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from A Round to Apple Inc.
September 10, 2017

Reality Check

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If you go back 25 years, Adobe took the world from a predominantly analog view of media to digital. If you go farther back, Dolby created the standard for how audio is implemented — not only in movies, but in just about every consumer device that incorporates sound.

More recently, we’ve seen standard-setters like Unity, which is the platform that powers over 70% of today’s mobile, PC, and console-based games — including Pokémon Go. Each of these companies represents a fundamentally enabling technology for their time and medium.

But at a time when people are watching more programming on more devices than ever before, there hasn’t been a fundamental technological breakthrough in how filmed content is created in over 25 years. We’ve been treading water since the advent of computer graphics to create visual effects.

That’s about to change.

Take any popular series — from Game of Thrones to House of Cards — and you’ll find that it relies bringing together the live action world (e.g. actors and people captured in a real environment) with computer generated visual effects. If you look at how this process is done today, it’s based on a technology legacy that hasn’t evolved for decades.

Directors film actors awkwardly in front of a “Green Screen”. Teams of technicians then weave in complex, computer-generated backgrounds. The process is expensive, time-consuming, and tedious. The only way to make it scale is by adding people and money.

On Set with Game of Thrones

Source: Business Insider

That’s where Lytro comes in.

With its groundbreaking “Light Field” technology, Lytro is introducing a new way to capture environments that bring together the physical world and the digital world. Rather than capturing a flat, two-dimensional image through a standard camera, Lytro captures every ray of light in a frame. It can map exactly where every ray of light is coming from, including the angle, reflection points, and where its going. (Disclosure: GSV owns shares in Lytro)


Source: Lytro

With this data captured, Lytro creates a highly accurate three-dimensional models of entire environments. It makes the real world work much more like computer graphics, giving artists unprecedented design capability and flexibility.

When you take a standard picture or film a movie, creators have to make a variety of fundamental decisions up front — like frame rate, focus, and exposure. Once you make them, you’re locked in. With Lytro’s technology, this dynamic completely changes. All of those creative decisions become an after-the-fact, controllable variable, and you can render content in three dimensions. Think of it as software eating cameras and imaging. It’s a story of better, faster, and cheaper.


Jason Rosenthal Discusses the Future of Imaging and Augmented/Virtual Reality

Source: GSV Asset Management

Looking ahead, Lytro will effectively sell “picks and shovels” to AR/VR “miners,” avoiding the commoditization risks borne by consumer technology companies and the cyclical risks facing content creators (e.g., movie studios, video game creators), issues that currently plague high-profile AR/VR companies such as Facebook’s Oculus and Magic Leap.


Virtual Reality (VR) had been pursued and promised since the 1950s, but the convergence of low-cost mobile hardware and powerful new software platforms is bringing it to life. In less than five years we are seeing ripple effects across digital media and beyond.

Oculus VR founder Palmer Luckey, a college dropout, created a Virtual Reality (VR) “prototype” in 2011 with a smartphone, two eyeglass lenses, duct tape, and a bucket. One year later, Luckey tried to raise $250,000 on Kickstarter and raked in $2.4 million. In 2014, Facebook bought his company for $2 billion and VR had seemingly arrived.


Source: Mark Zuckerberg

At the time, Mark Zuckerberg observed, “Every 10 to 15 years a new major computing platform arrives — we think that virtual and augmented reality are important parts of this upcoming next platform.”


Source: MIT Technology Review, New York Times, GSV Asset Management

A field of technology traditionally referred to as “Virtual Reality” has bifurcated into two core technology/design approaches: Virtual Reality (VR) and Augmented Reality (AR). VR is closed and fully immersive, while AR is open and partly immersive — you can see through and around it. Whereas VR puts users inside virtual worlds, AR puts virtual things into the real world.


Source: GSV Asset Management

In recent years, AR/VR has primarily been thought of as a medium for hardcore gamers and tech evangelists, but you can increasingly see how it will impact a variety of industries, from entertainment to education, commercial real estate, and industrial design.

As the World increasingly adopts technology that enables you to experience an enhanced reality, physical experiences will increasingly be replaced by dollar apps in an app store. To this end, Goldman Sachs has recently projected that the AR/VR market may balloon to $80 billion by 2025. Not surprisingly, investment activity is following.

Investment Activity

AR/VR has traditionally been a difficult space to make venture bets. Until recently, there were really only been two options. You could invest in first generation consumer technology, which has historically moved rapidly towards commoditization. Or you could invest directly in companies creating broad content for the medium — things like video games and cinematic experiences, which tend to be highly cyclical, hit-driven, and high risk.

Today, we’re seeing companies emerge with nuanced content and business models, creating compelling investment opportunities.


Source: CB Insights

Notable 2017 deals include Improbable’s “improbable” $502 million Series B financing from SoftBank, Andreessen Horowitz, and Horizons Ventures. The London-based company has developed a platform that enables third parties to develop and deploy virtual worlds, primarily for gaming applications. The company is also working with enterprise clients and governments to utilize their virtual simulation platform on a massive scale to develop detailed real-world models. Other notable deals in 2017 include 3D motion-control startup Leap Motion ($50 million Series C financing) and light-field imaging company Lytro ($60 million Series D financing).


Source: CB Insights, CrunchBase, Forbes, New York Times, GSV Asset Management


Source: Bloomberg, CB Insights, GSV Asset Management


Media & Entertainment

The first visual screen was introduced in 1920 — the television set. People gathered 15 feet behind these boxes to watch broadcasts in black and white. The PC was introduced in the 1970s, and suddenly, the screen was only three feet away. Then came the smartphone in the last decade, and now users interact with screens about six inches from their face.


Source: GSV Asset Management

There has been a consistent evolution of bringing people closer to the experience on the screen. AR/VR technology will eliminate the distance altogether. It will make consumers feel like they are fully immersed in an environment. It’s the ultimate media platform.

In the race to create entertainment platforms built on new AR/VR technology, early leaders like Facebook (Oculus VR), Sony (Project Morpheus VR), and HTC (Vive), have mainly focused on perfecting headset hardware, and then partnering with professional software developers to create premium content (e.g. Movies, Games, Training Applications, etc.). Alphabet (Google) has opted for a different approach.

In 2014, Google introduced its low-budget virtual reality platform, “Cardboard”, designed to make VR more immediately accessible through $5, easy-to-assemble kits that turn common Android smartphones into makeshift VR headsets. Subsequently, it introduced a new version for iPhones, and announced a partnership dubbed “Jump” with GoPro to bring VR content creation to the masses.

A Blueprint for Creating a Dominant AR/VR Platform

As Clay Bavor, Google’s vice president of virtual reality has said, “If you want to experience VR video, all you need is the YouTube app, your smartphone, and some cardboard.” Cardboard may not be the longterm answer, but it has certainly seeded the market.

Additionally, another crop of companies are providing the powerful VR/AR software platforms to power virtual games and worlds.

Last Summer, the launch of Pokemon Go, powered by Unity Technology’s game engine, acted as the starting gun that signaled that Virtual Reality was here to stay. In the first two months, Pokemon Go was downloaded 500 million times and was the fastest game to reach $500 million in revenue. The game quickly put the physical and digital realities in the blender and sent people into streets and parks, onto beaches, and even into cemeteries, in pursuit of Pokémon.


John Riccitiello Discusses the Power of Unity’s Platform at the 2017 ASU GSV Summit

Source: GSV Asset Management

Unity’s technology not only powered Pokemon Go, but countless other games, including Super Mario. After the launch of Pokemon Go, in one quarter alone, they had 5 billion downloads and 2.4 billion unique devices running “Made with Unity” games.


AR/VR isn’t just a computing platform, or even a vehicle for mind-blowing entertainment (although this is a key piece of the puzzle). It was fundamentally a new medium for acquiring information and knowledge.

Language, arguably the most crucial technological advancement in our history, transformed learning from simple mimicry and emulation into the realm of complex ideas. Expression through language accelerated innovation. At the same time, it enabled us to develop abstract ideas that evolved into a shared culture.

Writing, and later the printing press, multiplied the power of language by creating access to the best ideas for a much broader audience. An outsourced device for “remembering,” the written word also expanded our inventory of ideas, which were no longer dependent on the storage capacity of the human brain. Film, and later video and video games, were important extensions of this concept. But all are still approximations of reality.

AR/VR represents a fundamental leap forward because it has the potential to shatter physical boundaries that separate the World of ideas and experience. It is going to be a powerful platform to learn anything… everything.

Ironically, while skeptics ponder how the new technology will be applied to education, we have a long tradition of learning by doing.

Since the Wright Brothers took their first flight in 1903, for example, the aviation industry has had a basic need to simulate flight experience before putting pilots in the air. With the advancement of computer, graphics, and gaming technology, aviation simulation has come a long way since 1910, when the best training method involved sitting in a half-barrel to simulate flight pitch.


The most effective way to learn is often through hands-on experience and immersion. For one, cognitive research demonstrates conclusively that the more actively involved a person is in their educational environment (i.e. not sitting back and watching passively), the more information they retain. Intuitively, the closer you get to the “real thing,” the better you learn.

It is easier to master Mandarin if you live in Beijing. Or framed differently, how would you like to be a surgeon’s first patient after they learned their craft exclusively by watching YouTube videos — or even the best instructional videos ever made?


Source: CrunchBase, GSV Asset Management

Learning by doing is a great idea, but the “real thing” is expensive and often impractical. Immersive education at scale was a fantasy. But Virtual Reality technology is approaching “magical” quality at mass market prices.

Top Neuroscience researcher, Dr. Adam Gazzaley (Director, Neuroscience Imaging Center, UCSF) has created a window to the future of education with his creation of Body Brain Trainer. Body Brain Trainer (BBT), is a full-body motion capture game that improves brain function by simultaneously challenging the core aspects of cognitive control — attention, working memory, multitasking — while prompting increasingly strenuous physical activity.

The game monitors the participant’s heart rate and uses adaptive algorithms to consistently ensure that players are challenged both physically and mentally. It’s scientifically proven that exercise can significantly improve brain function. By coupling that with brain training, BBT has the potential to enhance cognitive abilities more than physical or brain training alone.


AR/VR will increasingly enhance and accelerate design processes, from large corporations to emerging startups. According to PwC, product design and development is the most popular application of the technology amongst manufacturers.

Ford, for example, has been using virtual reality technology to develop car designs since the year 2000. But in the last seven years, the 111-year old business has made virtual reality central to its automotive development, using Oculus technology.

Ford’s Immersion Lab is an advanced facility where automotive design professionals can don a virtual reality headset and explore various aspects of a concept car while colleagues watch what they experience on a large screen. The company’s technical design process normally begins with simple sketches, which are developed into complex designs, involving highly specialized engineering. Virtual reality can be brought in at any stage to test an idea.

Advanced Virtual Reality Enabled Design Center

Source: CNN

Ford’s leading virtual reality specialist, Elizabeth Baron, has observed in interviews that the integration of VR into the design process has enabled the team to catch critical flaws that otherwise would have been missed and corrected later at great cost: “In the past we would have had to build a physical model to see how change would impact our design,” she said. “We are now a lot more agile in what we can understand right away, so we can understand problems that do come up a lot quicker.”

GE is meshing artificial intelligence (AI) with virtual reality to create smart models that help them streamline product design processes and while improving safety for customers.

As part of the product development lifecycle, GE is beginning to create “digital twins” — simulations of products based on sensor analytics, AI-enabled scenario analysis, and historical performance data. These twins enable GE to more accurately predict performance and wear and tear on everything from aircraft engines, to locomotives, and turbines.

A Car Battery and Its Digital Twin Model on GE’s Servers

Source: GE

VR visualizations help engineers to understand and pinpoint design flaws, as well as structural elements that can be improved. At the same time, predictive performance models can pinpoint a machine’s life expectancy. For example, an aircraft engine in the air could have a digital twin on GE’s servers that accurately tracks the health of the engine to determine the most optimal service schedule for its parts.


While Oculus may be a disappointment for Facebook to date given a mixed public reception and uneven sales numbers, there’s still a big belief and a lot of momentum in the idea that first Virtual Reality, and ultimately Augmented Reality, are the next major platform in computing — in the same way that the World went from mainframe to PC to client server to web to mobile. You can already see the smartest companies in the world deploying billions of dollars on this bet.

Snapchat, in particular, has pioneered commercial Augmented Reality technology in the social media space with its “selfie lenses” that can seamlessly apply everything from puppy dog ears to flower crowns over user images.

This April, Snapchat announced a new set of features that allows users to place virtual objects in the real world using a combination of advanced camera and depth sensor applications. CEO Evan Spiegel recently observed that the platform’s dancing hot dog image was the world’s, “first augmented reality superstar.” It was viewed over 1.5 billion times on Snapchat in in the second quarter of 2017 alone.

A Virtual Character in GSV’s Real Office

Source: GSV Asset Management

In January, Google announced partnerships with Gap and BMW who are deploying its AR app Tango to create virtual showrooms. With BMW, Google is developing an app that displays BMW vehicles on smartphone screens, allowing shoppers to walk around superimposed vehicles, manipulating, colors, trims, and even backdrops (e.g., home, garage, etc.) for additional context.

Amazon is rumored to be exploring digital stores to sell furniture and other home products. These stores will reportedly integrate augmented and virtual reality technology, enabling people to see how things like sofas, desks, ovens and more look in their homes before they make a purchase. Home design platform Houzz is already using AR to show possible room configurations on its iPhone app.


Source: Company Disclosures, GSV Asset Management

Apple officially entered the AR/VR race this Summer, announcing ARKit at WWDC. This new platform allows developers to create AR experiences for the iPhone and iPad using the device’s camera. ARKit will open up mobile augmented reality experiences beyond Pokemon Go and immersive games, potentially bridging the technology into schools, hospitals, and retailers.

Already, Furniture retailer IKEA has shown off an ARKit powered mall that superimposes furniture into homes. Just as Apple paved the way for an “App Economy” with its iOS App Store, ARKit could herald a new category of apps that incorporate augmented reality to build new consumer experiences.


Source: Company Disclosures, GSV Asset Management 


by Luben Pampoulov

Chinese Tunes

The music’s getting louder. The revival of the industry is in full force, and U.S. music sales are seeing double digit growth for the first time in 20 years. Also, for the first time ever, streaming is surpassing any other mode of sales. Not surprisingly therefore, streaming leader Spotify recently secured better deals with lower royalty rates it pays to the record labels. Last week, Apple Music also managed to secure better deals with the labels, and Facebook is now entering into contracts so its users can post music videos on their timeline. (Disclosure: GSV owns shares in Spotify).

Royalty Rates to Labels

Source: recent news reports

While Wall Street is preparing for Spotify’s possible direct listing, its Chinese copycat, Tencent Music Group, is gearing up for a possible near term IPO, and is now approaching a $10 billion valuation. Tencent is currently selling a 3% stake at that valuation to strategic partners, including record labels.

Tencent Music Group is China’s largest music platform, and it operates popular music apps QQ Music, Kugou Music and Kuwo Music. Combined, these three apps have 600 million monthly active users and 200 million daily active users — which is more than Spotify, Apple Music, Pandora, SoundCloud, Tidal, and combined!

Global Music Platforms (MAU in Million)

Source: Recent company reports

*GSV estimate based on recent public reports

A year ago, Tencent bought a controlling, 60% stake in CMC, which gave it a valuation of $2.7 billion. Tencent then spun off its own music unit and combined it with CMC to create Tencent Music Group at a reported $6 billion valuation.

While it’s more than 4x the size of Spotify’s global user base, the majority of music in China is still unlicensed and pirated. Tencent Music Group is now focused on growing its subscription streaming service, and has secured deals with Sony, Universal and Warner Music. It is unclear how many of its users are paying, but the number is likely much smaller than Spotify’s 60+ million paying listeners.

The Chinese domestic streaming market is still in its infancy, and it is estimated to reach $664 million of subscription revenue by 2018. As a comparison, Spotify reported $3.3 billion of revenue in 2016, with ~90% of that coming from subscriptions. Therefore, it is difficult to compare one with the other, but certainly, Tencent Music Group will be one to watch closely. 

Pioneer Notes

by Li Jiang

The Top 3 Ways Blockchain Matter in the Future

Why Cryptocurrencies & Blockchain Protocols Will Thrive Despite the Crash

By: Michael Guo

There’s been a lot of buzz over cryptocurrencies like Bitcoin, Ethereum, and countless others. The numerous records broken by these currencies. The whopping thousand percent gains over the course of just a year or so. The recent, and I mean very recent, double digit crashes. The numerous articles on how cryptocurrencies are just bubbles and the hype is grossly out of proportion with its usefulness.

In truth, it’s hard to imagine what kind of impact block-chaining will have on our everyday lives. Even looking back just a couple decades, we can see a number of “world changing” technologies fall quite short from their lofty aspirations. When the concord was first unveiled, the press declared supersonic flight to finally be here. When nuclear power plants were built across the country, free, clean, and renewable energy was said to be a stone throw away. The decades came and went. Yet these technologies, while impactful, did not change the way we live our lives like promised.

And as a bystander, blockchain can seem like a niche technology only really useful for criminals committing illicit activities (think the Silk Road and its countless derivatives). Besides, the thought of a decentralized and incognito currency can actually sound pretty scary. So we ask to ourselves: How world changing could this new piece of technology really be?

Side note: I know that blockchain has been covered before. A lot. So I’m going to be focusing on its ramifications rather than discuss the technology itself. And if you’re new to blockchain, I highly recommend this article written by Mohit Mamoria who breaks down the topic in a way that anyone could understand it. Don’t worry, I’ll wait.

Yes, there is a lot of hype. However, I think block-chaining has the potential to reshape the way we consume everything around us — from groceries to the electrical bill. Especially in ways you haven’t really considered before.

The Disruptive Nature of Blockchain

  1. Supply Chain Management
  2. Peer-to-Peer Transactions
  3. True Digital Security

Supply Chain Management

In order to understand what block-chaining can do, we must look at a current real world example.

Let’s Talk About the Present

Flexport, a $300m revenue company founded in 2013, reinvented the supply-chain industry. Before Flexport, international freight forwarding was a tricky business. There were so many moving parts and no standardized way to track any of it. You’d literally just call your supplier and ask where the shipment was. Then, after looking at their excel sheet, they redirect you to someone else. And so forth. Shipments get delayed, lost, and you never knew who to blame. Flexport changed all of this by standardizing and digitizing the industry so that suppliers, manufacturers, and retailers could all quickly and efficiently identify the location and status of the package. With data available, companies can target and identify areas where they’re overspending. Now hailed as a trillion dollar startup, Flexport is poised to completely change the way we ship our products.

So…What Does This Have to Do With Blockchain?

Like Flexport, blockchain has the potential to disrupt the way we interact with our products. When you go groceries shopping at a supermarket, you have limitless options — over 35,000 options to be precise. And if you live near Chicago like me, your food travels on average 1,500 miles to reach your plate. These are the miracles of globalization; stuff that we take for granted on a day to day basis. But it’s also a little frightening. It’s becoming harder than ever to see where our food is coming from. As consumers, we only see the final product. We really have no clue where we are getting our food from.

Now — > Future; Source: Providence

Full implementation of blockchain from end to end means transparency for all. As seen above, the current system of data management and tracking is severely fragmented. Flexport is already changing this for the better, but still relies on individual servers communicating with one centralized platform (Flexport). Blockchain is the future. Suppliers, manufacturers, and consumers can all tap into one trusted, decentralized, system for record-keeping.

Imagine you’re shopping for groceries, and you’re worried about the food you consume on a daily basis. With a QR code, an app, or an AR display (come back to me Google Glass!), you can quickly verify every step your product has taken in its journey. While that may sound like overkill, imagine if it’s life-saving products. Something you absolutely need to know is safe? What about for premium luxury items that you don’t want to be counterfeit? How about making the FDA’s and FSIS’s jobs easier? The possibilities are limitless and blockchain will get us to that safer, more transparent, future.

Peer-to-Peer (P2P) Transactions

As the recent shared-economy craze has shown, as individuals, we actually have a lot to offer to society. Uber and Airbnb have become billion dollar companies by simply allocating resources from one party to another. Block-chaining has the potential to take this framework to another level.

Sending money back home to your relatives? How nice would it be if it was delivered near instantly, anywhere in the world, and be perfectly secure without fears of hacking? Oh, and 100% of the money is sent to the recipient. How about selling the extra electricity generated by your solar panels to your next door neighbor? Those are the superpower of blockchain. Convenience, security, and total flexibility.

Combine it with existing or future IoT technologies and you can set up micropayments for just about anything you may need. The beauty of blockchain lies in its decentralization. As of right now, shared-economy platforms are all centralized systems. You use their services for the convenience and they take a cut. Not to mention if they go out of business, the service is removed. As we’ve seen previously, blockchain technology and the currencies built on top of it is owned by nobody. It’s decentralized.

One possible example of how P2P could work

Meaning: True shared-economy transactions. Your neighbor that drove you to work? He gets 100% of the cut. Both of you are made better off from the transaction. The economy is operating at near, if not perfect, efficiency. Blockchain really allow us to move towards a more democratic and efficient society.


Our online presence is larger than ever. With it comes the need to protect our digital selves. Up until now, it’s been extremely difficult to protect our personal information. The countless hacks on Target, Sony, and Yahoo. The thousands of personal accounts compromised show that the existing system is severely flawed. It is here where blockchain thrives.

No more centralized databases holding your sensitive information — obvious targets for hackers. There’s just the public and private keys in a transaction. Ledgers can’t be altered (without significant, near impossible, effort), and transactions are permanent. Of course, blockchain technology isn’t a perfect solution — there can never be perfect security apparatuses. But it is a whole lot more secure than our current system.

The opportunities stemming from this fact is endless. A digital passport for all of our activities? That could be a thing. What about email verification? Use your crypto address instead.

The Known Knowns and the Unknown Unknowns

I think former Secretary of Defense Donald Rumsfeld’s comment on unpredictability is applicable to any emergent technologies — especially blockchain.

“Because as we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns — the ones we don’t know we don’t know. And if one looks throughout the history of our country and other free countries, it is the latter category that tend to be the difficult ones.”— 2002 on Iraq and Weapons of Mass Destruction

I’ve attempted to articulate what I think are the biggest use cases of blockchain. But to be frank, I can’t even begin to think about what I don’t know. The unknown unknowns. Nobody quite saw how the internet would change our daily lives. That’s the nature of disruptive technologies. They create entirely new markets, and I see the same impact with blockchain.

While I cannot hope to perfectly predict the use of blockchain, I know, with certainty, that it will change our lives. It’s just a matter of time and how.

— Michael & Li Jiang

Market Update

Week ending September 10, 2017

World Indices

U.S. Indices Snapshot

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