Startup Investors Have Fled The Metaverse

Almost nobody these days is spending much leisure time in the metaverse. Additionally, almost no investors are backing fresh rounds for startups creating the next generation of virtual worlds.

That, broadly, is the finding from our latest data dive into venture funding tied to the metaverse, virtual worlds and augmented reality. Investment around these themes hit a multiyear low in 2023, driven by declining support for consumer-focused startups.

For perspective, below we mapped out the past six years of funding to the space.

U.S. metaverse-related investment also contracted sharply. The largest late-stage venture round in the space last year was an $82 million Series D for , a developer of augmented reality image guidance technology for surgery. Intriguing indeed, but hardly a recreational application.

Meanwhile, there were no U.S. rounds of $100 million or more in 2023 for consumer-facing companies developing virtual worlds. And as illustrated below, the six-year chart shows a clear downward slope.

We don鈥檛 talk about the metaverse

Lower funding feeds into a narrative of the metaverse as yet another example of a much-hyped tech breakthrough that never gained mainstream adoption.

After all, it was just over two years ago that famously renamed Facebook as . The move came with a envisioning a future in which one could 鈥渢eleport instantly as a hologram to be at the office without a commute, at a concert with friends, or in your parents鈥� living room to catch up.鈥�

Fast-forward to today, and Meta鈥檚 initially , Horizon Worlds, hasn鈥檛 proven popular. To date, the company has tens of billions on its metaverse efforts.

It鈥檚 not just Meta. Across brands, U.S. sales of VR headsets and augmented reality glasses have reportedly . In the startup sphere, the most heavily funded company is , which has raised but hasn鈥檛 shown traction.

Even the term 鈥渕etaverse鈥� looks poised for a reboot, with hawkers of headsets and associated software opting for terms like 鈥渟patial computing鈥� and 鈥渢hree-dimensional user interface.鈥�

Enter Apple

But before we give up on visions of a headset-enabled, immersive digital reality, it鈥檚 time for to have its moment.

Last week, the world鈥檚 most valuable technology announced a Feb. 2 public release for its much-anticipated Apple Vision Pro headset. CEO modestly described the $3,500-plus聽 wearable as 鈥渢he most advanced consumer electronics device ever created.鈥�

Remarkably, Apple鈥檚 product for Vision Pro does not include a single mention of the terms 鈥渕etaverse,鈥� 鈥渧irtual reality鈥� or 鈥渁ugmented reality.鈥� However, the company did use the term 鈥渟patial computing鈥� eight times, and 鈥渕agical鈥� four times.

Apple is famous for its marketing savvy, so we鈥檒l have to assume these word choices to be deliberate. We can also take it as recognition that 鈥渕etaverse鈥� is not a buzzword that sells headsets.

Notably, Apple is also pitching the appeal of a headset that allows users to transition with relative ease between 3D digital environments and actual reality. It has designed Vision Pro so that when a person approaches a wearer, the device looks transparent. The wearer鈥檚 eyes are revealed, and they can see the person approaching.

A seamless transition from a digital world to the real one would go a long way to assuaging complaints that immersion in virtual worlds can be excessively isolating. This is one of the core reasons many of us prefer consuming content in 2D, as one need only look away from the screen to engage with immediate surroundings.

As for another core complaint around immersive 3D computing 鈥� that it can be a physically uncomfortable and even nauseating experience 鈥� we鈥檒l soon see if Vision Pro manages to assuage these qualms.

Now back to startups

If Vision Pro does prove a hit, that should provide a boost for startups innovating around immersive digital worlds. While the initial audience size will be limited by the device鈥檚 hefty price tag, it鈥檚 reasonable to expect cheaper costs as the user base scales.

But this time around, don鈥檛 be surprised if the hotter startups aren鈥檛 pitching themselves as metaverse companies. Instead, they鈥檒l likely be talking up spatial computing and immersive digital environments. We鈥檒l see if funding follows.