But local venture capital investors believe a company like Magic Leap could be created and headquartered in Australia – but it would struggle to attract funding.

AirTree Ventures managing partner Craig Blair told The Australian Financial Review if Magic Leap was created in Florida, there was no reason why it couldn't come out of Melbourne or Sydney.

"Much of the funding for Magic leap has come from off shore [Singapore and Saudi Arabia] and capital will flow where great ideas and founders live. The constraint would be finding the depth of augmented reality and hardware talent," he says

Like Blair, Blackbird Ventures partner Niki Scevak says suburban Miami, where Magic Leap is headquartered, was "hardly the mecca of technology firms".

The Magic Leap headset. MAGIC LEAP

"Australia has all the raw ingredients of engineers to be able to create a company like Magic Leap, but it requires a very successful founder, going all in with their personal fortune in the early stages which is then supported by a cast of global investors," he says.

Stealth mode

Magic Leap was founded in 2010 by Rony Abovitz and operated in stealth mode (a term used by start-ups to mean under the radar) until December last year. The company managed to raise just under $US2 billion of capital while revealing very little detail to the public about its augmented reality projects.


In December it revealed for the first time that its first release would be a developer's kit called Magic Leap One, open to anyone wanting to develop applications for the second generation Magic Leap, which will be for consumers. The headset named Lightwear looks like a pair of over-sized goggles and comes with a pocket-sized computer. It will respond to hand gestures, as well as head and eye movements, as well as a user's voice.

The product was trialled by Rolling Stone ahead of its emergence from stealth mode and from its reports, the product comes as close as possible to delivering on its promise of being indistinguishable from reality.

Before December, the only information known about the company had come from journalists conducting searches on job listings, trademark registrations and patent applications. It had also faced continual criticisms of being over-hyped.

Rampersand co-founder Paul Naphtali says the $US461 million raised by Magic Leap this week was equal to the amount of active capital in the venture landscape in Australia.

"The inside view of most ambitious software companies is always broader and deeper than their public facing image, so it makes sense to me that investors with access and insight into Magic Leap's plans are so confident in the team and products to really get behind them. Whether the quantum is justified, only time will tell," he says.

But Scevak says the fundraising journey of Magic Leap was unique and such a large amount of capital with no proven product was risky for backers.

"Unspoken is also fact that Facebook has probably spent a similar amount of capital on Oculus and Microsoft on its HoloLens products and they are at similar stages with exactly the same risk characteristics. So it's strange for a start-up to be tackling such a market, but if it's a technology giant we don't tend to blink an eye."

'I liken this to building a property'


OneVentures managing partner Dr Michelle Deaker agreed that a business like Magic Leap could be started in Australia, and says there were companies in its portfolio that also required large amounts of up-front capital.

"It's hard for most people to get their head around but I liken this to building a property … eventually you complete the fitout and can lease/sell the units / take the large annuity revenue that results," she says.

OneVentures invested in New Zealand-based holographic tech start-up 8i's latest $US27 million capital raise. The company has a partnership with Magic Leap and also requires significant investment, although a comparatively far more modest amount than Magic Leap.

Deaker says Magic Leap's capital requirements should be viewed in the context of what it's creating.

"When I last looked, it had over 200 patents covering things from AR contact lens to identity security. This is the largest patent base of any start-up in this area and comparable to Samsung, Microsoft, Canon and only short of Sony who have some 750 patents in VR/AR," she says.

"The Australian ecosystem isn't yet large enough to support capital raisings of this scale … Certainly the Australian venture industry could carry a great company now needing up to $50 million in a round but not likely beyond that. To date, however, we haven't seen companies originating in Australia absorbing that sort of capital."