Home / Technology / News /  Metaverse startups begin to lose investors’ mindspace
Listen to this article

NEW DELHI: On 27 May, former Twitter India managing director Manish Maheshwari left his less than six-month-old metaverse-themed startup. Maheshwari, who co-founded the company called Invact Metaversity this February, had differences with another co-founder and investors about the path the startup would take.

But while the Invact story has been publicised widely, the funding winter in the startup space is catching up with metaverse startups faster than most other sectors.

Mint spoke to another Delhi-based co-founder who left his metaverse-themed firm last month after differences of opinion with another co-founder and chief investor. In that case, the metaverse firm was made part of a bigger events platform, according to the person.

Metaverse firms, which have been looking to capitalise on the web3 craze since last October, have started losing investors’ mindspace. According to founders, venture capital firms and analysts, the industry is starting to look at metaverse startups as risky investments, and therefore, don’t want to invest in them given the current funding squeeze, triggered by global inflation and an impending recession.

Another founder, who runs a funded startup focusing on non-fungible tokens (NFTs), and is planning to build a virtual platform around it, said investors are reluctant to agree to the idea of a metaverse product, even though they are willing to look at crypto and NFT ventures. “It’s more difficult to sell that idea to them," he said.

Industry insiders said that social media giant Facebook’s rebrand to Meta last October gave a lot of augmented reality (AR) and virtual reality (VR) startups a second chance, but most of them were languishing much before that.

“We’ve looked at the metaverse (space) closely in the last 10-12 months. Our view is that as much as the technology backing, it is relevant and here to stay, the business models in this space are not robust enough yet," said Rajesh Sehgal, managing partner at Equanimity Investments. As a consequence, Equanimity has no investments in this space. “Being what it is, metaverse is a high risk, high return kind of play. Therefore, people would have allocated a very small sliver of what they have to this space," he added.

Sehgal said also that the demand for such investments is likely to decline in line with the drop in the overall risk appetite.

Another person, who has invested in some of the largest startups in the country, said to get distribution, these startups first need a platform, which doesn’t exist yet.

“Companies tend to pivot based on what is the buzzword. So, we also saw a bunch of AR/VR companies just become metaverse companies in the last two years. It’s just a nice rebranding," he said.

Further, the investor said the total addressable market for such startups is only in the millions currently and insufficient to really make any investments. Research firm the International Data Corporation (IDC) said in a report this March that only 11.2 million AR/VR headsets were sold worldwide in 2021, which was however, a 92% growth over the previous year.

“How much capital investment can you do to get all those customers, right? You can’t spend $100 million to build a product that will be used by 8 million customers," the investor said, adding that this has forced most VCs out of the metaverse space. “You can always argue that 8 billion VR headsets will be sold in the next five years, but sure, we’ll see in the next five years. Today, data doesn’t support that," he added.

“For Facebook or Microsoft to back a certain technology and business model which is new is a fractional amount of financial or operational exposure. I see those companies more as evangelists who are trying to do something for the ecosystem," said Sehgal, noting that $100 million may not make much of a difference to a US technology giant as much as to a small firm, for which it is a question of life and death.

It’s not just investors though. A survey by researcher Gartner earlier this month noted that while chief executive officers remain interested in technologies such as artificial intelligence (AI), 63% of them didn’t see metaverse as an applicable technology for their businesses.

That said, not everyone is giving up on these startups just yet and the ones with the best products may still have hope. Some said that Facebook, Microsoft etc. will eventually look to acquire smaller firms too, and resilient ones might see returns there.

For instance, investment platform LetsVenture, which invested in industrial metaverse platform Fabrik last month, said it will continue to invest in startups in this space.

“While we see the Indian market shaping up several products and features in the past and even in the current scenario as well, India will definitely help in shaping the metaverse concept," said Nakul Saxena, head of fund strategy and investor relations at LetsVenture.

Catch all the Technology News and Updates on Live Mint. Download The Mint News App to get Daily Market Updates & Live Business News.
More Less
Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.

Recommended For You

Edit Profile
Get alerts on WhatsApp
Set Preferences My ReadsWatchlistFeedbackRedeem a Gift CardLogout