/VR was always A) you need mobile implementation/adoption because headset proliferation is still a long ways out and B) enterprise applications will create substantially more value than consumer applications. I don’t think has changed substantially. Headsets are growing but not exploding, and government/industrial enterprise use cases are where the puck is headed.”
Will the metaverse be dominated by big platforms — Meta, Microsoft, Roblox, etc.? Or do you see opportunities here for startups to thrive? “With any true platform shift, new leaders arise. I’d be shocked if a new wave of Web3/metaverse-native startups did not disrupt the incumbents. It’s the way of the world.”
Do you have any metaverse companies in your portfolio? Taqtile provides deskless workers in military and industrial settings with spatial computing/metaverse applications to more efficiently and effectively conduct their work. Vouched verifies your digital identity. SyncFloor provides micro-licensed music to digital creators. Worksphere addresses hybrid/remote office and digital collaboration. And if you expend “metaverse” to cover Web3/crypto, Makara Digital is an early leader in retail investment management for digital capital.”
Martina Welkhoff, founding partner at the WXR Fund
In your words, describe the metaverse. “For a long time now, the line between “real” life and “digital” life has been blurring. The metaverse is the further realization of that trend: a persistent, immersive digital world (or worlds) where we socialize, learn, play and work.”
Do you think the metaverse represents a real opportunity for cutting-edge innovation and significant startup returns or is this just the latest overhyped buzzword of the day? “It’s important to remember that many people have been innovating in this space for quite some time, so the opportunity space is not new. However, I do think the recent hype is beneficial in attracting more resources and accelerating the pace of development. As in any hype cycle, I think there’s a temptation for startups to position themselves as a “metaverse company” to ride the buzzy momentum, but I’m still looking for startups with strong fundamentals, a compelling vision, and a clear case for why their technology is going to be better than existing solutions. If the word “metaverse” is just slapped on as an afterthought, that’s a red flag.”
On a scale of 1-to-5 — one being completely overhyped and five being the hottest tech innovation in decades — where would you put your interest level in the metaverse? “I’m going to temper my response slightly here and say 4, because I do think it’s slightly over-hyped at the moment, but that’s okay. In the long run, I’d say we are in a very promising chapter, and a lot of great companies are going to emerge from this time.”
What makes you bullish or bearish on this as an innovation and investment concept? “Humans are not two dimensional creatures. If technology is ever going to help us reach our fullest potential, it’s not going to happen on a flat screen. I had the privilege of producing several large scale events and hosting many meetings in VR throughout the pandemic. After months upon months of video calls, the contrast to those interactions I had in the headset was stark. I reliably left VR exchanges energized and happier (and yes, occasionally a little motion sick). I got to shake hands with colleagues, hug friends, and experience the thrill of being in front of a live audience. Is the tech where it needs to be? Not yet (see aforementioned note on motion sickness), but it is far enough to start delivering real value and getting us closer to a more connected, meaningful and ultimately human digital experience.”
“If technology is ever going to help us reach out fullest potential, it’s not going to happen on a flat screen.”
A number of VCs made big bets on AR/VR 3-to-5 years ago, which didn’t pan out because the market had not yet developed. Has this changed? “The pandemic profoundly changed the landscape in a number of ways. Everyone is now familiar with virtual life out of necessity, and the need for more intuitive, enriching tools is glaringly apparent. Along with a higher degree of readiness and curiosity, there’s a lot less friction: hardware costs have come down and is easier to use (although there’s still much work to be done), 5G continues to rollout and will ultimately improve accessibility, and content is easier to create.”
Will the metaverse be dominated by big platforms — Meta, Microsoft, Roblox, etc.? Or do you see opportunities for startups to thrive? “Startups have an innovation advantage because of the way they can learn and iterate quickly, which is not something large corporations have historically done well. Large corporate platforms obviously have more resources, but we’re seeing a lot of those resources being invested in the startup ecosystem, and we’re seeing incentives for startups to build on those large platforms.
There’s been a lot of talk about decentralization as part of the shift to Web3, and that’s going to be an imperfect process, but for the metaverse to thrive I think it’s a necessity for a diverse range of companies and creators to build products and content — and of course, reap the benefit of those efforts. A platform or ecosystem that doesn’t support that is ultimately shortsighted and will be stymied.”
Do you have any metaverse companies in your portfolio? “All of our portfolio companies are helping to realize the metaverse in some capacity, but the ones with the most immediate connection are Obsess, Scatter, and ShapesXR. Obsess is a virtual store platform that enables brands to provide their customers a more immersive, fun and social digital experience. Scatter is democratizing hologram creation and enabling real time streaming of photorealistic avatars. ShapesXR is a collaboration and creation tool for teams building immersive content.”
Heather Redman, managing partner at Flying Fish Partners
In your words, describe the metaverse. “We subscribe to the view that the metaverse isn’t really a thing, but more of a collection of technologies and behaviors with an accelerating adoption rate and that the metaverse already exists but has not reached its full potential. That potential will be achieved when some set of people who constitute a critical mass of humanity (by GDP in all likelihood, although that’s a problem) are conducting an equally critical mass of their lives in a fully immersive digital environment, ultimately through some sort of VR interface much better than what exists today.”
Do you think the metaverse represents a real opportunity for cutting-edge innovation and significant startup returns or is this just the latest overhyped buzzword of the day? “Both of those are true — there are a ton of opportunities as the metaverse gradually becomes more and more real, including new user interfaces and all of the ancillary use cases they open up, and the picks and shovels that everyone will need to take advantage of new human behaviors that the metaverse enables. The paradigm will shift over time from 2D to 3D, and that will open up some incredible opportunities for new behaviors in work and in leisure and new forms of communication, community, content creation, wealth creation and property, etc. Crypto and blockchain, and the decentralization they enable, are part of this too of course.”
On a scale of 1-to-5 — one being completely overhyped and five being the hottest tech innovation in decades — where would you put your interest level in the metaverse? “4. This isn’t as big as AI, but it is as big as mobile and the personal computer.”
What makes you bullish or bearish on this as an innovation and investment concept? “It will no doubt take longer than we think to reach critical mass (bear) but it is as big as mobile, so ultimately something you want to invest in.”
A number of VCs made big bets on AR/VR 3-to-5 years ago, which didn’t pan out because the market had not yet developed. Has this changed? “COVID changed a lot. The world of work and enterprise solutions are now much more open to AR/VR than previously, but probably VR is now more interesting as a bet than it was before, where most preferred AR to VR in recent years as a bet.”
Will the metaverse be dominated by big platforms — Meta, Microsoft, Roblox, etc.? Or do you see opportunities here for startups to thrive? “I like Microsoft’s chances here because of the enterprise angle that’s emerged as part of COVID’s changes to human behavior, and I think in general that the big platforms that can innovate on the hardware/user interface side have some advantages, but they will want to unleash the creativity of the startup community in creating new human behaviors and there will be lots of startups nibbling away at the edges of things that need to be done cross platform, so yes, lots of opportunities for startups.”
Do you have any metaverse companies in your portfolio? “We are looking at a couple now that are naming themselves as specifically addressing the metaverse, but many of the companies that we are already invested in lean hard into what will be recognized as building blocks of the metaverse — certainly anything involving natural language processing. (Symbl.ai is a good example) and AR (Streem, which we sold some time ago) qualify.”
Ben Gilbert, managing director at Pioneer Square Labs
In your words, describe the metaverse. “Well first, we don’t know because… despite the hype and tech CEO announcements, it doesn’t yet exist! I think of the eventual metaverse as two components. First, a new user-interface paradigm which until now was described as VR/AR/MR. Second, an online virtual world — like Second Life, Fortnite, or Rec Room — but with much richer interoperability than we have seen in products to date.”
Do you think the metaverse represents a real opportunity for cutting-edge innovation and significant startup returns or is this just the latest overhyped buzzword of the day? “As always with these things, both. More thoughts in the questions below.”
On a scale of 1-to-5 — one being completely overhyped and five being the hottest tech innovation in decades — where would you put your interest level in the metaverse? “I think there are two very different uses of the term “metaverse” today. First, to describe what Meta, Microsoft, and others are building. I’m a 2 out of 5 on investing in startup opportunities for that metaverse right now, primarily because we don’t yet know what the shape of those platforms will become. While there are great VR experiences — like our portfolio company BigBox VR — I wouldn’t define that as a metaverse experience just yet. However, as for “metaverse” being used to describe the explosion of creativity in crypto and Web3, I’m a 5 out of 5. While most of the applications today are crude (like 2D NFT images), I’m long on all of the creative talent building composable and interoperable experiences right now in crypto.”
What makes you bullish or bearish on this as an innovation and investment concept? “Bullish: It has been 10 years since the mobile/social wave, and we’re due for a new computing paradigm to upend the landscape. Bearish: With the billions being spent on developing metaverse concepts inside Meta, Microsoft, and others, it’s not clear that the metaverse (at least their version) will represent a large opportunity for startups to capture value.”
A number of VCs made big bets on AR/VR 3-to-5 years ago, which didn’t pan out because the market had not yet developed. Has this changed? “Yes. In 2016, you had to pay $799 for an HTC Vive and $599 for an Oculus Rift (but then more for the controllers). Today, you can buy a Quest 2 for $299. That’s a huge difference for both consumers and businesses to make a purchase decision. And of course, now you don’t have to hook it up to a tricked out gaming PC to power it!”
Will the metaverse be dominated by big platforms — Meta, Microsoft, Roblox, etc.? Or do you see opportunities here for startups to thrive? “Assuming we’re talking about the Meta/Microsoft metaverse here (vs. the Web3 one, which again, is a totally different concept), I think it will look a lot like the mobile ecosystem. Most of the profits will go to the platform owners selling hardware, services, and monetizing transactions. But that doesn’t mean that we won’t also see dozens or hundreds of smaller (but still billion-dollar!) opportunities. Apple is a trillion-dollar-plus company, but without the iPhone, there would be no Uber, Snap, or Instacart.”
Do you have any metaverse companies in your portfolio? “BigBox VR (makers of POPULATION: ONE) was a portfolio company before selling to Meta. While that’s the most direct example we can share publicly, I think a year from now we will have made new investments in the category and look at other companies in the PSL portfolio as evolving into “metaverse companies.”
Kate Mitselmakher, general partner at Bloccelerate VC
In your words, describe the metaverse. “I would define metaverse as a distributed ecosystem of interconnected people, objects, and assets, each represented in the digital form with a unique self-sovereign ID — natively interoperable with one another.
In its immediate form, metaverse will be mostly limited to digitally native objects — gaming assets or digital art. In the long term, metaverse will resemble the digital twin of the real world, whereby most physical objects — from real estate to commodities — will have a digital representation and unique self-sovereign identity in the metaverse, most likely residing on the blockchain. Eventually, the digital and the physical worlds will merge into one interoperable ecosystem powered by AI, VR/AR, smart contracts, NFTs, DeFi, DAOs, and other innovations.
As most economic activity will migrate to the metaverse, the old economy — as we know it today — will cease to exist. The old economy will transform into the new metaverse economy — with its own rules, its own currency, and its own governance.”
Do you think the metaverse represents a real opportunity for cutting-edge innovation and significant startup returns or is this just the latest overhyped buzzword of the day? “If we were to assume that trillions of dollars worth of economic activity will migrate to the metaverse economy, there will likely be trillions of dollars worth of new value creation powered by the new metaverse infrastructure. The metaverse infrastructure, in its current form, is still in its very infancy — with a few competing platforms and a few disparate experimentation projects taking place sporadically. If we were to use the Las Vegas analogy, we just uncovered a plot of land in a desert and decided to build a city on it. We may have just built a few roads, but there are no highways as of yet, cutting through them. We have a few casinos, but no hotels, restaurants, or airports. But the city will grow, as more infrastructure is built out.”
On a scale of 1-to-5 — one being completely overhyped and five being the hottest tech innovation in decades — where would you put your interest level in the metaverse? 5.
What makes you bullish or bearish on this as an innovation and investment concept? “We are bullish on the blockchain and crypto becoming the underlying infrastructure of the metaverse. Fundamentally, blockchain will serve as the trust layer for the objects and assets in the metaverse to reside on and to exchange value on. That means there will be the underlying platform serving as the trust layer (likely Ethereum with a few L2 solutions powering its throughput and scalability), there will be its own virtual currency (e.g. DAI or a few other competitors), there will be oracles, feeding data from the real world into the metaverse world (e.g. Chainlink, etc), there will likely be a different form of governance – more distributed and decentralized – powered by DAOs (Decentralized Autonomous Organizations).
Eventually, there will be a plethora of applications that will facilitate the economic activity of the metaverse. As a part of Bloccelerate VC fund, we embrace this vision and have been actively investing in this space for the last 3-plus years.
“Fundamentally, blockchain will serve as the trust layer for the objects and assets in the metaverse to reside on and to exchange value on.”
A number of VCs made big bets on AR/VR 3-to-5 years ago, which didn’t pan out because the market had not yet developed. Has this changed? “I think the market is developing as we speak, but it hasn’t fully developed yet. 3-to-5 years ago AR/VR were the new tools that powered content discovery and content creation in the digital world. Until recently, this content resided in siloed ecosystems of individual applications or games, mostly controlled by Web2 behemoths. Therefore, the value of the AR/VR powered content was limited to the value of the individual application or an individual game, in which it resided. What blockchain enables is the portability and composability of this content, thereby unlocking its value.
Will the metaverse be dominated by big platforms — Meta, Microsoft, Roblox, etc.? Or do you see opportunities here for startups to thrive? “Unless these companies adapt to the new Web 3.0 paradigm shift, their role will diminish over time. We wrote about this future in 2018 in our “Top Five Predictions for Blockchain for 2030” essay (Prediction #2). Meta, Microsoft, and others are all representatives of what used to be “the new Web 2.0 economy.” We are now seeing the transition from Web 2.0 to Web 3.0. While the former is predicated on the notion of a centralized enterprise — with centralized control, governance, and decision making, the latter is predicated on the decentralized ecosystem of entities that together fulfill the role of the mega corporation. These entities take the form of DAOs or protocols where the community of users are not only in control of their own identity and their data, but also are in control of the future of the protocol itself. This is what we envision as the underpinning construct of the metaverse.”
Do you have any metaverse companies in your portfolio? “Yes, we have been investing across all three layers of the stack that we believe will ultimately power the metaverse — the platforms (E.g. Ethereum, Avalanche, Hedera Hashgraph, etc), the middleware (smart contract auditing firm called Quantstamp), and the application layer ( MakerDAO, Centrifuge, Pontoro, etc). MakerDao’s native stablecoin, DAI, has now grown to $10B+ in circulation and is one of the top contenders to become the de facto stable currency of the metaverse. As a fund, we are bullish on the concept of the real world and the virtual world (the meta world) eventually merging into one. That’s why we also like to back companies that bridge these two universes (e.g. tokenization of real world assets, etc). We don’t have any companies in the pure-play gaming space, but in our perspective, metaverse is much more than gaming.”
Elisa La Cava, investor at Madrona Venture Group
In your words, describe the metaverse. “The metaverse is a next evolution of, and an additive layer to, the physical and digital worlds in which we already live today. It is a universe of virtual worlds that enhance and seamlessly combine with all our other current modes of interaction, exploration, learning, productivity, and entertainment to create a richer and deeper experience than we have ever had before.
For example, imagine buying a car. Instead of physically traveling to a dealership or scrolling through a website, with the metaverse a shopper is able to virtually walk around the car and look at it in photorealistic detail, “sit” in the seats and see how spacious it is, explore the various permutations of finishes, colors, and upgrades that are available … and then buy … all from the comfort of their own living room. We see some limited capabilities to do things like this today, but seamless, high quality, and easy-to-use experiences will become much more common in the future across a multitude of categories and use cases.”
Do you think the metaverse represents a real opportunity for cutting-edge innovation and significant startup returns or is this just the latest overhyped buzzword of the day? “It’s a significant opportunity. You must take note when some of the largest tech companies in the world state that it’s a key area of focus and pledge billions of dollars per year to the space. The hope (and promise) is that the metaverse unlocks new types of interactions that lead to richer, stickier, and more seamless user experiences. I get excited when I think about the near-term business use cases.
The past two years have driven a rapid shift to remote work and, as part of this shift, a lot of things have become more virtually fluid. Despite this, we still haven’t quite been able to replicate the human experience of being together in a team room, problem solving on a whiteboard, or having an ad hoc unplanned conversation with a colleague. The metaverse provides a better solution to this. There’s a recent Exponent podcast where Ben Thompson and James Allworth talk about this exact issue and compare it to the introduction of the PC, where corporations introduced the PC into our lives, and consumer applications and use cases quickly followed. I think this is a very accurate analogy and see the same thing happening with metaverse.
“You must take note when some of the largest tech companies in the world state that it’s a key area of focus and pledge billions of dollars per year to the space.”
On a scale of 1-to-5 — one being completely overhyped and five being the hottest tech innovation in decades — where would you put your interest level in the metaverse? “I’m a lot closer to 5 than 1. And when you include Web3, NFTs, and all of the innovation in Defi right now, I think the answer clearly becomes 5.
One thing to flag is that we’re still early from a technological capability standpoint for metaverse mass-adoption. This means, from a startup’s perspective, that “timing the market” correctly is still a concern. Also, given the sheer transformation of how our lives have changed over the past 18-plus months since the COVID pandemic started, I think the utility of the metaverse will only increase as people, students, and companies continue to settle into what a new “future of work” normal could look like. I think there will continue to be a lot of room for new technology and new habit adoption over the coming years. Regarding metaverse development, startups will likely gain inspiration from and ride the infrastructure coattails of the larger tech companies, with the overall market accelerating within the next five years.”
A number of VCs made big bets on AR/VR 3-to-5 years ago, which didn’t pan out because the market had not yet developed. Has this changed? “Based on expectations from 5-to-10 years ago, today we all would have been wearing headsets as part of our daily lives. We’re clearly not there yet. I see the metaverse as an all-encompassing evolution that will inevitably involve AR/VR as a key ingredient where AR/VR will act as another additive layer creating a fully immersive user experience.
Will the metaverse be dominated by big platforms — Meta, Microsoft, Roblox, etc.? Or do you see opportunities here for startups to thrive? “The big platforms will (and are) firmly establishing their presence early. That said, startups will continue to thrive simply because there will be so much to do. Consider for a moment the user perspective of building, experiencing, and interactive with other people, things, and content … and also consider the business perspective of needing to create tools, workflows, as well as all of the integrations and connections required to connect across different systems… There will be technical challenges, needs, and use cases to build solutions for that we can’t even fathom today. No one company will be able to tackle everything by itself, and that gap is what creates opportunity for innovation and startups to excel and grow over time.”
Do you have any metaverse companies in your portfolio? Rec Room, the virtual hang out and creator game that connects more than two million game players in a virtual world.
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