Phil Chen is best-known as the founder of the Vive virtual reality headset at HTC. More recently, he became a managing partner at Presence Capital, a venture capital fund that only invests in VR and “augmented reality” tech startups.
Presence is in the process of investing US$10 million in dozens of early-stage VR companies, in the hopes of growing the nascent ecosystem around headsets, game platforms, movies and content creation. Presence has already done about 28 deals, earning a reputation as the single most-active VR-focused VC fund.
We sat down with Phil at Web Summit in Lisbon to get a deep dive into the new world of immersive 3D content his companies are hoping to grow. He also described how he wants to keep Presence small, and why he turned down a proposed investment of more than US$100 million from a Chinese LP investor.
Jim Edwards, Business Insider: OK, so – where are you based?
Phil Chen: I’m based in Hong Kong but two of my partners – one is based in the San Francisco Bay area, and one’s just all over the world.
JE: Tell me what’s happening with Presence Capital right now.
PC: We’re just aggressively pursuing deals, we … there was CB Insights reports a few weeks ago and they put us as the No.1 most active VC firm in VR and AR.
JE: And how big is the fund?
PC: It’s a US$10 million fund, it’s a seed fund. We’re the tiny guys, but this ranking put us on top of Andreessen / Google / Comcast / Intel.
JE: In terms of total number of deals done or what?
PC: The word they use it is ‘most active’. I think it’s crazy – but we’ve done 28, 29 deals in VR.
JE: Wow, in what kinds of companies?
PC: So in the beginning we started out with content, our first deal was Rock Band VR – the one that Oculus launched. Then another one was Resolution Games – Tommy Palm’s company. But since then it has been platform, it’s been computer vision, it’s been middleware … And we’ve even done some hardware companies. One is Meta, Meta the AR company, the HoloLens competitor. And we did Thalmic Labs.
JE: How important is it that companies like Baobab Studios get this funding? Is there a lack of content on VR devices?
PC: Right now most of the content in VR is gaming. I think most people do want to see some type of entertainment / storytelling on VR – whether it’s live action or computer generated. And there is a lack of quality content. I have a strong opinion about 360 video – I’m very bearish on 360 video.
JE: Why’s that?
PC: I think 360 video is absolutely the wrong direction for VR, it’s a mismatch in media.
JE: Why? I’ve seen some 360 video that’s very impressive. One was for Star Wars — the Force Awakens. And in the news business it would seem to me that if we were covering a live event with riots or a protest demonstration, then having 360 would be fantastic.
PC: For documentaries – and for those events that don’t require a beautiful picture, like a close-up shot – you get a general sense of kind a riot, kind of sense of looking around, but it’s there’s no storytelling. You get a general sense of the riot experience, but you don’t…
JE: Hold on, what if I could make a movie as good as Casablanca but in 360 video, so any viewer could choose where they want to stand inside Rick’s Café?
PC: OK, that is what traditional directors hate right now about VR because as a director, “I want you to see ‘this’, I don’t want you to see ‘this’.”
JE: No, I would think that’s thinking too small. I would have thought the whole ability to see a movie from your own point of view would be compelling.
PC: But from a director’s point of view, who is a dictator, in terms of what I want you to see, to tell you my point of view – to tell you a story, I’m limited. The limit is part of the artist’s canvas, right. But this whole spherical frame is a huge debate right now between the storytellers, the gamers. If you think about – and this gets to the question of agency – does the audience enjoy being put into the VR story? Do they have any agency? Are they just a passive consumer watching a movie experience? Or are you trying to programme some type of serendipity or agency into this world?
JE:That’s interesting because right now movies and TV have survived as content – it’s very, very healthy. TV shows and movies are better now than they have ever been. And on the other end, games, where it’s 100% agency from the consumer – the game doesn’t work unless you play it – they’re very healthy too. There’s not much in the middle for someone who wants to watch an experience but maybe make a few choices about how they see it.
PC: So the way I see the spectrum is: if you say 2.0 is interactivity, that’s gaming; 1.0 is sort of the director’s point of view. Is there an opportunity – is there a 1.3, 1.7, 1.5? What’s that kind of mix and match?
JE: I don’t know if I have de-railed this conversation, but do you want to grow a generation of directors who would work in VR and in 360?
PC: Absolutely, absolutely. But when I say 360, I want to be…
JE: But you’re bearish on 360.
PC: I want to be more precise: what I am excited about is ‘volumetric’ – so volumetric is a concept … I’ll give you one example and you’ll understand what volumetric is. Have you heard of a company called NextVR?
JE: I have not.
PC: OK, they are probably one of the top three most highly valued VR companies and they do live sports streaming in 360. I sat in one of their NextVR demos, I sat beside courtside watching a basketball game, so it makes you feel like you’re courtside. To me that’s not interesting – because, 1: the subject is here, I don’t care about the rest – maybe for 2 seconds I’ll look around the audience. 2: I’d rather watch it on TV. TV is such a well-produced medium right now, OK. So it doesn’t make any – there’s no differentiation for putting on a headset.
But what volumetric will allow you to do – one company can put 16 cameras around the arena – they shoot it outside-in, they basically capture this whole volume, and what that allows you to do is, I saw a Manchester United game in VR, but from the point of view of the goalie.
JE: Oh wow.
PC: I can see a point of view of any of the players, I could traverse, I could run around on the field during the game.
JE: Because they have captured 100% of the cuboid?
PC: Yeah, the whole volume, that’s what volumetric means – and that’s interesting.
JE: That is very interesting. That’s very interesting for replays if nothing else!
PC: Yes, for highlights, replays. And that is what I think is much more native to VR and AR. Whereas 360, this whole 360 2D flat way of thinking is an old medium, an old way. So that’s my kind of bias.
JE: Is content, rather than a specific platform or technology, going to drive the entire industry?
PC:Yes, but it has to be new experiences, different experiences, that’s native to the medium. And so to go back to the question – is there a lack of content: yes, but also a lack of new thinking, instincts, It’s still a lot of old thinking – like ‘what I understand in mobile, in movies but applied in VR’. Instead of understanding the medium as it is.
JE: OK, so now I understand why games are the first into VR, because it’s easiest to transfer a 2D screen game, the concept is very similar, you can move in space differently but, it’s a similar thing…
PC: Well more fundamentally, the development tools for gaming are the same for VR, and so – in the beginning – the developers, it was natural for them to work in this new medium.
JE: What is the revenue model for VR – is it just gaming?
PC: Right now, basically, yeah. I would compare VR – very much like the console business right now.
JE: But it’s gonna destroy the console business.
PC: Erm, destroy? You know…
JE: From my very first time inside an Oculus, I realised instantly video games on a console with your TV, or on your PC – that is dead. I don’t wanna play those games anymore, like just being inside the VR world is so much more compelling and fun than seeing it on a screen.
PC: Sure, yeah, I think it’s a different use-case. I don’t take that extreme view that it would destroy the console. I think it will get just as big as the console business, but it’s not a zero-sum game.
JE: TV didn’t destroy radio.
PC: Mobile didn’t destroy TV, the internet didn’t destroy TV.
JE: So is the revenue model just games, initially?
PC: Yeah right now it’s games, mostly games, and short experiences.
JE: This isn’t a question, it’s just my thoughts: One of the reasons I’m so enthusiastic about seeing a proper VR movie is, have you ever been to ‘Sleep No More’ in Manhattan? It’s a theatre experience set inside a spooky hotel in which audience members are encouraged to wander at will from room to room. Every time you go, you see it differently. You choose which scenes to see, in which order, and from which angle, and I’m like – that’s would make a fantastic film!
PC: Yes, so the way I say it, is VR storytelling is closer to theatre than it is to cinema.
JE: It is, because everyone in the theatre gets a slightly different view of the stage.
PC: Yes, yes – this goes back to the whole, I mean Shakespeare – he knew that too. He would tell stories that ‘this’ audience couldn’t hear …
JE: I think the plays at the Globe were staged almost in the round too.
JE: OK, so is Presence Capital trying to grow this new generation of directors who are going to create this content? Are you just investing in everything?
PC: So in the beginning – yeah we are invested in the whole stack. We are the first VR/AR-only sector focused fund. We invest in anything in the VR area.
JE: What are the current stats for VR? What’s the total universe of developers, the total universe of users?
PC: For Vive and Oculus together – I wanna say there are around 250,000 developers in this business. On users, if you count the mobile side, there have been almost 5 million Samsung viewers out there. Let’s say there are half a million Vive and half a million Oculus’ and a million sort of PS-VRs. That’s my estimate. It’s still niche, for sure, it is still considered fringe.
JE: And how, in terms of the content on the various platforms – how transferable will this content be? If someone makes a product for Oculus, will it run on Vive, will it run on Gear? Or will they stay inside their platforms?
PC: Yes, you can – theoretically, you can.
JE: It would seem to me that if Vive became superior, or got a larger audience, you might say, “You know what? If you launch this title with us, the title is not going on Oculus.”
PC: I think that will happen. And Oculus is doing that, they’re negotiating exclusives.
JE: Are they exclusives for a period of time, or for all time?
PC: Right now it’s for a period of time. But you know I think – just like with Xbox did with Halo – they probably acquire it if it was the blockbuster.
JE: Are you seeing any resistance amongst consumers to wearing a headset? It strikes me that one of the big problems here is that you can only use it in an environment where you can trust everyone around you – because you’re blind. So you can only use it at home, you can’t sit in a park and enjoy the sunshine while you play a game. Is there resistance there? Is it a barrier to adoption? How do you think about that?
PC: With the Google AR glass – it was considered very awkward to be sitting here looking at you taking pictures. But if I were sit here and I were to wear my Samsung Gear and I’m consuming my own content – I think that’s socially acceptable, you’re doing your own thing now. Or you’re riding on the bus…
JE: Maybe on a plane.
PC: I haven’t seen people do it. It would be a good experiment. Why don’t you sit over there and put on a headset and see how they react?
JE: I’ve sort of done that. I was at a conference, where they had the new Oculus demo and of course I tried it out. There’s one where you’re on a tall building, you’re standing on a ledge of a tall, futuristic building and the woman who was showing it to me suggested that I peer over the edge. But the illusion is so real I ended up on my hands and knees because I was scared of falling off the building. And then, of course, you take your headset off and you’re in a crowded room on your hands and knees and people are laughing at you.
PC: We’ve done the same tests, and we asked people to jump – 80% of the people don’t jump, because it’s very real.
JE: Yeah, it’s very real. Talk to me about the front-facing camera, the 3D room sensor on the Vive. How big a differentiator is that? It creates a different type of theatre than Oculus has.
PC: The technology is called ‘Inside-Out positional tracking’ – meaning that the headset can position you in the room as you walk and traverse through content. I think that’s a huge difference, and that’s even more immersive. I think if you were in the same tall building demo, and you were sitting down, you wouldn’t feel the need to crawl because you already feel safe. Thinking on your feet, it puts you in the spot.
JE: I can see how it creates a more intense experience, but it also limits – maybe I’m wrong – does it limit the type of content you’re gonna get on the Vive, to stuff that fits into a room?
PC: No because the Vive can do both. You can sit down and not have that type of content either. It adds another dimension to the already existing lean back experience.
JE: What’s the most interesting thing you’re seeing in VR right now?
PC: So there are a few, companies like Lytro. A company called Uncorporeal – they’re one of our portfolio. A company – 8Eye.
JE: What does Uncorporeal do?
PC: They are also building cameras for the volumetric-cinematic cameras.
JE: And what does 8Eye do?
PC: 8Eye also – they have cameras shooting outside-in like these vertical shootings, there has actually already been an exit in this company – a company called Replay Technologies, based in Israel, that got acquired by Intel. And I don’t know, have you seen – I’m sure you’ve seen it, do you watch basketball or football? They have the 16-camera rig I was telling you about, they had highlights where somebody dumped the basketball and you can pan around like the matrix, and you can see every angle of that particular highlight.
JE: That sounds cool. Sometimes these things stumble though – like 2 or 3 years ago, watching the Premier League in 3D was a thing, and it kind of went nowhere. I think the technology was not that great at the time, because it didn’t work – a lot of Premier League action, it turns out, occurs far away where the 3D effect is very minimal.
PC: Yeah, I think that’s – the way I think about 3D for TV is the way I think about 360 for VR – it’s the wrong technology for the medium. … I’m excited about a company called BigScreen. They are working on a social VR company and the way I describe them is – they are a virtual co-working space – a virtual WeWork. So you bring in your desktop and your mobile into this space, I bring in mine – and we feel like we are working in the same space. You’re in San Francisco, I’m in Hong Kong. We create this space, and we come in with our desk.
JE: Are we avatars?
PC: We’re Avatars, I can see your screen, you can come over and check out my screen – and we’re sharing a big screen, and we can project stuff we’re working on together.
JE: But I can’t tell if you’re in your pyjamas?
JE: Is that a good thing or a bad thing, how do I know you’re really paying attention?
PC: Right now, it’s currently a distraction. I don’t know if it’s a good thing or a bad thing – I don’t know.
JE: An avatar might be helpful, because if you’re working remotely, you don’t wanna put on a tie.
PC: But I think it’s the right direction for the next labour force, the rise of co-working and more freelancing.
JE: It feels like that would kill Slack, if it was successful?
PC: Er, Slack would be a feature. You would have your desktop and you would still have a chat system. Slack would be one of the apps in this space.
JE: OK, OK, interesting.
PC: I’m excited about Baobab, so Baobab Studios, the Pixar of VR. About a month ago they created a short story in VR and, a Hollywood first-tier studio licensed their IP – the character they built in VR – to do a feature for them. So it’s the first time original content being created in VR is being licensed. It’s this bunny, it’s a rabbit – I don’t know what the name of it is, the name of the show is called Invasion! [and it involves a witless rabbit accidentally foiling an invasion of inept aliens].
JE: AR is interesting to me because Apple CEO Tim Cook has made a very distinctive position here, he doesn’t think VR is gonna be Apple’s thing. He thinks AR is gonna be the most interesting thing. What is your take on that?
PC: I think AR has the opportunities to be the next computing platform. I think VR is more like a gaming console business – I think the size of it is about the same. But I think AR has the potential to challenge this thing [points to his mobile phone].
JE: For instance how? What would a good scenario be, or a use-case?
PC: Right now, this gesture of me reaching into my pocket, unlocking it, opening it – it’s a cumbersome gesture already. I want my information right in my field of view, when I need it. I wanna be able to work hands free. And so we’ve invested in a company called Scope AR, for example. They’re basically a development tool company. Right now they’re focused on the industrial workers and the medical space. Two types of workers that need to work hands free, because I’m caring for my patient, or I’m fixing an engine.
JE: Do they wear glasses?
PC: Yeah they wear some type of glasses.
JE: So this was the view of Google Glass though, which didn’t work.
PC: Well a lot of reasons why Google Glass didn’t work – the battery didn’t work, the computer vision wasn’t really there, the gesture recognition wasn’t there, and I’m not saying it’s there right now, but I certainly think to make it work for the masses, it has to work for these professionals – these are the best prototypes. And the reason why I mentioned Scope AR is for the industrial and the medical space. They’re the first early adopters to see if that’s the right form factor.
JE: Is this the thing that Tim’s talking about there, or is Tim talking about holding up your phone to scan something and getting an overlay?
PC: I don’t know, I don’t know Apple’s plans. But I’ve heard rumours about the next iPhone being a transparent iPhone.
JE: I’ve heard rumours that it will be all glass, but it still has insides, there’s still gotta be chips and cameras and lenses in there.
PC: It could just be a pure display and the computing is wirelessly driven, locally. I simply don’t know.
JE: So you’ve invested in 28 companies – are you still looking for companies to invest in?
PC: Yes – so this is a little history – we were very adamant about raising a small fund, there were Chinese LPs that wanted to give us $100 million, $150 million, but – and this is from my experience in the mobile space, we’ve been in mobile for almost a decade, we launched the first Android phone in 2008, iPhone launched in 2007 – but as an investor the best time to invest in mobile was 2011. The best thing as an investor was to go to sleep for 2 or 3 years and then come back and invest.
JE: Because companies took that long to figure it out.
PC: Because people are experimenting, people are failing, people are iterating, people are trying new stuff to use the medium. So our goal is to do 40 deals in two years, learn and become the world expert in this space, and prepare our war chest for our big investments.
JE: So of the $10 million, how much is invested now?
PC: About $4 million. We’ll probably do more but we also will do some follow-on.