Two trending topics are seemingly at odds with each other.

It seems everyday in my news feed I get both a story about a market slow down, both in public markets and startup investing, and a story about how Virtual Reality and Augmented Realty (VR/AR) is such a hot space investors are trying to find creative ways to deploy capital in a burgeoning industry.

I’d like to share my thoughts on what this contradiction means, and what it doesn’t mean, both to an entrepreneur and to an investor.

At Boost VC, each year we see thousands of early stage deals, meet with hundreds, and fund dozens. In the past year, a great many of those deals have been VR/AR, indeed it is one of our focus areas. We have 30+ investments in VR, giving us the largest portfolio on earth in that sector.

What’s an Entrepreneur to do in a slow down like this?

Not much. The deck is always stacked against you, starting a company is hard. Building a great company is harder. However, there is still plenty of money to fund great companies. Marginal ones will and should have a harder time.

This slow down, if indeed it lasts, has not suddenly occurred. In the VC community in Silicon Valley, talk of bubbly times, high valuations, too many bad startups and too much silly money have been going on for sometime now. At least a year.

Let’s look at some numbers from CB Insights.

“Despite the rise of both micro VCs and multi-stage firms at the seed-stage, seed deal activity in the US tech sector fell back in 2015. More precisely, 2015 saw US tech seed deals drop 5% from 2014′s multi-year high. Q4’15 saw the lowest deal activity since at least Q4’11.”

So, at a macro level there does appear to be some pull back. But a 5% or even >10% dip in overall funding is part of the normal cycle, and usually happens when things get saturated.

Successful businesses care about market timing, entering a strong and growing market, having a great team, and a product or service people love. If you have a company that fits this description, you’ll be alright, market gyrations be damned.

Investors need to breath too. The money doesn’t go away, but me too companies quit getting it. Investors look for fresh horizons. Like VR.

Goldman Sachs Says AR/VR an $80 Billion Market by 2025

http://www.cnbc.com/2016/01/14/virtual-reality-could-become-an-80b-industry-goldman.html

Which is great! But, there is no AR/VR Index fund, at least not yet. So, how do you invest? On the big company side, there are companies like Disney, Facebook, Apple, Google, and Sony who are all making a push.

To be sure, some or all of those companies will do very well. But the articles, the CES spotlight, the thousands of startup companies and private investors, are all thinking about what the next big thing in VR will be. What new company or companies will take the cake?

About that Goldman Report, tl;dr.

Ok, I read it, but most won’t. I’ll sum up, and add some thoughts based on what we’ve seen at Boost VC, in an effort to illustrate some themes in private investment in VR.

First, the stats:

$3.5bn The value of 225 VR/AR VC investments in the past two years

2 million Google Cardboards shipped since June 2014 (probably much higher)

200k Developers Oculus has registered

$80bn base case by 2025, $45bn Hardware, $35bn Software

$23bn delayed uptake case (worst case)

$182bn accelerated uptake case(best case)(how I know people didn’t read it, or this would be the headline)

Second, the basics:

Three big HMDs; Oculus, HTC, Sony. Best for high end gaming, being able to move in VR (hands, walking, etc.) Heavy duty VR. CGI Entertainment.

Samsung Gear VR. Mobile VR, works only with newish Samsung phones. Best for casual games, 360 degree video.

Google Cardboard. Less functionality than Gear VR, but still great for casual games and 360 degree video.

These are the big platforms developers are using, and why VR is in the lead over AR. AR does not have a similar platform at this time.

Third, the sectors: (by 2025)

Video Games, $11.6bn

Live Events, $4.1bn

Video Entertainment, $3.2bn

Retail, $1.6bn

Real Estate, $2.6bn

Education, $.7bn

Healthcare, $5.1bn

Military, $1.4bn

Engineering, $4.7bn

The Boost VC VR Perspective

Take the long road. We don’t get too caught up in short term slow downs or get rich quick plans. We look for great companies in exploding markets. VR is hot for a reason.

VR is not a sector, it is a technology companies will use to disrupt existing industries and to create new ones.

2016 will be the year that consumers really find out about VR.

Investment in VR related companies will skyrocket in late 2016.

2017 will be when VR software companies separate from the pack.

Companies that figure out and deliver experiences only possible because of VR will win.

Video games and passive entertainment won’t be the majority of VR experiences in as little as 24 months, nor the biggest long term winners.

Three Investment Themes to Watch

Companies that make software tools and platforms that allow other companies and individuals the ability to create and share in VR will lead the way in 2016.

Social VR will go from a near standing start today to millions of users by 2017.

Education will be the most disrupted of all industries. If one expands the definition of education away from the k-12/college paradigm and looks at it more broadly (as we do) the market becomes exponentially bigger than the $.7bn Goldman predicts. Employment training, self-learning, language learning and more move this needle greatly.

I hear and I forget. I see and I remember. I do and I understand. — Confucious