Global investments in augmented reality (AR) technology declined last year but Shi Xiaogang, founder and CEO of AR solution provider Beijing Xloong Technologies says the momentum for AR investing is still expected to grow. AR technology enables users to experience the real world where the objects are "augmented" by computer-generated perceptual information.

The 27-year-old Shi founded Beijing Xloong in May 2015 and quickly grew its business to serve customers from sectors including consumption, education, culture and innovation, real estate and the military. Since then the company has raised around 200 million yuan of funds from major investors including BOE, Luxshare-ICT and Beijing Institute of Technology.

Shi established his company right in the middle of the craze for AR and virtual reality (VR), another technology that provides an interactive computer-generated experience by creating a simulated environment with auditory, visual and other types of sensory feedback.

But after generating strong interest from investors in 2015 and 2016, investments in VR and AR show a downward trend in 2017.

VR and AR attracted about US$3.8 billion globally in 2017, up 5% from US$3.6 billion in 2016, according to a report by Virtual Reality Venture Capital Alliance. However, the pace of growth of the investment is far lower than the 160%  y-o-y growth in 2016.

Observers say the AR and VR industry may be losing its momentum in terms of attracting investors. AR, in particular, has seen a decrease in investment. In 2017, global investment in AR recorded US$900 million, a 10% drop from the US$1 billion in 2016.

 

(Billion US$)

Source: Virtual Reality Venture Capital Alliance

 

“It is true that the investors are not as excited about AR and VR as they were in 2015 and 2016,” says Shi, talking to The Asset in an interview after the Forbes Under 30 Summit Asia. He explains that investors are expecting AR and VR to break out very soon, but it takes a relatively long time to enhance the user experience and of AR and VR technologies. The mismatch between market expectation and the real development pace of VR and AR is hurting the momentum of the investors.

However, AR is still considered one of the top sectors that fund managers should be looking into in the next few years in China. Zhang Zhongwei, a fund manager at Chinese fund house Baoying Fund Management, suggests Chinese fund managers look into companies relating to consumer electronics with the theme of “AI plus AR”.

There are already quite a few funds investing in AR and VR industries in China. But dedicated funds on AR are not as common as funds investing in VR companies. Shi thinks it will take time before more investments enter this sector.

Shi is still very confident in the prospects for AR, especially in the long run. “You can say that the trend of investing in VR has passed. But AR is different. The momentum of investing in AR is yet to come. For now, investors have not allocated much of their funds into the AR industry,” Shi says.

“I started my business in 2015 and I think it will take at least 10 years before AR industry can have a boom,” says Shi. This indicates that investors might not be very excited about AR in the short run. But Shi emphasizes the long-term development of this industry still has a strong potential.

“The investors planning to invest in AR should have a calm and comprehensive understanding towards this industry so that they are not distracted by the markets and rumors,” Shi suggests.