Welcoming Charlie Leggate to the team

I'm very excited to share that I have joined Anorak Ventures, an early-stage emerging technologies fund. Our aim is to be the partner for seed-stage deep tech founders whose companies have a clear vision of how to push humanity forward.

“Vision” is an intentional word here. In building a business, it’s everything. I’ve been lucky to learn something about that over the last near-decade across strategy, product management, and most recently founding Avie AI. 

At the DeepTech accelerator Entrepreneur First in London, where I started Avie, founding teams learned a mantra: “Strong Beliefs, Weakly Held.” That’s Alice Bentinck’s and Matt Clifford’s abstraction of how to never lose sight of your vision, while remaining adaptable enough on how to get there. We were regularly pushed to present our visions for the company we were building. It was clear, very early on, which companies were going to raise the money they needed, hire the team members they wanted, and sell to their target customers. Those companies had the most ambitious and clearest visions.

Perhaps surprisingly, the hardest businesses to build are often those with the greatest visions. Technical founders building frontier technologies in robotics, AI, VR/AR, and deep learning usually find it easier to envision how the world might be in a decade compared to an MBA building a B2B SaaS solution (no offense to those building brilliant, high-margin software businesses). From my experience at Avie AI, we never struggled with the question “How big could this be?” when we started. My co-founder and I had a deep belief that biometric data from multiple wearables was the future of preventative health and that chat interfaces would be the future of interrogating data sets (contrarian at the time), making it incredibly easy to present the size of the opportunity.

Since then, Avie partnered with and was eventually sold to the UK’s largest health and wellness retailer, a company that bought into our global vision. I, however, have become a “vision junkie” (trademark pending), hell-bent on finding those with the most grandiose visions for how the world can be in the future and supporting them in any way I can to make those visions a reality.

I met Greg Castle three years ago. He not only shared the perspective outlined above but had spent the previous five years supporting and investing in some of the most exciting entrepreneurs and their visions, including Oculus, Flexport, Mux, Anduril, Flock Safety, and Rec Room. So today, after moving to the Bay Area from London, I am incredibly excited to join forces with Greg and continue to find, fund, and support the most ambitious people and their visions for the future.

If you’re a founder with a clear and ambitious vision for your company and team, please get in touch at charlie@anorak.vc.

Ready Player Two

After years of anticipation, today Apple finally announced its entrance into the XR market with the launch of its Vision Pro headset.

This is a big moment for wearable technology, and our investment thesis at Anorak Ventures. We've been focused on XR since Greg's 2013 investment in Oculus. We’ve invested in XR gaming (Rec Room/Virtex), enterprise collaboration (Arthur/Resolve), K-12 education (Prisms of Reality), secondary education (Osso VR/Moth&Flame), healthcare (Innerworld/Karuna), infrastructure (Vntana), and other adjacent areas. We’re big believers that XR, as a medium, can improve the way that people work, learn, relax, and most importantly, connect with each other over distance.

Here’s why we are bullish on the Apple Vision Pro, and the broader XR market, after today’s announcement:

• Apple is aspirational - Nobody is better than Apple at making technology cool. It stems from a combination of human-centric design, product quality, iconic marketing, and perhaps a bit of lingering charisma from Steve Jobs. Google attempted AR with their Glass product but it backfired as users were labeled Glassholes. Meta has spent billions to widen VRs appeal, but their user base remains a narrow demographic. With $40B of wearable revenue last year (one-fifth of Microsoft’s total revenue!), Apple is one-of-a-kind at bringing products from niche to mainstream.

• Competition is good - Meta is currently the only viable option for XR at scale. Startups are, and have been, trying to bring new headsets to market, but the capital intensive nature of novel hardware makes it difficult to succeed. Customers benefit when companies are forced to compete. Innovation accelerates and prices are driven down. Regardless, if the Vision Pro succeeds, consumers will benefit from today's announcement.

• Flagship experience - Like Tesla, whose first product was a $140,000 two-seat convertible, Apple is entering the market with a high-end, no-compromise device that has impressed everyone lucky enough to try it. Meta chose to subsidize the cost of headsets to gain adoption. The $3,500 price point of Apple’s headset shows conviction in its ability to produce amazing products. The Vision Pro will initially be inaccessible to most, but like the iPhone, over time will come to be seen as indispensable while the price will continue to drop. Furthermore, the 525 Apple Stores around the world will be a valuable channel to demo this amazing new technology to millions of people, creating pent-up consumer desire even for people who can’t yet afford it.

• Marketing to the masses - There was a notable difference between how Apple marketed their headset today versus Meta. Absent from Apple’s presentation was an excess of technical jargon and a deep dive on the technology; instead Apple focused on more familiar and practical use cases that users could easily grasp. Mark Zuckerberg’s fascination with the technology has long been reflected in Meta’s marketing efforts, but likely hindered XRs appeal to the masses. One of Apple’s strongest attributes is their ability to market to the masses by portraying an intimately familiar experience, rather than by emphasizing cutting-edge science-fiction technology.

• One OS to rule them all - Complete control over both the software and hardware gives Apple a distinct advantage in XR – Apple is uniquely positioned to bridge the most immersive interactions (in XR) with the most frequent interactions (on iPhone). Apple's tight iOS/MacOS/iPadOS integrations and seamless blending of the physical and digital worlds make Vision Pro a very familiar and welcoming environment. Putting on a Meta Quest 2 today is disorienting – Apple is painting an entirely different vision for XR where it can seem fully immersive, or not at all immersive, with a literal control dial for the user to set their immersivity preference.

• Apple’s play for the enterprise - Most Apple products do not highlight enterprise use cases, but the Vision Pro video prominently showed use cases in remote work and prosumer applications, positioning the headset as a companion device for business travelers and an at-home device for immersive remote work. The design has a waist pack making it more comfortable for long sessions. To us, this signals a commitment to the power user - the user who will spend an extra minute getting the headset ready because they’re planning on using it for 3 hours, not 3 minutes. Improved ergonomics will be important for enterprise usage.

• Pioneering 2D/3D interaction model - Apple’s core experience is focused on a more familiar 2D interface and retains a direct connection to the user’s physical surroundings. Familiar applications like Photos, FaceTime, and Keynote, can be tiled and arranged in an immersive 3D space. Apple realizes that very few people have tried XR or feel that they have a need for it, and is shipping the Vision Pro with a iPad-esque experience that feels familiar to users and allows the huge installed base of iOS apps to run on Day 1. It’s also less intimidating for users, who aren’t thrown into a completely virtual world which can be disorienting.

Anorak Ventures is tremendously excited for Apple to bring XR to market, and then, over time, to the mass market. The visionary founders of our VR/AR portfolio companies have seen this world coming for years and even decades, and there’s no better company than Apple to now show the world what this technology can do.

Contact: amal@anorak.vc

Anorak Ventures: Partner Meeting 2023

Last week we held our Annual Partner Meeting in person for the first time in 3½ years.

It was amazing to have both our founders and LPs from across the US and Europe come together in San Francisco. Several founders in attendance have been part of the Anorak portfolio for years and have never met us IRL, which Amal and I were very happy to change. Both founders and LPs attend these events to give founders a better understanding of the venture model in hopes that it benefits them as fund raisers, while LPs enjoy having direct contact with the founders they’re helping support.

The event was both day and evening, with the day bringing together some amazing speakers in a presentation setting, and the evening focused on networking and cocktails. Although we can’t do anything for those that missed out on the cocktails, below is a summary of the day’s presentations along with slides where applicable.

I’d like to give a massive thanks to our two event sponsors, Inception Partners at UBS Private Wealth, who focus their practice around investment strategies and advanced planning for startup founders, and Perlson LLP, the tax and estate planning solution for tech companies and their founders.

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Introductory Talks

Greg Castle, Managing Partner of Anorak Ventures, opened the morning with a discussion on the state of venture capital markets. The 30-80% public market correction that started in 2021, filtered back to late-stage private markets in 2022. Also significant was the absence of IPO activity this past year, which is normally a valuable source of liquidity feeding back into private markets.

While late-stage private companies are 1-2 years from IPO, and thus closely track public markets, at the seed-stage there is a much wider gap. It's more difficult to draw direct comparisons for a variety of reasons which has somewhat insulated seed stage valuations. This, combined with an increased number of larger firms trying to deploy capital earlier, has kept seed-stage valuations relatively founder friendly.

Deals done by larger firms tend to be at higher valuations. These firms have lots of capital to deploy to ensure they reach sizable ownership percentages on exit. Valuation numbers reported and factored into industry averages, like those published by Pitchbook, tend to be artificially inflated by these deals. Great for founders who are able to land a seed investment from larger marque firms, but Greg cautioned founders to have realistic expectations for all others.

Greg highlighted Anorak's renewed focus on investing in capital-efficient businesses with a clear path to profitability. He also highlighted the firm's discipline around reasonable entry valuations when selecting investment opportunities.

Greg’s message to early stage founders building differentiated technology is: don’t let the doom and gloom of the broader capital markets dissuade you. At the very earliest stages, financing is still available, if not quite as abundant, as previously. Great companies with strong teams are getting funded at healthy valuations, and in “hot” sectors, like generative AI, the early-stage markets are as frenzied as anything seen in 2021.

Jonathan “JR” Roosevelt, Managing Director at Industry Ventures, provided in-depth analysis of VC markets. Industry Ventures is one of the most active investors in the venture market. They invest in companies and venture capital partnerships directly and via secondary transactions. With exposure to over 450 venture funds and over 16,000 private tech companies, Industry Ventures has broad insight into VC activity across all sectors and stages.

JR confirmed, with data, the broad strokes of what Anorak has seen in the earliest-stage markets – that activity remains strong in spite of a broad pullback in VC activity in the later-stage markets. JR emphasized that lower multiples in the public markets have led to lower multiples in the mid- and late-stage private markets. He expects the earliest-stage valuations to come down in 2023, creating an opportunity for VCs to get into great companies at attractive prices.

While operating in a recession or capital-constrained environment is certainly challenging, JR also described some of the silver linings for companies that are founded in recessions. Many great companies such as Airbnb, Microsoft, Slack, Square, and Uber were founded in recessions, and find themselves more able to recruit a high density of top talent, while also facing less competition in their markets.

Amal Dorai, Partner at Anorak Ventures, presented Anorak’s investment priorities for 2023.

Anorak focuses on founders leveraging deep expertise to solve important problems with differentiated technology, specifically the set of technologies we refer to as “Computing in the Third Dimension.” Computing in the Third Dimension is the name we give to the convergence of the physical world with the digital world, including:

• Capturing data from the physical world and processing it digitally, with computer vision or other machine learning techniques. SafelyYou, an Anorak portfolio company that uses cameras to detect when senior citizens have fallen and need assistance.

• Digital systems acting in the physical world, such as robotics or connected hardware. Irrigreen, an Anorak portfolio company, uses inkjet printing technology to irrigate lawns and fields with no water wastage, reducing water consumption by up to 40%.

• All aspects of 3D computing, such as business collaboration (Arthur), e-commerce (VNTANA), and entertainment (Virtex)

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Fireside Chats

Nirav Patel, CEO of Framework, joined Greg for a fireside chat about building a successful consumer electronics company in an industry dominated by a few giant incumbents. Framework is a mission-oriented company that builds repairable, upgradeable, products, and is ending the unsustainable throwaway culture around our electronics. The Framework Laptop is a fully modular laptop that can be upgraded with a screwdriver, but it has the premium feel and usability of an Apple flagship, unlike clunky modular products that have come before.

One of the most impressive things about Framework is that they’ve managed to ship hardware at software speed, shipping their first laptop only 18 months after founding, and continuing to innovate at a remarkable pace. Nirav discussed how he’s accomplished this, even while building the company completely remote-first during the COVID-19 pandemic. With offices in Taiwan and San Francisco, Nirav has created a tight iteration loop between design and manufacturing that is ushering in a more sustainable future for consumer electronics.

Trae Stephens, co-founder of Anduril and Partner at Founders Fund, joined Amal for a fireside chat about building a modern, AI-centric defense contractor. The traditional defense industry is dominated by old stalwarts like Raytheon and Lockheed Martin, and these incumbents are rarely challenged and have not adapted to the asymmetric warfare of the 21st century. Anduril is leading the charge to change this, with a data-first, AI-first, and software-first approach, where the hardware acts as a vehicle for intelligence gathering and delivery.

Trae very explicitly said that defense contracting is incredibly difficult for the first-time entrepreneur, and that building a defense company requires a much larger capital commitment than a typical startup. Recognizing the constraints of the sector, Trae wants and expects to see successful/exited founders step up to the plate and tackle the tremendously difficult challenges in securing the next generation of American hard power. Starting a company like Anduril is not as simple as getting some whiteboards and pizza and starting to code, but the future of the country depends on Anduril and companies like it.

Nabeel Hyatt, General Partner at Spark Capital, and one of the most insightful gaming investors in the world, painted a compelling picture of the increasingly important role that gaming plays in modern culture. Nabeel made an analogy to music – for kids growing up today, gaming holds the cultural significance that music held for the generations of 60’s, 70’s, and 80’s. Like music, today’s games have deep cultural meaning, not just in their content but in their tribes – the friends and relationships made within the context of the game and its fandom.

As an early investor and board advisor at Discord, Nabeel talked about how Discord has become a platform for users to create small, intimate groups of like-minded friends, and take those groups from game to game rather than having their communities strictly controlled by their games of choice. Discord is now much broader than gaming, and is a true social powerhouse, but the dynamics of community-building in gaming communities are still important in growing communities elsewhere, such as in the fast-rising generative AI Discord servers.

In discussing VR, Nabeel mentioned that the number of active headsets make it a viable gaming platform, but he believes cross-platform distribution is key to scaling.

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Founders Showcase

After lunch, six founders of Anorak Ventures portfolio companies gave 15-minute talks about their companies.

Justin Barad, CEO of Osso VR, described how Osso VR’s virtual reality surgical training lets trainee surgeons practice the steps and the hand motions of a surgical procedure as many times as they need to on a virtual patient before taking on a flesh-and-blood case. Osso VR has been clinically proven to improve surgeon performance by 230%, and promises to improve surgical outcomes from the leading academic teaching hospitals to the most remote rural surgery clinics. Osso VR raised $66 million in 2022 and is one of the fastest-growing VR training companies.

Chen-Ping Yu, former CEO of Phiar and current engineering leader in Google’s Android Automotive division, described the opportunities and challenges in building for the automotive sector, as well as his experience through Google’s acquisition of Phiar in 2022. Phiar is an augmented-reality mapping experience that offers drivers turn-by-turn overlay directions, letting them navigate without looking away to their mobile device. Chen-Ping described how the Phiar team built a working solution, and cleared the hurdle of securing an OEM automotive partner, while also offering some realistic guidance on how slow most car companies are, and how tepidly they roll out new technology to their fleet. The automotive and mobility sector is one of the most significant industries in the world, both economically and environmentally. Entrepreneurship in this sector is critically important, and Anorak intends to invest in more companies in this sector.

Noah Robinson, CEO of Innerworld, gave a live demo of Innerworld’s mental health coaching platform, utilizing what Innerworld has coined “Cognitive Behavioral Immersion.” Noah has an incredibly compelling personal story that led him to start Innerworld, a level of “Founder-Market Fit” that we see in many Anorak companies – there’s almost nobody else who could have started Innerworld, and there’s almost no other company that Noah could have founded. One of the most emotional moments of the conference was Noah going into an Innerworld session and talking to some of his users about their experience with the platform. One of the participants literally credited Innerworld with saving her life, with Innerworld’s guides coaching her through a period of extreme depression and anxiety in her life.

Benjamin Conway, CTO of VNTANA, explained how the three-dimensional computing revolution is changing e-commerce. Traditional e-commerce platforms like Amazon use only static two-dimensional photographs of objects, making the online shopping experience much less engaging than the brick-and-mortar experience. People want to see objects in three dimensions, see how household objects feel in their home, see how apparel fits them or looks on them, and see how different objects might look or feel together. None of this is possible with the current 2-dimensional e-commerce assets, which is where VNTANA comes in. VNTANA is an asset management system for three-dimensional products, allowing vendors to scan their products in three dimensions, prepare these scans as 3D models that are efficient enough for users to download, and support advanced retail experiences like virtual try-on and augmented reality in-home previews.

Shane Dyer, CEO of Irrigreen, showed a video demonstration of Irrigreen’s precision irrigation system, which uses inkjet printing technology to “print” an exact pattern of water onto a lawn or field instead of haphazardly spraying water in overlapping circles like traditional lawn sprinklers. Irrigreen systems require 1/8th the number sprinkler heads of a traditional system, making them cost-neutral relative to a traditional system, but use 40% less water, making them an easy choice for customers in water-scarce locales, where over half of municipal water is used on lawns. Due to the precise watering pattern, integration of rain and wind forecasts, and dead-simple user configurability, the Irrigreen system also produces a far superior and more uniform lawn, making it a no-brainer for homeowners, municipalities,

commercial properties alike.

Emmanuel de Maistre, CEO of Scenario, finished the day with a talk and impressive live demo of Scenario’s generative AI toolkit for creating art for gaming assets. Unlike general-purpose AI tools like DALL-E 2, Stable Diffusion, or Midjourney, Scenario is specifically for game artists to enhance their own productivity, rather than for replacing or sidestepping the role of the artist. Scenario can learn an artist’s style from his or her portfolio, build a fine-tuned model in that style, and then generate as much content in the artist’s style as they need. Emmanuel used a training set of fantasy art, and a picture of himself, to create a picture of himself as one of the “rainbow-haired dwarves” in the game that he is building. Scenario recently raised a $6 million seed round and is one of the rising leaders in generative AI.

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In total, the day was an incredible opportunity to connect, learn, and simply catch up after three years. We look forward to seeing everyone again soon!