The global Virtual Reality Glove market study presents an all in all compilation of the historical, current and future outlook of the market as well as the factors

Why is Magic Leap raising a 1B+ round (October 2015)? Why would someone fund a new company to undertake an RnD effort that requires an enormous depth and breadth to miniaturize?

Magic Leap is investing over a billion and a half dollars (if rumors of this round are accurate) in their next-gen display system because Samsung, LG, and other prominent consumer electronics companies can’t. Simple. This isn’t due to a lack of technical skill or even balance sheet strength – it’s basically just about corporate will. Unless you’re a company like Apple or Google who are the law unto themselves, thanks to their prodigious cash positions or dual class stock, big speculative programs seem to get get CEO’s fired more easily these days. Pressure from activist investors = simply too great. This creates opportunities for disruptors like Magic Leap which has been given a mandate from top VCs to run a massively risky R&D venture. Activist investors have worked the system so public companies can’t afford to run long-term, high-dollar R&D programs based on pure speculation any longer, but thanks to a huge influx in the VC asset class, startups can.

This isn’t limited to consumer electronics. The big three automakers have R&D budgets of approximately $27.4B, and use those dollars to fit even more cupholders into crossovers, but the hottest car today is the relatively scrappy Tesla. This is equally true in the consumer packaged goods business, with companies like Hampton Creek taking on “Big Food” giants like Kraft and Nestle. In fashion, with BaubleBar, Dia & Co, and others putting a new shine on jewelry and retail. The people who work at these established companies aren’t stupid – they’re just handcuffed by a strategy tax.
Magic Leap Promises to Transform Reality
What is the total addressable market size of transforming reality? Of building V.1 of the Matrix? Making Plato’s cave allegory real? This is what Magic Leap is building. It could be insanely large. It makes one daily fantasy sports games and the latest wrinkle in online dating seem rather small.

A Billion Doesn’t Go as Far as it Used Too
In order to deliver this mind-bending experience, magic needs to be made. Magic Leap isn’t building a mashup of smartphone guts in a ski goggle form factor like most of the VR headsets on the market today—it’s a fundamentally new display technology.

Some people scoff at the notion of a billion dollar funding round for a company that hasn’t shipped anything yet! It gives many an easy cue to talk about the bubble. Magic Leap critics point to Oculus Rift which achieved a $2B exit on the back of a $2.4M Kickstarter campaign and a $16M VC investment. It begs the question, why does Magic Leap need so much more capital than those guys?

I’d point out that two years after the sale of Oculus to Facebook, the really-consumer-ready product still hasn’t shipped. This isn’t a knock against the company, more a reminder that Facebook acquired the promise of a product and has had to invest a considerable sum to make sure it’s ready for market.

Still, let’s break down the key components that make up Magic Leap and see if a billion dollars seems out of place:

Hardware

The core patent that powers Magic Leap is titled Planar Waveguide Apparatus with Diffraction Element(s) and System Employing Same. Basically, it’s a type of fiber optic which beams light directly onto your retina.

The patent declarations for the product are otherworldly. They’re essentially building the first pico projector that projects onto your eyeballs. Not only that, but a host of other sensors keep the images oriented in your field of view and overlays fantastic vistas on top of your more quotidian surroundings. Because the tech works by projecting through your irises, eye-tracking sensors are a must, which adds massively to the tech challenge.

That’s only the start though. “Digital Totems,” physical objects that allow users to manipulate virtual images are another core technology. Gloves, like those worn in Minority Report are another. Also keep in mind the device needs to handle more quotidian aspects of the user experience. Software processing, peripheral connections, battery life, weight—and to top it off, wearers can’t look ridiculous or feel uncomfortable while wearing it.

Pebble raised $40M across two Kickstarter campaigns to make a semi-polished smartwatch. $1.5B doesn’t seem so crazy by comparison.

Software

Hardware is less than half the challenge of making Magic Leap real. Most hardware entrepreneurs have to deal with some novelty in their user experience, but they’re all basically working from the same supply chain. Engineers choose a screen size, resolution, and fill a rectangle with pixels. Most manufacturers offer drivers and interface design frameworks. Developing UIs for devices is always a challenge, but it’s a well-trod problem set.

Compare that to developing software drivers for an entirely new kind of display. There’s very little predicate for what the Magic Leap software engineers are trying to do. All the low-level stuff needs to be built, largely from scratch. Magic Leap is developing a platform and will surely allow 3rd parties to build software at some point, but every new platform has a chicken and egg phase where compelling first party apps are made available on day one to prompt sales.

Again, look at the patent. A holographic Mario Batali doing cooking demonstrations. Monsters leaping off cereal boxes. Keyboards that materialize on your finger tips. Magic Leap probably won’t try to build each of these items to start, but even committing to a few represents massive investments in design, coding, and user interface polish. As they say in the classics: “This doesn’t cost naught”

Accessories

Then there’s the grubby business of making all the touchpoints that join hardware and software seamless and pleasurable. Hardware support. Charging stations. Repair components and processes. These are small pieces to be sure, but someone needs to spec, build, test, and manage them through completion, or else all the technical breakthroughs are worthless.

Legal

Raising this kind of money in a mature field with a lot of prior art is bound to make trolls salivate so the team will need a war chest to fend off competitors, advise on IP issues, and surely, to file some patents of their own.

Marketing

PR is critical in the development of new platforms. Trade shows need to be attended, demos scheduled, sales meetings arrange, developer conferences organized, schwag deployed etc.

This is a Historic Return to Form
When startups raise billion dollar rounds there is a sense among some reporters that this is a hubristic act. Many seem to believe startups should be able to do everything on a shoestring and achieve break away sales on a small amount of money, just like Google did.

While a billion dollar investment seems ludicrous, it’s actually a return to form. Cost-efficient startups are a modern marvel, not the norm when it comes to R&D. Apple has a relatively small product lineup, but spends over $6B on R&D annually. The chip inside the XBOX One cost over $3B to develop.

In the world of Pharmaceuticals, the challenge is even more pronounced. The drug business faces a challenge in the form of “Erooms Law,” the opposite of Moore’s law that says the average cost and time to market doubles nearly every two years. Startups will spend billions developing a drug only to find out that it harms patients in some unexpected way.

Magic Leap isn’t curing cancer, but they’re undertaking something far more complex (& interesting) than Candy Crush. The boom in software over the past two decades has lulled us into a false sense that it’s possible to create world changing innovation for pennies. The “Lean Startup” movement has helped many entrepreneurs inexpensively find product/market fit, but it’s also distorted perceptions along the way.

The First Billion is the Hardest
This all sounds too good to be true and more than one pundit has called Magic Leap vaporware, but people who sell a company for almost a billion find it easier to get the next billion. Before starting Magic Leap, Rony Abovitz built a company called Mako Surgical and later merged it with medical device leader Stryker for $1.65B. When you have that kind of success people want to back you and even slightly crazy-sounding visions seem very real.

Today, big companies pursue incremental improvement in a market while startups bend reality. Even Apple, one of the more innovative companies in recent memory has handed back over $150B to shareholders. Companies with much less in their pipeline have given back proportionally more. This is a large part of the reason startups like Magic Leap have drawn so much attention and capital.