Access to capital is just one of the obstacles facing Vancouver’s augmented and virtual reality sector, now the world’s second-biggest
We don’t know about you, but given the state of the world, strapping on a pair of VR goggles sounds pretty appealing right now. Looking beyond escapism, virtual reality and augmented reality (VR/AR) technologies might end up playing a key role in helping people stay connected during the COVID-19 pandemic.
Whatever happens, B.C. is at the centre of the action. A new report, Reality Check: The State of Vancouver and BC’s VR/AR Ecosystem, paints a detailed picture of our growing hub. Published by the Vancouver Economic Commission, the Vancouver VR/AR Association and the Vancouver International Film Festival, the report also offers several policy recommendations.
With more than 230 so-called immersive technology companies in 2019, the Vancouver VR/AR sector is the world’s second-largest, trailing only the Bay Area and Silicon Valley. VR/AR businesses could add US$1.5 trillion to the global economy by 2030, according to PwC, a huge jump from their current contribution of US$46.4 billion.
Like other industries, VR/AR is feeling the impact of COVID-19. But physical distancing during the crisis could drive adoption for a variety of uses. “Virtual reality and augmented reality technologies can help defy distance and bring us closer together,” Dan Burgar, co-president of the Vancouver VR/AR Association, said in a statement. “Real-time collaboration through telepresence, virtual tourism, virtual classes and virtual events are just small samples of how VR/AR technologies can connect people in the comfort of their own homes.”
Reality Check is partly based on online survey sent to 237 VR/AR entities—including businesses, post-secondary institutions, nonprofits and investors—that saw a 38-percent response rate. To augment the survey data, the authors interviewed the CEOs of six local VR/AR companies at various stages of development.
The report’s key findings:
VR/AR is an emerging sector
The local industry is relatively young: 71 percent of companies that responded to the survey were founded in the past decade.
VR/AR has a wide range of applications
The survey revealed “a diversity of involvement in VR/AR technologies and applications,” the report states. “This bodes well for the local and regional ecosystem as companies are either fully immersed in the different dimensions of VR/AR, or are researching and developing relevant applications to the full extent of this technology’s potential.”
The sector creates high-skilled jobs
On average, companies surveyed employ 25 full-time staff, 18 of them highly qualified STEM (science, technology, engineering and math) hires. Keeping in mind that the poll was conducted before COVID-19, 92 percent of respondents said they expected to expand over the next two years.
B.C.’s VR/AR sector is growing
Sixty-four percent of companies surveyed are in the startup or developing stage, with less than $500,000 in annual revenue. Another 20 percent are in the growth stage, with revenue of $500,000 to $3 million. The remaining 16 percent are larger and more mature companies earning $3 million or more in revenue.
VR/AR is a global opportunity
The report highlights a diversity of markets for the provincial industry. Among the companies surveyed, B.C. accounts for 35 percent of total revenue, while other Canadian provinces contribute 14 percent. Of the 51 percent of total revenue that comes from international markets, the U.S. accounts for 39 percent.
The province’s VR/AR companies are investing in R&D
When it comes to research and development, 17 percent of companies surveyed have spent more than $1 million apiece, while 24 percent have devoted $150,000 to $1 million. Meanwhile, 59 percent have spent $150,000 or less on R&D—still a notable number, given that 64 percent of respondents are startups or early-stage ventures.
The local industry lacks homegrown investors
B.C.-based sources of capital account for just 23 percent of total investment in the province’s VR/AR companies. Foreign investment comprises 53 percent—with the U.S. contributing 17 percent of that portion—while the remaining 24 percent comes from other provinces.
Access to capital and investment is a major challenge
About half of the companies surveyed have each raised less than $50,000 in capital, while 29 percent have raised between $50,000 and $1 million. Just 22 percent have assembled more than $1 million.
B.C.’s VR/AR companies need more access to customers and talent
Besides access to capital, other key challenges cited by survey respondents include finding new domestic and foreign customers, finding and retaining qualified talent, inadequate government support, high operational costs, and finding and keeping affordable spaces.
Satisfaction with current infrastructure is low
According to respondents, the top three gaps in the B.C. VR/AR ecosystem are investment, corporate matchmaking and government support.
Based on its findings, the report makes seven recommendations:
Fund basic operation costs for key community organizations to facilitate regular workshops, networking events and talks.
Incentivize post-secondary institutions, accelerators/incubators and bootcamps to develop skills training programs.
3. Support infrastructure
Build a shared facility to incubate early-stage VR/AR startups and provide mentorship, coaching and device rental services.
Foster the creation of angel networks and investor education programs, and fund inbound delegations of foreign investors to meet local companies.
5. Corporate matchmaking
Connect VR/AR startups with traditional domestic sectors to explore new, innovative use cases of VR/AR technology.
6. Tax incentives
Increase the provincial Interactive Digital Media Tax Credit from 17.5 percent to 25 percent, and advocate for fair distribution of Telefilm Canada and Canadian Media Fund funding in the interactive and experimental programs.
7. Export development
Fund operational costs for organizing trade missions to foreign markets.
For the full report, click here.