The a16z Pitch Room: Sandbox VR

Have you ever wished you could be in the room when founders present to the a16z investing team? Even better, do you wish you could stay to hear the discussion after the pitch? We hear you and are thrilled to launch our latest series of videos called "The a16z Pitch Room". This inaugural episode features the Sandbox VR team Steve Zhao and Siqi Chen pitching to General Partner Andrew Chen. Steve and Siqi present a lightly edited version of their pitch deck. Then Andrew will join them on screen and provide the “director’s commentary”: a slide-by-slide walkthrough of the presentation, describing what resonated, what didn’t, and how he thought about the investment opportunity. To learn more: - Check out Sandbox VR's at https://sandboxvr.com/ - Read Andrew Chen's blog post about the investment at https://a16z.com/2019/01/28/sandbox-vr/. - And also read Steve Zhao's bet-it-all story at https://medium.com/sandbox-vr/how-i-nearly-killed-my-company-and-spent-my-life-savings-building-the-holodeck-4e51b31016cf *** This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by AH Capital Management, L. L. C. (“a16z”). (An offering to invest in an a16z fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation of any such fund and should be read in their entirety.) Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by Andreessen Horowitz (excluding investments and certain publicly traded cryptocurrencies/ digital assets for which the issuer has not provided permission for a16z to disclose publicly) is available at https://a16z.com/investments/. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Certain information contained in here has been obtained from third-party sources, including from portfolio companies of funds managed by a16z. While taken from sources believed to be reliable, a16z has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. Please see https://a16z.com/disclosures for additional important information.

• 0:14Speaker 3

  Hi, my name is Frank Chen. Welcome to the A16Z YouTube channel. Now, aside from being your fearless YouTube host, I have a day job here, and my day job is to actually run the investing team. And the way that works is when entrepreneurs are raising money, they'll knock on our door and talk about their vision and basically pitch for an investment. A lot of you have asked, boy, can I go with you to these pitch meetings? Because it would just be fascinating to understand what happens at these pitch meetings, and it would be super interesting to understand how did you react to the pitch. What slides worked, what slides didn't work. And so this episode is exactly for you. If you've ever wished that you could come with us to the pitch meeting and hear our reactions to it, we've created the YouTube episode for you.

• 1:07Speaker 3

  So in particular, we're going to meet two entrepreneurs of a company called Sandbox VR that we recently invested in, Steve Zhao and Seeky Chen. And what they're going to do for you is they're going to present their pitch. And then we'll have Andrew Chen, who led our investment in the company, joined them on camera, and he's going to talk about how he thought about each slide in their pitch. What worked, what didn't quite work, how he thought about it. And so very rarely do you get to go inside the sausage factory to see how investors and entrepreneurs interact in the context of raising money for their companies. And so I really hope you'll enjoy this inside director's cut look at the fundraising process.

• 1:54Speaker 3

  Enjoy.

• 1:55Speaker 0

  Hi, I'm Andrew Chen, general partner at Andreas and Horowitz, and today we have Steve and Siki from Sandbox VR. We're going to talk about a bunch of different topics today. We're going to go through their deck, which they're going to generously share and walk through some of the choices that they made along the way, slide by slide. We're also going to talk through my reaction to the deck, which included a lot of questions, a lot of skepticism, a lot of uh you know, head scratchers, and and we'll we'll discuss how we got to a point that we converged and how I got excited and convicted on investing in the company. And go from there. So welcome, Steven Seeky.

• 2:37Speaker 1

  Thanks. Thank

• 2:38Speaker 0

  you. Awesome. So I think I know the first thing that happens in in these conversations is often you know there's the formality of this deck, you know, where entrepreneurs come and they're presenting about the company. Um, you know, we obviously uh CK, you and I knew each other for for many years before this. Um but maybe as as a first step, let's let's actually run through the deck. Let's let's do kind of a speed read through it, and then we can talk about kind of uh uh you know some of the some of the choices that you guys made in in creating this thing. Sounds good. So

• 3:11Speaker 2

  was Sandbox VR? What a holotech company. So let's be real. VR has been a disappointment. Adoption has been disappointing. There are 120 million console units worldwide, and only five million VR has units. Not only that, engagement has been disappointing. 73% of all VR users churn. We wanted the holodeck. But instead, we got a disembodied head, right, with floating joysticks, and you're tethered to a computer, sitting by yourself in a chair, home alone.

• 3:49Speaker 1

  So we want to build a freaking holodeck. It's a place where you can be anyone and go anywhere. Um we have movie quality motion capture technology. It captures every movement of you and your friends. You can high-five a friend in VR4 Real who's next to you. You can go anywhere because you can roam freely about in a fairly large space in our sandboxes. You're untethered by wires. And the thing we hear the most from people who've tried other VR experiences, hey, I didn't get motion sick. Um and we've got some extreme stories about that, but you can run what Crouch Jump and it all just works. And uh we put one of these in your neighborhood. So these are some uh shots from our various locations around the world, that one's from Vancouver, we have one in Hong Kong. Uh we tried to design these places to not feel too sci-fi, but to be more of a cool place for you to hang out with your friends before and after your experiences.

• 4:42Speaker 1

  And these locations run our triple A sandbox experiences exclusively. So these are the only places where you can play these games that we've built in-house. From Deadwood Mansion to our pirate experience, Curse of Debbie Jones to our space elevator experience, Amber Sky. And each of these experiences are designed to be as fun to watch as they are to play. Um, because one of the big things we think about is how do we make these experiences be social from the ground up? And after you play, you get a trailer, you get a selfie video, and these become things that are irresistible to share on social.

• 5:19Speaker 2

  Yeah, guests are blown away across Facebook, Google, and TripAdvisor, and over thousands of reviews is near unanimous five out of five. Uh, we're actually the number one activity in both Hong Kong and Singapore in TripAdvisor. We're the number seven activity in Hong Kong, right under Disneyland.

• 5:40Speaker 1

  And when you have guest satisfaction satisfaction like that, you get really strong demand. So, you know, this is a revenue uh chart for our first uh 12 or so months of existence, and uh the first eight months or so is a sad, flat, slightly declining graph that is hard to raise money off of. Um but what that actually represents is it's basically a hundred percent occupancy for six months straight, morning to night, seven days a week. And so we launch our second store in Hong Kong uh in March last year, uh, it's a much larger store, about two and a half times the size, and on a per square foot basis, revenue actually went up. And we saw the same thing we recently launched San Mateo. And uh, in terms of repeat usage, 18% of our guests for just that first test room have booked two or more sessions.

• 6:25Speaker 1

  And this is with us having only the one experience in a really tiny location, no corporate business, you know, we do a lot of team building during the day. And uh, because it's in high rise, there's also no foot traffic whatsoever.

• 6:41Speaker 2

  And strong demand drives strong economics. Across our corporate stores, we see a very high ebidov margin. We have a strong sales per square foot. And what's interesting about our retail store is when you think about retail, uh, like restaurants or um closing, they have cost of good sold. We sell time. So we essentially have no cost of good sold economics very different. And on top of that, our occupancy rate is also very high. And strong economics enables aggressive growth. So we started our first pop-up store in June of 2017, and since then we've opened in cities such as you know, LA, New York, Bangkok, Vancouver, Toronto, and we have one here in San Mateo Hillsdale.

• 7:28Speaker 2

  And soon, by the end of summer, the end of this year, we will go from we have 14 rooms now to over 50 rooms. And aggressive growth enables exclusive content. So we're our publisher right now, we are working with external studio to build content for us. But as we scale to hundreds of rooms, we would be able to build a content ecosystem for other developers to build content for us on a much larger scale. And which builds our network effect over time. Strong demand drives strong economics, which drives aggressive growth, which enables exclusive content, and which drives strong demand. Bootstrapping a whole new medium. So we envision that one day these holoplexes, which could be 20 to 40,000 square feet in space, can attract hundreds of users, will be as ubiquitous as movie theaters.

• 8:24Speaker 2

  The contest that we have will be plastic on billboards and they'll be on trailers. And behind this is a robust ecosystem for top developers and IP content holder to build experiences in our platform.

• 8:39Speaker 1

  So why is this all possible now? Um I mean, if you look at the technology that enables what we do, it's all just barely possible, and it's all rapidly improving. So the first uh VR backpack was released in 2016. At this point, fairly underpowered. The ability to do wireless VR is still pretty nascent and to do six people in a confined space, uh still not possible. Uh motion capture technology in real time with just a few sensors with multiple users. That was first possible in 2016. The prices will continue to come down, but the quality and the fidelity of tracking will continue to increase. Uh headsets, the C V1 was from the Oculus Rift was released in 2016. Um in terms of field of view, in terms of fidelity, this is all gonna improve.

• 9:24Speaker 1

  And we have rudimentary haptics so that when you get shot or you know, the zombie touches you, you can feel it. But this is also gonna get massively better. And this is all gonna get massively better through a technology ecosystem outside of us that as uh the hardware improves, our experience gets better automatically.

• 9:46Speaker 2

  Yeah, so in a digitally saturated world, experience is king. So retails, they need new upscale social experiences. You know, we're also noticing that millennials are spending more time and money in experiences as well. So just as uh example, the reason why we've got in a space in Hillsdale is the landlord you know reached out to us and offered us a very competitive uh rent deal in order to get us into the space.

• 10:14Speaker 1

  Yeah, and it's uh operational intensive business. And there's a number of other companies who are doing uh what is called location-based VR. And um we see the space in sort of these four quadrants. There's these things that are we call attractions. Fundamentally a walkthrough passive experience. Um there's a lot of things that you can touch, everything's mapped. Um it's higher in immersion, but it's difficult to scale out in terms of content, right? It's very difficult to change uh one experience to the next from day to day. Um then there's arenas. And these are multiple thousands of square foot in space. Um and these are fundamentally much closer to laser tag. And we see these as akin to sort of the go-kart businesses of the past. And it's the difficulty of scaling that one is going to be around real estate.

• 10:59Speaker 1

  It's very difficult to make the economics work, and even if you can make it work, you can't put a whole lot of these very large spaces everywhere. Um and then there's arcades. And there's thousands of arcades out in the world. Um and they use the same kind of hardware that you can get at home, and it's the same experience, and it's targeting people who don't have the hardware at home. And we think for it to win, you have to be the most scalable to create that network of fucking ecosystem, and also be the most immersive. And that's why we designed sandbox to be a standard format, very easy to swap out content, whether it's narrative or in the future esports or educational content. Um it's just a platform. Um economics make it work and makes it possible to scale. Um and all that all of that starts from a great product that people actually want.

• 11:49Speaker 2

  And we built a team to win. I've been building games since I was 13 years old. Uh previously I bootstrapped a company uh called Blue T Games, and we were building uh casual games title for the last 10 years, building one of the top uh game franchises for uh hidden object games. And CK, he joins us as chief product officer. So we've known each other since uh university. But what makes it really interesting for Siki to join us is he's a two-time founder himself. And his strengths is a blended domain of both growth and product. And Michael Hampton joined us recently as a head of studio. So he's been building uh triple A titles uh for the last uh five to ten years.

• 12:34Speaker 2

  And what his best title is uh Assassin's Creed. And before he joined us, he was in Sony VR, where he created uh Blood and Truth, which is the most anticipated VR title.

• 12:50Speaker 0

  Great run through on the deck. Um and and maybe uh we can start on um I I I can just say a little bit about sort of you know my my reaction originally uh with the company and some of the things that you know caused me to kind of turn the corner on it. So I think the the first thing is um you know this is the kind of thing that uh if you don't have the experience, if you don't actually try the product, it's just really easy to be skeptical about it, right? Um I remember uh you know when when we first started having having this conversation where I was like, okay, VR, that's not a very you know hot market right now. I kind of don't get that. But wow, there's also this retail component, you have to sign all these leases.

• 13:36Speaker 0

  There's kind of this hardware component, you know, as well. And then on top of that, you're like making games, so then there's like all this like I

• 13:46Speaker 1

  think we told you that. Like this is these are all the reasons why you shouldn't invest.

• 13:51Speaker 0

  Right, right. And so uh and so I think I think that was such an interesting thing to like start out with as the anchor where you know, I think I came into this the first setup conversations, being just default kind of skeptical about you know where this where this was. Um it wasn't until you know, and I think this is something where you have to see the product, and then I think it's it was it's super interesting in the deck that um that you guys actually anchor towards acknowledging the difficulty of of where the market is as opposed to you know potentially it uh you know, you like the pitch could have been, you know, Steve, you could have let off with like VR is amazing and like kind of you know, kind of gone through maybe a set of the the quote unquote cliches that maybe we've seen for years about VR, right?

• 14:41Speaker 0

  So I think by actually going negative, it actually felt more real. And it got me to think over time that each one of those things that you know that we ended up talking about, which is it's like, yeah, this is actually a bet that location-based uh VR is what will work, not you know, not in home. Um on retail, it's not a bet towards the success of the future of malls and the future of these retail spaces. It's actually kind of a bet against it. It's actually saying like, look, there's actually really attractive retail opportunities because of the fact that everyone's scrambling to figure out you know what to do. On the hardware, um, you know, it's not like you're trying to build all this you know unique expensive hardware in at mass where you have to take inventory risk and all that stuff.

• 15:29Speaker 0

  You're actually mostly using off-the-shelf, you know, hardware. And then, you know, I think on the game side it was interesting to think like, oh, okay, you know, you're building the games, you know, now, but there's actually a plan to potentially publish, right? And so I think each one of those things, I think initially I was sort of like, okay, I see what you're trying to do. You're trying to be this full stack, you know, startup where you have to solve the entire problem all the way down from the content, the technology, the distribution, and get it all to align at the same time. As opposed to saying like, hey, actually, you know, we're betting on malls to succeed, we're betting on you know, in home VR to succeed, we're betting on being able to make uh a stream of hits, you know, yourselves.

• 16:17Speaker 0

  So anyway, so I thought I thought that was really interesting and something that like got me to um you know significantly change my you know point point of view about it. And then and then I think you know, the the funny thing is I think there's some products where you can kind of get a sense for what it is just through the deck, you know, and you don't have to really use it. This is like completely different, right? Like this is something where you actually have to go suit up and you know have the experience to be like, wow, this is you know, like a completely different thing. Um so anyway, so I think I think those were those were some of some of the parts. And then I and I think that this is also an area where um I think the fact that there were already proof points um on a store-by-store, you know, um, you know, each of the locations actually had some unit economics and you could talk about it.

• 17:11Speaker 0

  And and by the way, I think I think one of the you know parts about it is the fact that it was such high occupancy just based on the fact that people just liked it was great. Um the fact that uh, you know uh uh and we'll maybe we'll get into the movie theater kind of Hollywood you know analogy on this as well, is if you have a movie theater that has you know two movies in it, then it's such a wow experience that you bring your friends, like that's amazing. And the the fact that it's only in a couple places sort of feels like okay, yeah, maybe you can actually have several dozen of these things in every city

• 17:48Speaker 1

  on the planet, right? Which is sort of sort of an

• 17:50Speaker 0

  interesting part. So for this section of the video, I think you know it would be awesome to actually let's just do a director's commentary kind of version of of the deck, and let's actually talk through each of it, and then and then we can get some back and forth also on some of my reactions as well. So I know you know the the first slide of the entire deck often has a tagline or has a something that sort of you know sets the stage

• 18:16Speaker 1

  for everything

• 18:16Speaker 0

  following. And so why don't you talk about this this choice, which is to say this is the holodeck company. What does that mean?

• 18:22Speaker 1

  Right. So you know, see that I went back and forth on this, right? Like I am a search for fan. And uh Holodeck is like something, oh, that's just a word, right? And I think you know, it's not a word that other people know knew, right? Like and so. It'd be more difficult in image,

• 18:37Speaker 2

  but since we're basing this in the US, it definitely makes sense.

• 18:40Speaker 1

  So, you know, what do you think about that word that we chose to use?

• 18:46Speaker 0

  Right. I mean, I I think I think uh um you know for me as somebody that also you know grew up watching a lot of of Star Trek. Um, you know, I think holodeck is a really interesting way to you know to to position things. Um I think I I it's it's very much aspirational, right? Which is I think I think good. Um but then I was also like, all right, we're like, you know, the current the current you know set of of technology in VR, like we're a far, far away from that. And so let's let's hear about like what that actually means.

• 19:21Speaker 1

  Yeah, I think this was a risk on our part two. I mean, um the thing the thinking was you know, the VR market, a funny market, capital market has like turned a bit. So would it and we've gotten a lot of mixed feedback about this side actually too, which is like, oh, do we want uh say this or do we want to say the opposite? And so we decided to we decided it's kind of unavoidable, it's always gonna be an elephant in a room, so let's just get it out of their way and explain that we are actually the solution to this problem. Right.

• 19:50Speaker 0

  Yeah, you have I mean the whole first section is really kind of negative, right? Which I think is um, you know, is is is not usually the The approach that we see in these decks. But I think at the same time, like literally people talk about VR winter, right? The same way that there's other winters going on, but one of the specific ones they talk about is VR winter. So I actually think that any deck would have needed to acknowledge that somehow, right? And you know, the choice would have been to do it kind of near the end, right? As a, well, this is why, you know, like we're gonna work even if the ecosystem you know didn't, versus trying to tee it up at the at the beginning. So I actually, you know, what the way that I felt you know with it was if you're gonna go with something negative at the beginning, it's a it's a bold decision, right?

• 20:40Speaker 0

  So I was like, this is bold. Like, let's see what these guys have, you know, like next.

• 20:47Speaker 1

  Yeah, this this was kind of um risky in my head in the sense that like do we feel like this is a fair comparison? Are we like unfairly pejorative to a home VR experience? Um this is how actually how we do feel about the comparison, but I don't know how what the reaction was to this slide.

• 21:05Speaker 0

  Right. Yeah, I mean, I I think you know, no matter what VR is the best tech demo that anyone's ever seen over the last couple years, like I think almost everybody in their very first,

• 21:18Speaker 2

  you know, the very first time

• 21:20Speaker 0

  they um they that they put on a headset, it's always a wow experience. I've I've not met anybody that thinks that it's like you know, not a wow experience. So that said, I think the interest introspection that everybody has about VR is like, well, why why haven't I been into this? And I think the common blame is actually probably content, right? As opposed to the experience. And so I do think that this is kind of an interesting like thought of you know, oh, is it is it that it's like a socially awkward thing, or is it just like the content itself? And so I was actually um you know, surprise because I think the other way you could have gone with this is to say the content's not there because it's not enough of a breakthrough, you know, we're gonna go and um talk about how great we are at content, right?

• 22:06Speaker 0

  And as a result of that, you know, how so it it's sort of it it the this whole section about the disappointment about the disappointment of VR causes I think whoever the viewer is to have an introspection to be like, do I agree with this as the real disappointment or not?

• 22:22Speaker 1

  Right, yeah. Yeah, this is definitely how I felt about it as an enthusiast. Um

• 22:28Speaker 0

  I think I think subsequent to the investment, you know, the way that I what I definitely use as in in explaining it is hey, we've all had the experience where one person in the room has the headset on, yeah, and then everyone else is like, what do you see? Is it cool? And then they're like,

• 22:45Speaker 1

  this is so cool,

• 22:46Speaker 0

  you know, and how like how like unnatural that actually is, and and how you know antisocial it is because only one person can have the experience at a time, right? So I think that that definitely does resonate. But anyway, so it's it's it's an interesting like

• 23:00Speaker 1

  the choice of content versus hardware is like self-serving, right? Because if it's just content, then people can just make better content. So

• 23:07Speaker 0

  I also feel like you know, by the way, the um the other thing with with a deck like this is that um, you know, a lot of times people come in with a series A deck where they have a lot of metrics, they have a lot of data, you can like talk about it, which you guys actually have. But because of where the the industry is right now, simultaneously there's sort of this need to actually do a lot of context setting before you even get to by the way, all of our stuff is sold out, right? Um, versus if I think if this were a category where where everybody thought it was really hot, like if it were just like short form video, you know, app, you would basically probably lead with you know traction metrics, you know, from like the first or second slide, you'd you basically go right into it.

• 23:52Speaker 1

  Yeah, I think that this is you know, we thought this would be a frog slide, just explaining the social bit of it, right? Like so, I don't think we had really reaction to the stuff. Yeah,

• 24:02Speaker 0

  yeah. So I was gonna say that, you know, I think this is something that you mentioned um actually over dinner, I think, even even prior to seeing the real deck, which is the fun to play and fun to watch, you know, component of this. And that really resonated, that landed really well with me because I have a whole other separate thesis uh investment thesis, which is the idea of video native products, right? That basically you have um YouTube, you have um you know, TikTok, you have Instagram videos, you have Facebook videos, um, where there's literally now billions upon billions of people who are viewing this stuff. And so any product that then generates video as part of the usage automatically has a leg up in you know, in in customer acquisition. And so, you know, the the fun to play part, I think that is sort of a given.

• 24:50Speaker 0

  It's the fun to watch part that I found like super super insightful because in the same way that, for example, if somebody um came in and pitched a fitness product, you know, fitness app that generated really cool looking videos as part of like using the app, right? Or um, you know, the other place that that that might you know show up is uh you know, if you if you if you watch like uh Twitch IRL, there's always people painting and there's people like doing kind of funny things. Um, all of those that generate video, like I'm always kind of leaned in on that because that is this like sort of current growth mechanism and loop that is is working really, really well. And so this sort of like was super obvious. That's like, oh yeah, like that's that's actually like a key insight.

• 25:36Speaker 2

  Yep.

• 25:41Speaker 0

  So let's talk about the Asia thing as part of this. I'm I'm super curious for you guys, like maybe maybe you can talk a little bit about this, like the fact that you know this was mostly this was created in um you know in Hong Kong, incubated there, and then you know, and then now you're very much focused on the US market. Um, but at the at the time of kind of the early investment rounds, um, you know, it was mostly in Asia. And so like how did people perceive the sort of Asia connection? And then and then maybe I can talk a little bit about you know how we view it here.

• 26:11Speaker 2

  So when we first started out, uh when you know we were pitching investors, even media about our product, I think the questions were more about string forward assumption. They first ask us, where did you buy your technology from? Right, that we have total we built ourselves. Okay, so who built your content? And we said, no, we we built it ourselves. So there's a lot of assumptions that we've seen in the beginning. So I think that kind of just something people expect from Hong Kong is just that does it shouldn't exist here.

• 26:39Speaker 1

  Right. Right.

• 26:40Speaker 0

  Yeah. Yeah. So you know, I'll give a couple of perspectives on this. So I think one of the interesting parts about you know, anything that works outside of the US that then is tested in the US is like there's real consumer behavior risk, you know, there, right? And in particular, I think Asia is a really interesting one because I think we're so used to in in Silicon Valley reading about how amazing these companies are going in China in particular. And there's always a question of like, wow, that's like amazing, like dot dot dot, it could only work in China, like question like or maybe that's a question, right? Like, could this maybe only work in China? And I think in the early early you know, years of um, you know, China's startup ecosystem, it felt like the entire flow of ideas was you know, things would get invented in the United States, and then they would basically be copied in China, and that was sort of the perception was, you know, oh, in the early days, like I remember even seeing a side by side of like somebody had taken Tumblr and literally copied like even the CSS and like every, you know, and that was sort of like, oh, they just like they're just copying things, right?

• 27:50Speaker 0

  Um and then the interesting part is I think now we're seeing so much cross-pollination actually, you know, back from Asia to the US. And so I know that um, you know, Connie Chan and Jeff Jordan who worked on our you know, Lyme uh investment, which is you know, now they're doing scooters, but originally um prior to that it was it was a shared bikes product. And I think the idea there is that wow, you know, because the consumer behavior actually worked in China, you can at least, and you know, and by the way, you get these really interesting things, you get wallets, you get you know, you get digital wallets, you get um you know integration into other modalities of transportation, that then that behavior, if it works, you know, in you know, the biggest market on the planet, like you have to really ask yourself, like, could it work here?

• 28:40Speaker 0

  And if it does, it might be huge, right? And so I think I think one of the things that um you know I experienced when when when you know when in Asia is that there are more V VR arcades, right? There are more um you know of these kinds of location-based entertainment. And so then the question becomes is this an Asia thing because of the fact that like it's the market's already more primed than the US, like that becomes you know, like a real like risk in the investment, right? And so I think what was very helpful was that by having the um, you know, by having the San Mateo location, by having the Bay Area location, you could go experience it, you could talk to folks that had never been to a VR arcade, you know, and um you know, and and maybe their entire comparison point is just comp you know is is literally just in home versus this, and they could get really excited about it.

• 29:31Speaker 0

  Um and and I think this is an example of something that like landed a lot better in the Series A as opposed to the seed deck where it was like, you know, like yeah, you're sold out, but is that a Hong Kong thing?

• 29:44Speaker 1

  Yeah. Right.

• 29:51Speaker 1

  Uh yeah, I mean, for this one, it's you know, this is a first numbers slide. It's like, well, it is at least a graph that goes up into the But you know, like we have a lot of context here, and there's a little bit of repeat usage. Yeah, what's the reaction to the first numbers?

• 30:08Speaker 0

  Yeah, I think so. So I think clu uh so we ended up wanting to get this graph, of course, in in spreadsheets. Um, you know, so we could really look at like kind of what was really happening, and you know, sort of we're trying to understand was it like a weekend thing, was it a weekday thing, like trying to understand all of that? Um and then, and then I think the repeat rate, like I think there was a real debate about you know what what it was, right? Because I think you have to ask yourself, like there's one version of this which you would believe, which is this is novelty effect. This is something where people are just like, because VR is such a cool tech demo, um, you know, having this like VR plus plus plus like experience, of course it's gonna everyone's gonna try it once, right? And you know, then are you investing in like a go-kart you know track company, you know, or like paintballers that you know, I've done paintball like twice in my life, right?

• 31:00Speaker 0

  Um is it like that? Or do you believe that it's gonna be um something that look that this is actually a movie theater that just happens to have two films, you know, at the time of the investment, two films, now three films, right? And in that case, it's like, well, you know, like if if the entire movies industry were just two films, would you then say, oh, this isn't gonna work because people you know will only will only try it, you know, once or twice, right? I think that becomes kind of the um you know the point of view. The other thing that I think helped me on it was that I um through through the process of of um you know working on on the investment, ended up having multiple experiences with with the product, and I definitely felt like after the first time I was like, oh, I know that I should go for headshots, I know you know what character, you know, what enemies to expect in which wave.

• 31:50Speaker 0

  And so then the second time I was like much better, and I felt a sense of progression, and I was like, oh, you know, you could kind of imagine how you could have kind of a multi-user account and this and that. But this is the this is definitely a real debate. Like you have to, you're investing into something that basically if this were a mobile app and you were like, hey, you know, as a mobile app, you're gonna um you know, uh only 18% of users have you know use this more than once, like that would be like not a good thing. And so I think the fact that you monetize right away, sandbox monetizes right away, and also there's the sense that it's like, oh, this is just what the platform looks like today, you know. I think I think that that's what kind of got me over the.

• 32:35Speaker 1

  I think we shared some numbers.

• 32:37Speaker 0

  Yeah. Yeah, so so um, so yeah, you shared some numbers on on the um you know, sales per square foot. So I have like a whole other random experience with this, which is um uh over the years I have um sat in on a bunch of just like for my own personal thing, uh, pitches from um restaurants, right? And so if you ever go to a restaurant, picture by the way restaurant pitches, they're they're the best. Because what happens is it's very different than um, you know, a venture capital pitch, because you usually bring a bunch of your friends, and um, and then you meet the chef, they make the entire menu, they make all the drinks, and then you basically just hang and eat and drink, and then at the end, you're usually not hit up for a million dollars, you're hit up for like 10,000. So it's it's like an amazing anyway, it's again it's a great experience.

• 33:22Speaker 0

  And so I I happen to know a little bit about sales per square foot. Um I've never done a restaurant investment, however, I've been to a bunch of them. And but the one that I have done actually is I I did an investment, um, personal investment many years ago in uh in Boba Guys. And so because um I actually knew a little bit about retail and um you know, sort of sales per square foot. I actually called the Bobu guys founders as part of this and asked them like, you know, hey, are these numbers actually good? And like how would you think about it? And is it is this gonna be easy? What are the retail dynamics gonna be like and blah blah blah? Andrew Chow, who um, you know, is the CEO of Bobu guys, did uh you know, talk about some of the um the pull from the retail market in terms of wanting these kind of millennial friendly Instagrammable uh sort of um experiential locations that drive you know potentially can drive foot traffic.

• 34:13Speaker 0

  And so that actually helped me a lot in you know understanding that. And I think that that that's that may be unusual, meaning that you know you you may find that most tech investors have not done anything in retail and don't understand anything about retail. And so I think like on this particular one, like we just happen to, you know, uh like both be able to talk in the same language because I hit some of this prior to the same thing.

• 34:37Speaker 1

  So the numbers are good.

• 34:38Speaker 0

  Yeah, well, the yeah, yes, yeah, exactly. Well, and the and the Boba Guys thing also is kind of interesting because um uh because it is so Instagrammable, and they drive so much, you know. If you've ever been to a uh a Boba guys um in the Bay Area, always a line. And part of the fact that there's always a line is because it's a really young audience. Um, you know, the drinks are very colorful, you know, the the look of the store is like a certain look. And so I sort of felt like, oh yeah, like you can get all of those benefits, but then also have like software, you know, and technology as the driver as opposed to you know, like um, you know, boba, you know, bubbles and like whatever, which are great, but you know, that that's definitely not a traditional venture capital investment.

• 35:18Speaker 2

  Right.

• 35:21Speaker 0

  So cool. And then, yeah, and uh I don't have too much to say about this except that um, you know, it seemed the the question basically comes down to is this something that you can repeat, right? Um, you know, is there is it uh location by location? Um I think in this particular case, uh, you know, um what you can what you can definitely see with if we go to ride share, right? And and maybe we can talk about Postmates a little bit as well, is that within Rideshare, once Rideshare works in a single city, um it's sort of an independent network, and you can kind of imagine how then you just kind of stamp out rideshare in all these other cities. And then not only that, um each city becomes easier and easier and easier because you kind of learn how to how to jump start each city, and on top of that, you also get um you also get a uh a point of view that um you know you do accrue some advantages because by the time you get the big cities in rideshare, SF, New York, LA, filling in like an Austin is much easier because most of those people actually already have you know a rideshare app installed, right?

• 36:24Speaker 0

  And so I actually looked at it, looked at this a little bit like the fact that you know, um you you know, Steve, you you had done so much on games and content development, et cetera, and we can talk about content risk, but CK, the fact that you had actually you know done hyperlocal growth at Postmates, um, you know, made it more convincing that you guys would know how to actually grow city by city, you know, says as part of the as part of the investment.

• 36:55Speaker 0

  Do you guys want to talk about like this this slide and how you thought about?

• 36:59Speaker 2

  Yeah, the thinking behind this slide is um what is the end game, right? So, you know, we've done games long enough to know that content is king. In order to win the market, you have to own the content, right? So the way we see it is that's why we get a grow as fast as we can. So that once you have like uh like hundreds of stores, right? And you're um a game developer and IP holder, who would you want to work with, right? The one that could bring you the most money and distribution.

• 37:26Speaker 0

  Right.

• 37:26Speaker 2

  Yeah.

• 37:27Speaker 0

  Right. Yeah, exactly. I think I think this is one of the this slide is one of the pillars around the you thought that this was a games company, actually it's a publisher, right? I almost think that you know, like if you wanted to go um around the VR, you know, uh like the first couple slides, you know, where we had talked a little bit about starting negative on VR, you know, I almost wonder like if in the retelling of this, what I often do is I actually will just say, you know, there's the four things that are really difficult to invest in, you know, and then it's like, by the way, here's the actual here's the truth about the four things, and this is like clearly one of the ones that sticks out, which is that the company is gonna be a publisher one day.

• 38:16Speaker 0

  Oh, and and actually maybe maybe I'll say one more one other thing about the that the slide is the mental calculation in my head is the way that the company basically uh looks and acts today, all the way leading up to the point where you can have third-party you know, game developers on your platform, that there will be a transformation, you know, kind of at that point. So it's almost like, you know, the question in my head is almost like, wow, how do you get get this company capitalized and move quickly to get to that you know point as soon as possible, right? That's almost like the the question that it, you know, that it begs. So yeah. Um

• 38:58Speaker 2

  cool. Okay. The competitive graph. Okay. Should we just skip skip ahead? Yeah.

• 39:06Speaker 0

  Why don't we go all the way to the yeah, yeah, just one? Yeah.

• 39:08Speaker 2

  Uh previous. Okay, great.

• 39:11Speaker 0

  Cool, yeah. So talk about like uh, you know, how how you thought about um you know the the different axes here and like what are the what are the things that you you think about.

• 39:21Speaker 1

  Um we wanted to put our competitors on a plot. So um we thought about what makes us different. Um at a time we felt like, okay, like we just wrote down the things that are different, right? So embodiment is super immersive. Um we don't do the uh you can touch all the walls and the tables, right? That's um a lot of other companies doing. We're not doing thousands of square feet. So, you know, some of it was exercise that how do you turn what is can be perceived as a weakness into a strength? Um and what's the right way to plot it, such that we're in the top right corner. I mean, this is the same exercise every start of done. When they're fundraising. Right. And the two things that we thought we went on is like just the immersiveness of it by virtue to social and how scalable it is by virtue of the standard format.

• 40:11Speaker 2

  Right.

• 40:11Speaker 1

  And the strength of the unit economics. And from that perspective, we plotted it. And then as we plotted this, we realized too that these quadrants, you know, we want to label these quadrants too, because one of the things that we try to not do is like we are one of 12 VR LBEs, right? We want to be its own thing, and also trying to be intellectually honest. That's why we're not the only company in that top right quadrant. Yep. And yeah, so we thought about that as like, okay, there are actually these three categories that we know, right? There's the equivalent of a Disneyland Arc Ride. There are these large go kart style laser tag arenas, and then there's arcades. And we want to be a different thing. And here is how we can justify we're different thing, because that combination of scalability and immersiveness makes it a new format.

• 41:02Speaker 1

  Right.

• 41:03Speaker 0

  Yeah, I so what I was gonna say here is that with the benefit of hindsight and trying more of these, you know, a couple, a couple different products, you know, in this space. I, you know, it's it's funny because it's like you always, you know, like every startup wants to put themselves in the in the top right quadrant as as you were saying. At the same time, um, I actually just think that there are just different like DNAs of teams floating out there, right? You have a couple folks that are approaching it basically from the film world, and you know, they're they're building a whole thing. And so for them, um, you know, the immersiveness, the storytelling, that's the most important part. You know, they're probably ahead on um, you know, IP licensing and having like kind of quote unquote, you know, sort of household name characters um, you know, that are in there.

• 41:54Speaker 0

  And so that's like one bet that I think as an investor, if you wanted to take, you could try and you know, back onto those teams, right? I think that's one. The other thing is that there's definitely another set of folks that seem to be thinking about this almost as like kind of a theme park plus plus kind of thing. Very, very large format, you know, kind of um, you know, spaces. Uh the average sandbox VR room is like, it's it's it's like a thousand square feet plus or minus, right? Um, you know, there are folks that are out there with thousands of square feet, right trying to trying to create these. And so I think one of the questions is okay, well, if you have the theme park DNA, you know, like if you could build the next like set of you know Disney theme parks, that's actually potentially also a great bit, you know, great business.

• 42:44Speaker 0

  Yeah, right. And so I think to me, actually the interesting um choice and and the debate that actually went on um a bit in the team is um, you know, I would actually say that if you went for a really, really large format room, household character names, etc., you could argue that like from a purely experiential standpoint that um you know there are other players that maybe are further along than Sandbox, you know, at the at the moment that when we first when we originally invested, because it was primarily based on the one kind of you know minimum viable product version of Deadwood. Um so I thought saw that as like, is that a but is that a strength or a weakness if you believe in the scalability of a smaller format room, right? And so I came into this thinking of you know, if you're gonna bet on a Theme Park Plus Plus, Film Plus Plus, Arcade Plus Plus, or gaming plus plus, like of all those DNAs as kind of the route, that I would bet on the games piece more than anything else, because I think games and maybe film is is would be the other one.

• 43:47Speaker 0

  But those two feel like they're the most conducive towards creating something that you could do maybe every every week or maybe even every day once there's enough content, right? And so, but I think there's a real debate to say like, oh, well, you know, is is sandbox actually the best experience on the market, you know, today, right? And and is a large format thing actually a quote unquote better, more of a wow experience for consumers. And so I think you're actually making a real trade-off here in the experience. And I think the the non-obvious part, I think, for people, you know, for an investor would be would you rather own a small number of large theme parks, or would you rather own something that feels more like it's a you know something where there's dozens of them in every city, right?

• 44:35Speaker 0

  And so I I I chose, you know, I saw this as a bonus, but I think you know, that's something that needs to be conveyed. And then maybe we can talk about the team a little bit. Cool. So I think within within the context of this investment, I so CK, you and you and I know each other for like 10 years or whatever. And then Steve, you and I met through the course of this, and then I met Michael actually post you know, post-investment. I think one of the things on this was that I you know felt like, and this is a little bit like the Asia to US thing as well, um, was that number one, we wanted to make sure that you know, if if there was a gonna be a team that was gonna focus on the US because we thought the US was like a really great market for this, and it could work in the US, that you'd have to end up with a whole office and people and everything that are based in the US, which which which we've done.

• 45:29Speaker 0

  And then I think the other part of this I would say is um, you know, we one of the one of the pieces we were trying to diligence for was how important was IP licensing as part of the team. And that's something that we also felt like A16Z could uniquely help because we talked to the media companies all the time. We had we talked to a lot of the um you know IP holders. You know, but that was sort of like the one of the gaps that's felt, you know, like it existed here, that we should at least try and like neutralize the advantage of, you know, if we were to invest that we should neutralize the advantage of competitors by having you know real discussions with people, or hire some folks that made this, you know, really um uh that that would be equivalently kind of insider-y uh relative to the competitors.

• 46:17Speaker 0

  So and then and I think beyond that, you know, I mean, you know, I think like I think the the technology, the gaming piece, that all kind of made sense. I think the um, you know, I think the other the other piece of it, again, I I thought that actually the Postmates experience was extremely relevant and important was just more that like, oh man, this is gonna be like a retail, you know, large retail like chain that is gonna need to employ one day many, many, many thousands of people on the ground, and it was gonna be extremely operationally complex. And so I think the other thing that was missing, which which we've I know we've now filled, is sort of somebody who's gonna handle um all the complexity of of retail expansion, you know, um buying new leases, getting into new leases, construction, like getting the whole kind of workflow around that as the company became scale.

• 47:09Speaker 0

  Okay, guys, uh it was really awesome having both of you here. Thanks again for spending the time.

• 47:16Speaker 3

  Why I hope you enjoyed that candid look inside the pitch meeting. I was so excited when I was behind the scenes uh watching the conversation unfold, and I hope you enjoyed it as much as I did when

• 47:28Speaker 0

  we were filming it live.

• 47:29Speaker 3

  If you liked what you saw, go ahead and subscribe to our channel. We've got plenty of other content coming, and we hope you enjoy that as well. If you feel inclined, we've got a comment thread open on this. And what were your big takeaways from watching the pitch meeting? What surprised you or what inspired you for the next time you're fundraising and working on your pitch deck? Leave us comments and we'll see you next episode.