It seems that we can’t get enough intel on the venture capitalists who are investing in augmented reality and virtual reality. And there are plenty of panels where VCs talk about investing in AR and VR, which could be a $120 billion industry by 2020, according to Digi-Capital.

The most recent panel I viewed included a collection of early stage VCs and accelerator investors. The speakers included Jeff Wasson of Boost VC, Greg Castle of Anorak Ventures, and Tipatat Chennavasin of The Venture Reality Fund. All of them are big believers in VR and AR. They’re putting their money into a variety of AR and VR ventures, including games, education, training, productivity, medical, and the enterprise.

I heard them talk about their views in a panel held by UploadVR and VR Accelerated. Toni Parisi, one of the pioneers of VR, moderated the session. Here’s an edited transcript of that conversation. You can also read about another panel on VR content investors here.

Samsung Gear VR

Above: Samsung Gear VR

Image Credit: Samsung

Jeff Wasson: I’m with Boost VC. We’re a seed stage fund and accelerator. One of our focus areas is VR. We’ve made 40-plus investments in the sector now. We’ve found some great companies — Visionary VR, doing applied VR in senior health care… JanusVR is a company of ours. We’re very proud to be investing in the sector. We’re bullish on the space.

Tony Parisi: You have a lot of operating experience across all these companies. You’ve seen all kinds of entrepreneurs. Can you give the entrepreneurs here some advice? If you’re thinking of starting something up in VR, what are the opportunities you’d look at? Say you’re a tech team that wants to build a platform or a product. What are the interesting opportunities for new entrepreneurs?

Wasson: For us specifically, we’re looking at the application layers being set by the hardware companies — by Oculus, by HTC. We still have to go through this protocol layer of additional software companies that make it easier for enterprises and individuals to build in VR. If you’re building tool sets or software that makes it easier for people to build or consume VR, that’s a good place to be.

On the social side, we’re looking at the asynchronous social side — creating in VR, sharing in VR. I have a 14-year-old daughter. She and her friends are a pretty good focus group for me, and they’re addicted to their iPhones. They’re on those phones all the time, because their friends are on the other side. VR doesn’t have that application yet. What can we do to get them to need that? I don’t know the answer yet, but we’re at a stage where there’s a lot of creative developers working on applications to get there.

That’s necessary for VR to succeed. What mobile did, when it finally succeeded — mobile was around from 1995 to 2006 — people were building mobile applications. They weren’t successful, though, until it brought everything the web could do to mobile. Everything people were doing with their PCs was on mobile, and then there was an explosion. Tool sets were given to developers to build creative applications. Until VR brings what we need to do and what we’re accustomed to doing into VR, I’m concerned about that addictive use case that we’re all looking for.

Anything on the education and training side, in the enterprise — when I say “education” I don’t just mean primary education, but anything that lets people use VR to help themselves learn. Ed tech historically has been technology to more disseminate and measure the same old thing. VR is fundamentally a new way of learning, a superior way of learning. Companies producing interesting use cases around education and training is going to be a hot zone.

Parisi: Let’s pick up on that. Education and training, ed tech in general, has been fraught with difficulty for investors. The space has some baggage. Talking about VR education, it sounds a little challenging because it’s so content-intensive. Have you built any theories around this yet? Do we need a strategic breakthrough to come up with some new formulas? You mention ed tech these days, people tend to glaze over.

Wasson: Including me, historically, because who pays for it? That’s a difficult thing to see changing. The sources of capital don’t change just because the technology has changed. But we’re seeing early results in terms of the efficacy of VR learning. Initially, corporations, the enterprise side, will pay for it. It saves them time and money. They’ll build companies and systems that can show, over a period of time, that this works, and it’s a better way.

When the money can follow the actual outcomes, there will be a new paradigm in terms of who will pay for that. It’ll happen at first with parents outside of the school system. But eventually — I believe strongly in the future of education in VR and AR. In a matter of few years it will be impossible to ignore. We’re betting that the money will be there.

Parisi: Boost is taking what I guess you’d call a portfolio approach. You’ve accelerated and funded so many companies. From that standpoint, what’s a good balance for a portfolio approach? How do you balance platform versus app versus social?

Left to right: Greg Castle of Anorak Ventures, Jeff Wasson of Boost VC, Tipatat Chennavasin of The Venture Reality Fund, and VR pioneer Tony Parisi.

Above: Left to right: Greg Castle of Anorak Ventures, Jeff Wasson of Boost VC, Tipatat Chennavasin of The Venture Reality Fund, and VR pioneer Tony Parisi.

Image Credit: Dean Takahashi

Wasson: I don’t think we have a formula. VR has changed too quickly to be formulaic about it at this point. Initially, when we looked at the space, we wanted to make sure we invested broadly for our own education. That’s one of the advantages of what you can do with the accelerator model. You can gain understanding while you bet on great teams. Those teams, you hope, have a flexibility to understand what’s happening to their product and change with the market.

Publicly, we say we don’t do hardware, but we have. We’ve done a number of hardware deals. You can’t do VR without hardware. There will be form factor breakthroughs, technological breakthroughs. The companies that own VR today won’t all be here in five years. We’ve never seen an industry where the early combatants continue to rule and nobody drops out or comes in. We have to look at hardware. It’s less a part of our portfolio. That’s a good space for people who understand that side.

Gaming and entertainment are expected to be very popular, obviously, over the next 12-18 months. If you’re in gaming and entertainment as an investor, that’s fantastic. Historically, venture capital isn’t allocating money to games or content studios or agencies, because they don’t scale. They don’t get to that next platform where they’re building users. But there’s a lot of money to be made in that sector. It depends on what type of investor you want to be. I’d definitely look at things that are helping people create and share media.

Greg Castle: I’m founder and GP at Anorak Ventures, which is a new fund that invests in highly specialized teams solving difficult problems, technical or otherwise, in areas of interest to us. We’re looking at VR, AR, robotics, autonomous vehicles, computer vision, artificial intelligence, machine learning, lots of fun buzzwords. Previously I had a very traditional career. I was in the restaurant business. I was in the finance world. Most recently I was in the video game industry, where I cut my teeth, from a technical perspective. I have a holistic professional experience to draw on when we’re assessing companies and founders.

Parisi: Greg angel invested in a little startup called Oculus VR a few years ago. He’s had a front row seat to a lot of what’s going on over the last few years. With Anorak, do you have a hypothesis around AR and VR? How are you approaching this going forward with the types of investments you’re making?

Castle: Many funds are just focused on VR and AR and doing very well. There’s a lot of overlap between the various areas I mentioned. I didn’t mention biotech or some other frontier sectors that could be considered frontier tech, but they don’t have any kind of core overlap with each other. All the areas I mentioned, from robotics to autonomous vehicles to VR, all of these have a lot of similar elements.

I say this all the time, but there are very few people who have done very well in VR from a financial standpoint. I’m lucky enough to be one of them, but I’m still very skeptical. I like to have the ability to focus not only on VR and AR, but also on these other tangential technologies that are extremely exciting and offer a lot of opportunity.

The investment thesis of the fund, as I said, is really specialized teams solving difficult problems in focused areas. Lots of traditional VC models look to make investments where they have one or two investments in their portfolio and that returns the whole fund: chasing unicorns. Every investment that I make, I like to be able to visualize that there is ultimately a billion-dollar opportunity there. But statistically speaking, that’s very unlikely. What’s much more likely is that there’s a sub-$15-million opportunity there. Fifty-three percent of tech exits are sub-$15-million. My thesis is that I invest in really specialized teams in really interesting areas that are attractive to larger companies. I get in early enough that even if there is one of these more-than-likely exits, the fund and myself still have the opportunity to make a substantial profit.

Greg Castle of Anorak Ventures was an early investor in Oculus VR.

Above: Greg Castle of Anorak Ventures was an early investor in Oculus VR.

Image Credit: Dean Takahashi

Parisi: So that’s really early-stage. What size checks would you write against that to feel comfortable?

Castle: My fund is fairly small. It’s a $10-12 million fund. It’s just filling out now, as far as the overall fund raise. My average at another fund was about $200 thousand, with about 20 percent of the fund left to follow on. But I like being small and nimble with my fund. I work with a lot of larger funds that want to get behind — they’re happy for me to take that first step and see how things play out. Then they want to come in behind. From that perspective, the follow-on aspect — I think I offer that ability for future funding to companies I invest in by proxy through my network.

Parisi: Would you still invest in any potential unicorns?

Castle: Just to be clear, every investment I make, I want to be able to see the potential to become a unicorn, to potentially have that billion-dollar valuation. But statistically speaking, that’s very unlikely to happen. What’s much more likely to happen is one of these smaller exits. A couple of really good articles talk about — there was a TechCrunch article talking about the rise of micro-acquisition. All the numbers are pointing to smaller acquisitions by companies that are increasing in frequency.

Parisi: Let’s talk about one of your investments, one of the companies in the room tonight, Visby — very IP-focused, very much technology, not a direct consumer play. Talk to us about that.

Castle: Visby is working on light field technology. The VR content a lot of you guys see at the moment, when it comes to photos and video, is 360 content. That’s a video or photo in a sphere around you, which is on a single plane. The device used to capture that is one of these, a 360 camera. When you capture the information, the device records the surroundings from this single point in space.

That means, if you’re wearing a headset and experiencing the content in VR, you only have data from this one point in space. If you move an inch to the left or an inch to the right, you have no new information. You have no “six degrees of freedom,” is what they call it. That’s crappy for a lot of reasons. The easiest is because it’s jarring. It makes you feel nauseous. When you move your head to left or right, your brain is used to getting some new information. When that doesn’t happen — when you’re stuck in a static scene — it makes you nauseous… it’s just a bad experience. You can’t lean forward and look in at things. You can’t look around corners.

That’s where technology is at today. Where technology is going to be in the future is what’s called “light field data.” Light field data enables you to capture video and photographic data from an area of points. That area could be a square, a sphere, a plane, but essentially you have the ability to move around and see different aspects of the same scene. That’s the future of VR content.

There is some technology out there today that enables you to capture this data. The problem is, the data set is so massively huge that you can’t do anything with it once you capture it. The way some of these rigs look, imagine a  4X4 sphere and the whole outside of the sphere is covered with hundreds of lenses taking pictures and video. You’re left with hundreds of videos or photos, which is a ton of data. Nobody is able to solve the problem right now.

But there’s one company working on that and making serious headway. That’s Visby. Light field data is the future of interactive content in VR. There is this major problem standing in the way of it right now — How do you compress that data, encode it, transmit it, and decode it on the other end? That’s what Visby is working on.

Greg Castle of Anorak Ventures.

Above: Greg Castle of Anorak Ventures.

Image Credit: Dean Takahashi

Tipatat Chennavasin: I’m a general partner and cofounder at the Venture Reality Fund. We’re a $50 million fund that invests in early stage VR and AR startups. My background, I come from being a developer, designer, UX artist, and scripter building VR. I have a lot of experience making VR. My a-ha moment for VR was when I was just messing around — like a lot of people, I thought it was going to be an awesome new game system. But creating a simple experience with some friends, I accidentally cured myself of my real-life fear of heights. That was the transformative moment for me, where I saw how powerful VR could be.

That’s when I said, “I don’t just want to be a developer making VR experiences. I want to help take VR where I think it can go.” I joined a small venture fund and helped them set up a VR accelerator program. Now it’s just amazing to see all the other great accelerators out there now. I think there are four in San Francisco alone. We’re also mentors for programs in Tokyo and China. It’s amazing to see how VR has spread across the world.

When I started investing in VR, everyone came to me and said, “You’ve built VR. You know VR. Tell us what we can do.” But now there are so many great VR investors out there. I remember going to panels where there’d be four investors up there, and only one had actually done a deal. Now we have people with 40 deals and more. That’s awesome.

Parisi: Going back those two years, what expectations of yours have come true and what haven’t?

Chennavasin: There was an early battle between interactive VR — mostly game people — and the 360 video people fighting it out. “Don’t call that VR! That’s not VR!” But now I think there’s a general sense that all of this is VR. VR is a huge opportunity in all these different areas.

Tilt Brush is the first app that showed me the true potential of VR being not just a consumption platform, but also a creation platform, a productivity platform. It’s amazing to see that paradigm this weekend. Not only was there the Wave, but also MindShow and Visionary showing off what next-generation creativity means in VR. Productivity for not just art and animation, but also music. Thinking about VR in new ways, that’s what’s interesting. Going beyond gaming and entertainment and some of these known, proven areas.

The other thing that’s been a little bit disappointing — or not disappointing, but there is a sense that people are still not trying to use VR to its full potential. I feel like a lot of people are still gravitating, at startups, toward the same ideas I was hearing about a year or two ago. I still meet companies that want to be the YouTube of VR. Are you kidding me? That was a terrible idea two years ago. It’s even worse now.

Because VR is expanding, people are getting into it for the first time, and they don’t realize that some people have been living it and breathing it for not just two years, but 20 years. Understanding and tapping into that, scratching beyond the surface, I want to see more of that. People are doing it, but not enough.

Samsung's Gear 360 virtual reality camera

Above: Samsung’s Gear 360 virtual reality camera

Image Credit: Ken Yeung/VentureBeat

Parisi: Do you think that people just aren’t taking enough time to be thoughtful about the medium and design and so on?

Chennavasin: There’s definitely a lot of hype around VR investing. There are lots of funds. But we’re much smarter VR investors now than the VR investors of a couple years ago. We’ve already done a lot of investing and work in VR. A lot of people I meet now are saying things like, “I’m going to pivot my company to VR. That’s an easy way to get money, right?” No, that’s not happening. We still look for something transformative. We still look for something big.

The bar is higher now than it’s ever been for a VR startup. If your demo isn’t amazing, there’s no excuse at this point. There are learnings out there. If you’re saying, “My team is still learning about VR, learning and making mistakes in design,” no. Look at the Steam store. There are 200 great pieces there that you can learn from and understand what VR design is shaping up into.

Parisi: How do you spend your day every day, when you’re looking at VR and VR investments? For the people in the audience, how can you help them out with some lessons learned?

Chennavasin: Coming out to events like this is amazing. Unfortunately, right now in San Francisco we’re in a bubble of VR events. My partners had another VR event on this same night, talking on a panel. But I do make sure I talk to everyone, learn from people who are putting it online as startup guys, talking to platform guys.

Also, do VR. I spend about an hour a day in VR, having fun in something like Tilt Brush or Medium, but also trying new things on the store, trying demos that companies are sending me. Even if they’re bad, I give them honest feedback. Take the time to be constructive with your criticism. Push entrepreneurs to be better and strive harder and think about the hard challenges, not just a quick opportunity that may or may not exist.

Parisi: What’s the VR startup that you haven’t seen pitch to you, that you would like to see step through your door?

Chennavasin: I have like 30 or 40. This is a non-answer, but an entrepreneur has to be passionate and focused and experienced. I can’t give someone an idea and hope they can execute on it. You always want to know the team and the founder, know the founder has the passion to make this happen.

To pick one idea, though, I’m looking for a Powerpoint. Presentations as a slideshow are just done to death. A VR presentation would be magical. It would be transformative. It would be absolutely memorable. You could go anywhere in an instant. You could talk about things and they would magically appear. You could meet people and see their product. That’s amazing. It’s way beyond what we can do with today’s technology, but we could only do it in VR.

Go back to when computers first had graphical desktops. Office productivity was the killer app — Word, Excel. That’s the same kind of thing we need to unlock in VR.

PlayStation VR from Sony Interactive Entertainment

Above: PlayStation VR from Sony Interactive Entertainment

Image Credit: Sony Interactive Entertainment

Castle: I’m not sure the timing is right for this right now, but if you believe that, in the future, your phone will be replaced by something on your face — if you believe in a future of augmented reality — then it makes sense that everyone who sells goods, whether it’s clothing or cars or anything else, will need a way to store all their products and all the metadata that goes along with their products so that if you walk into a retail store in the future, you have access to all the information you should. You should be able to walk up to a car and change the color on that car, or look at what different options you can add. That whole system needs to belong to the seller.

A content management system for digitized real-world objects has tremendous potential in the future. There’s a couple of different companies working on this and coming at it from different angles. Again, I think it’s too early. But that’s going to be a killer application in the future.