The top 10 companies investing billions in the Metaverse – VC Cafe

0
10

Is there an early mover advantage for being early on a technology trend? think about the entrepreneurs that started in the early days of the Internet, mobile, crypto, VR and yes… now Metaverse. Given the ‘fuzzy’ period we’re in, where we still struggle with a definition of the Metaverse, it’s easy to dismiss it all as a fad. But several corporates are investing millions in building their capabilities and platforms for the Metaverse.

In my post ‘Investing in the pillars of the Metaverse‘ I summarised some of the high potential areas for the Metaverse to create value, both in terms of content and infrastructure, with gaming being a massive entry point for people to experience an immersive, 3D, social interaction. In the first five months of 2022, more than $120 billion have been invested in building out metaverse technology and infrastructure, according to McKinsey.

In this post, I’ll focus on the top companies who are investing in R&D, M&A and commercialisation of the tech stack for the Metaverse. As an early stage investor in the world of gaming and metaverse technology at Remagine Ventures, I find these companies have the potential to set the agenda, become the potential platforms for developers building in this space and future acquirers/consolidators of startups building the next generation of the Internet.

Here we go!

1. Epic Games

It’s hard to think of a company better positioned than Epic Games to become a major player in the Metaverse.

  • Tim Sweeney, the founder and CEO of Epic is a long term visionary of our online future and the Metaverse. In April 2022, the company announced it has raised $2 billion (at $31.5 billion valuation) to invest in the Metaverse and build the future of digital entertainment
  • Epic owns Fortnite, one of the most popular multiplayer games, enabling users to interact with each other online in an immersive way to play, socialise, attend to virtual concerts. Fortnite generated $5.8 billion revenue in 2021 for Epic Games and was played by 83.3 million people in 2021 (source)
  • In addition to Fortnite, Epic owns Rocket League, Fall Guys and the Epic Games Store, a competitor to Steam, attracting millions of players to their titles and experiences.
  • On the infrastructure side, Epic owns ‘Unreal Engine’ the second most popular 3D graphic engine, and creator of MetaHumans, a digital twin rendering software that can be used to create hyper realistic characters to ‘populate’ the Metaverse. Recent upgrades to Metahuman avatar tool enable importing scans of real people. Another interesting project is ‘realisty

“This investment will accelerate our work to build the metaverse and create spaces where players can have fun with friends, brands can build creative and immersive experiences and creators can build a community and thrive.”

Tim Sweeney, Epic Games’ founder and CEO

2. Unity

The largest and most popular 3D engine has big plans for the Metaverse. Gaming is today’s number one entry point to the Metaverse and 61% of games were built on Unity’s 3D engine in 2021, according to the company. Unity’s recent $4.4 billion merger with IronSource, an Israeli scale-up specialising in mobile gaming monetisation might also position them as a big player in crypto gaming – offering developers the ability to integrate a simplified crypto wallet into their games in the near future. Also, their $1.6 billion acquisition of Weta Digital, Peter Jackson’s VFX company, gives Unity capabilities in creating hyper realistic virtual environments using RT3D (real-time 3D) technology.

Recently, Unity’s CEO John Riccitiello, sparked controversy with the game developer community, which could put future adoption at risk.

Every month, there are 5B downloads of apps built in Unity. There are now 2.8B monthly active end-users who are engaging with content created or operated by Unity solutions in 2020.

2021 Gaming Report, Unity for Games

The future of social media and 3D interaction is the biggest priority to Facebook. No company has more riding on the Metaverse than Meta. It goes beyond the change of name, to reflect the company’s intention to become fully metaverse focused within 5 years – Facebook is investing billions and hiring 1,000 people in EMEA to build their vision for our future online social interactions. They own some of the top assets and and infrastructure to deliver on this vision:

To live to its potential as a core part of the Metaverse Meta has to overcome a challenging market and a confused brand. The company’s decision to increase the price of the two year old Quest 2 by $100 (citing rising costs) and a weak performance in Q2 2022 are showing the growing pains of this transition: Facebook dropped in revenue for the first time, and Reality Labs brought in $452 million in revenue over the quarter. but still lost $2.8 billion during that same period. If nothing else, it shows how many billions Meta is willing to commit in order to advance Mark Zuckerberg’s vision for the future of the Internet.

4. Microsoft

If patents are any measure for the level of interest or innovation a corporate has into a given space, then Microsoft should be the #1 of this list.

A recent study by IFI Claims on the top 10 companies holding metaverse-related patents over the past 5 years shows that Microsoft is the leader in this space.

Microsoft not only created Hololens, the most advanced mixed reality headset, which is used by enterprise clients and the US Army, but also owns Mojang studios, creators of Minecraft, the top massive virtual world popular with children and young teenagers. Minecraft had 141 million active players in 2021, sold more than 200 million copies since inception and is one of the most viewed category of videos on Youtube. Similar to Roblox, Minecraft is often used as an example of an existing, closed-ended virtual world exemplifying the qualities of a Metaverse.

In the gaming category Microsoft is a power house.

  • Microsoft has recently spent $70 billion in cash to acquire Activision Blizzard, the most expensive gaming acquisition of all time. It gives Microsoft ownership of some of the top gaming IP including: Call of Duty, Guitar Hero, Overwatch, World of Warcraft, Candycrush and more
  • It is the owner of Xbox and its popular cloud gaming service Xbox Game Pass
  • The Microsoft Kinect (a fruit of the acquisition of Israeli startup PrimeSense) is a working computer vision gaming tech that could power gesture control in the Metaverse

With no doubt, Microsoft is well positioned to play a leading role in the Metaverse, but so far, they’ve been reluctant to step up to that role. Last month, Minecraft announced it will not be supporting NFTs in its world (from ideological reasons), sparking anger from the crypto gaming community.

5. Yuga Labs / Improbable

When it comes to NFTs, the Bored Ape Yacht Club (BAYC) is perhaps the most famous collection of them all. At the peak, each JPEG of a monkey was worth over $300,000 in ETH, but the NFTs value wasn’t derived from the quality of the digital art, it was valued for its social currency and the community access it promised, at least on paper. The NFTs are owned by celebrities, tech execs and investors, and the NFT owners own 100% of the IP on their Apes and are able to generate derivative income from creating products bearing the apes picture: music, fashion, food/drink etc. Fast forward to the crypto winter of July 2022 and the decrease in NFT trading, and BAYC Apes now trade in OpenSea for approximately 84 ETH, or $132,000.

In March 2022, Yuga Labs, the company behind BAYC, raised a $450M seed round at $4 billion valuation led by A16Z with the aim: create a better Metaverse. The token ApeCoin, which will serve to facilitate transactions in the BAYC virtual world was successfully issued shortly after.

Source – leaked pitch deck, Yuga Labs (March 2022)

Judging by this early clip, it resembles a Fortnite experience:

The end product of this vision is still being created but the leaked 90 page pitch deck (embedded below) details Yuga Labs’ plans in more depth. It starts with building Otherside, the BAYC virtual world. For that, Yuga labs partnered with London based Improbable. The company describes itself as “a British metaverse technology company pioneering new ways to connect, play, create and build value across interconnected virtual worlds”. In July 2022, Yuga Labs and Improbable started testing Otherside with a few thousand beta testers.

6. Roblox

Roblox is another example of a successful, existing virtual world that delivers a Metaverse experience to users today (mostly children and teens) without the need for a VR headset or expensive gaming computer. Roblox created the world, and all the experiences (read: games) inside Roblox, are created by the users/creators on the platform.

A few stats about Roblox:

  • Roblox has over 42 million daily active users as of Q1 2022 (and over 202 million monthly active users) – nearly half of the users are under the age of 13 (source)
  • In total there are 486 million registered users on Roblox, with approximately 3 million new users daily! (source)
  • Roblox generated $1.9 billion revenue in 2021, a 107% increase year-on-year

Roblox’s design is very simplistic, almost pixelated, but perhaps the secret to its success is its simplicity. Players love the mini games they can access via their phones or computer, and they happily spend their pocket money on Robux, the currency in the platform. Gradually, more professional gaming studios are choosing to develop on the platform, increasing the quality and the IP that enters the Metaverse. Full disclosure, at Remagine Ventures we are investors in Toya, a gaming studio focused on creating experiences for female-gamers on the Roblox platform.

Roblox is publicly traded and has a market cap of $27.2 billion as of August 1st 2022, a drop from it’s IPO at approximately $38 billion but relatively steady since Dec. The company has grand ambitions to replicate the real world with its game engine:

 “This new category that we call co-experience (sometimes referred to as the metaverse) will change how we connect with others. We believe the long-term opportunity is potentially larger and more profound than the various innovations we’ve seen in social networking, messaging and video…. We believe the economic opportunity for immersive co-experience is vast. When people come together in the metaverse, they adopt an identity through a digital avatar, and ultimately do more than simply communicate. In the metaverse users are able to do things together. We believe that while users are engaged on Roblox, their appearance and identity, as well as the surrounding environment will come to have as much meaning as they do when people interact in the physical world”

Roblox shareholder letter, May 2022 (source)

Roblox is now looking to expand its presence beyond games, with new developer tools to help democratise the process of game creation, regardless of technical skills.

7. Nvidia

When it comes to infrastructure plays, Nvidia’s graphic cards have long been the best in the market. That’s partly what makes Nvidia the seven largest company in the world. In April 2021, the company announced the launch of Nvidia’s Omniverse, a “an easily extensible platform for 3D design collaboration and scalable multi-GPU, real-time, true-to-reality simulation”. Omniverse offered powerful features, and charged $9,000 from corporates for an annual subscription. But, in January 2022, Nvidia announced that it will be granting free licenses for artists, creators and developers who will help build virtual worlds in the metaverse. Omniverse helps connect multiple apps together from digital twins simulations to better 3D graphics and is sure to be a meaningful part of the future of immersive tech.

Jensen Huang, the founder and CEO of Nvidia believes the GDP of the metaverse will eventually exceed that of the physical world. But he’s not interested in virtual fashion or entertainment. He sees the metaverse as a real-time 3D simulation of the world: from medicine, to manufacturing or construction. This makes Nvidia one of the top players to watch in this space.

8. Google

Did you really think that one of the largest tech companies in the world will stay out of any trend? Google is perhaps not synonymous with the metaverse, but the company has already invested billions in the future of AR, VR, XR and 3D content in the cloud.

In an interview with Bloomberg’s Emily Chang, Alphabet’s CEO Sundar Pichai was asked about Google’s metaverse strategy. His response was vague, but telling that the company won’t ignore the trends:

“It’s always been obvious to me that computing over time will adapt to people than people adapting to computers. You won’t always interact with computing in a black rectangle in front of you. So, just like you speak to people, you see, and interact, computers will become more immersive. They’ll be there when you need it to be. So, I have always been excited about the future of immersive computing, ambient computing, AR.… The way I think about it is evolving computing in an immersive way with augmented reality.”

Sundar Pichai, Nov 2021 (source)

The company’s efforts in this space are led by Google SVP Clay Bavor, who was previously in charge of Google’s (now shelved) VR efforts. Bavor now leads Google Labs which include project Starlight, Area 120, ARCore and other high-potential, long term R&D projects. We’ve yet to see the full scale of Google’s plans in this space, but the relaunch of Google Glass (now only focused on enterprise), new consumer devices (probably smart glasses) and a rumoured new AR operating system. Watch this space.

Google Maps Immersive View, Google I/O 2022

9. Niantic

Niantic is responsible for Pokemon Go, the most successful AR game of all time. It has approximately 80 million monthly active users and made $1.21 billion revenue in 2021, the second year in a row it made over $1 billion.

While Niantic failed to replicate the success of Pokemon Go with subsequent titles (it shut down Harry Potter in Nov 2021), it launched Niantic Lightship, a developer platform enabling developers to merge AR content with the outside world.

Niantic has already made several startup acquisition in the space of 3D content. In March 2022 Niantic acquired 8thwall, a WebAR developer platform, and in March 2020, it acquired 6D.ai, a company building 3D maps using the mobile phone camera. Niantic recently raised $300M at $9 billion valuation to build the ‘real world metaverse’.

“At Niantic, we believe humans are the happiest when their virtual world leads them to a physical one. Unlike a sci-fi metaverse, a real-world metaverse will use technology to improve our experience of the world as we’ve known it for thousands of years”

John Hanke, Niantic founder and CEO (source)

10. Dapper Labs

Cryptokitties launched in Nov 2017 and as a blockchain game, one of the first attempts to connect digital collectibles to the blockchain. It became one of the first NFTs, and received wide recognition. The year was 2017, and the company behind these adorable kittens was Canadia gaming studio Dapper Labs.

Fast forward to 2022, and Dapper Labs today is much more than pictures of kittens. The company is behind NBA Topshots, another early mover in the NFT craze, with over 1.5 million users, 20 million marketplace transactions and over $1 billion in transactions of ‘digital NBA moments’. The company now also launched All Day, a similar approach to Topshots but focused on American Football and in partnership with the NFL and is working on similar launches with LaLiga (Spanish soccer) and MMA with the UFC.

On the infrastructure side, Dapper Labs launched Flow, an L1 blockchain as a platform, to power the next generation of web3 apps and games. Flow is meant to be greener, faster and cheaper than the alternative, making Dapper a serious contender for the future of metaverse infrastructure.

Dapper Labs evolution

Honorary mention – Animoca Brands

I would be remiss not to mention Animoca Brands as a key Metaverse player.

Animoca Brands is a Hong Kong-based game software company and venture capital company founded 2014 by Yat Siu. Animoca has become a prolific investor in the world of Web3/NFTs and blockchain gaming with a portfolio of over 340 companies including Colossal, Axie Infinity, OpenSea, Dapper Labs (NBA Top Shot), Yield Guild Games, Harmony, Alien Worlds, Star Atlas, and others (Full disclosure: we are co-investors in Rebelbots with Remagine Ventures). In July 2022, Animoca Brands raised $75M at a $5.9 billion valuation in July 2022 as a second tranche of a $358 million announced in January.

The Sandbox, a subsidiary of Animoca brands is the third-largest metaverse based on the Ethereum blockchain. It allows users to create, share, and monetize their assets (like real estate) and gaming experiences. People can own assets, play, build, and own their properties and in-game assets in the virtual world. A lot of the brands experimenting with the Metaverse partner with the Sandbox to launch initiatives, including Playboy, Tony Hawk, Adidas, Snoop Dog, Walking Dead and more.

The Sandbox, a subsidiary of Animoca Brands, is a fertile ground for brand collaborations in the Metaverse (Animoca Brands)

Missing from this list

This list is by no means exhaustive and is likely to evolve as companies start to emerge with their metaverse initiatives. I’m confident we will hear more about efforts by:

  • Amazon – with its cloud gaming service and perhaps a slew of new affordable user devices
  • Qualcomm – probably belongs on the list above with its new $100M metaverse fund, a new SDK for developers and for powering the upcoming Meta smart glasses with their Snapdragon chips.
  • Snap – Evan Spiegel has a bitter past with Faceboo/Meta and is very careful to publicly mock the concept of the Metaverse, despite Snap being one of the top players in AR and XR. I suspect we’ll see more from Snap on this front
  • TikTok – the social media behemoth now expanded into games and live – it’s a matter of time until in enters the metaverse
  • Nintendo – can it make the move from consoles to the metaverse?

As a venture capital fund investing in gaming and metaverse, we (Remagine Ventures) are excited about how much there’s still to be invented in this space to deliver the promise of the metaverse. The large corporates might invest billions, but startups have the benefit of speed, agility and courage to innovate. Big companies will be built in this space in the next decade, we’re excited to back the future category leaders in this space at Remagine Ventures!

Eze is managing partner of Remagine Ventures, a seed fund investing in ambitious founders at the intersection of tech, entertainment, gaming and commerce with a spotlight on Israel.

I’m a former general partner at google ventures, head of Google for Entrepreneurs in Europe and founding head of Campus London, Google’s first physical hub for startups.

I’m also the founder of Techbikers, a non-profit bringing together the startup ecosystem on cycling challenges in support of Room to Read. Since inception in 2012 we’ve built 11 schools and 50 libraries in the developing world.

Eze Vidra
Latest posts by Eze Vidra (see all)

Go to Publisher: VC Cafe
Author: Eze Vidra