10 big things: Augmented reality bites at Magic Leap

For much of the venture capital industry, the past decade was a time of optimism and excess, of unchecked growth and untamed ambitions, and of big funding totals and even bigger valuations. There were promises of world-changing technology, and plenty of investors lining up to put their money behind the cause.

All of that was true in the case of Magic Leap, the headline-grabbing augmented reality startup that raised more than $2.6 billion in VC between 2014 and 2019, according to PitchBook data. 

But the coronavirus pandemic has brought an abrupt end to the good old days for many startups. And once again, Magic Leap is no exception.

The wave of layoffs rushing across the startup landscape claimed one of its biggest victims yet, which is one of 10 things you need to know from the past week:
 

1. One giant Leap

Magic Leap announced sweeping layoffs Wednesday, with my colleague James Thorne reporting that the cuts amount to about half of the company's staff, or more than 800 employees. Magic Leap is also moving its focus away from consumer applications of its technology and toward the business market. In a public note, CEO Rony Abovitz attributed the changes in part to a sudden lack of investor interest brought on by the coronavirus. 

Magic Leap will still be around, still working to solve the prickly problems of augmented reality, or AR. Perhaps this setback will eventually prove to be a bump in the road, a minor blip before another period of growth. But it also seems to be the clear end of an era at the company, the death of its dream to transform consumer entertainment with the wonders of AR. 

Founded about a decade ago, Magic Leap spent some of its earliest days working on a series of feature films and graphic novels before pivoting fully toward AR. The company operated in relative anonymity until October 2014, when it raised $542 million in a funding round led by Google, with participation from other big names such as Andreessen Horowitz and Kleiner Perkins. 

The investment came near the end of a year that, in retrospect, might have been the peak of virtual and augmented reality excitement. Facebook agreed to pay $3 billion for Oculus in March 2014, and Google Glass headsets debuted that May. Evangelists believed the industry was on the brink of a revolution, a new era where video games, movies, and everyday life could all be easily infused with a new kind of interactivity. 

In the ensuing years, the funding kept coming. Nearly $800 million in 2016 at a $4.5 billion valuation, according to PitchBook data. Another $963 million in 2018, this time at a $6.4 billion valuation. But the company itself, with its headquarters tucked away in South Florida, far from the prying eyes of Silicon Valley, remained shrouded in a degree of mystery. Magic Leap promised groundbreaking technology, but as the years passed, any real evidence remained scant. 

In August 2018, the company at last released its first consumer headset, with a price tag of more than $2,000. Reviews were mixed, including a certain amount of vitriol from some who thought Magic Leap's claims of innovation were overblown. Oculus founder Palmer Luckey, admittedly not exactly an unbiased observer, described it as a "tragic heap." Karl Guttag, a VR and AR expert, told Wired that year that "Magic Leap is and continues to be a hype machine." 
 
Gradually, Magic Leap began shifting its focus toward enterprise applications for AR, with an eye on industries such as healthcare, manufacturing and education. And now, it appears that shift is complete. 

Magic Leap had its fair share of questions and problems in recent years, but in an environment of such easy money, it didn't matter so much. Just last year, it raised $280 million at an essentially flat valuation of $6.7 billion. But now, screws are tightening across venture capital. As Abovitz, Magic Leap's CEO, put it, the pandemic has "decreased availability of capital and the appetite for longer term investments." 

The economic catastrophe of the past several weeks is shining a bright light into all the cracks and crevices that, in recent years, many startups had been able to gloss over. Magic Leap may still use AR to transform the world. But first, it will need to transform itself. 

2. Benchmark's shake-up

Bill Gurley, one of Silicon Valley's most famous (and tallest) investors, will not be a general partner for Benchmark's next flagship vehicle, The Wall Street Journal reported this week. Gurley will continue to make investments out of Benchmark's current flagship fund and will work with his existing portfolio companies, but the move could be a sign that Gurley is inching closer to an eventual exit. The new fund, Benchmark's 10th, has a reported target of $425 million.

3. Facebook's big bet

Facebook agreed this week to pay $5.7 billion for a reported stake of nearly 10% in Jio Platforms, a subsidiary of Reliance Industries that provides phone and internet services in India. The deal is a sign of Facebook's ambitions even in the face of a global crisis, both in terms of continuing to grow its user base in the world's second most populous nation and in expanding its offerings beyond social media into broader internet services. 

4. Game on

Buoyed by a lockdown-inspired surge of interest in Houseparty, the company's interactive video-chat app, Epic Games is in talks to raise between $500 million and $1 billion in new funding at a valuation "significantly higher than $15 billion," according to Bloomberg. Epic has been better known in recent years as the creator of "Fortnite," the success of which helped fuel a reported $1.25 billion round at a $15 billion valuation in late 2018.

5. Say cheese

The parent company of Chuck E. Cheese set up a restructuring committee this week to explore its options, Business Insider reported, as the business attempts to escape a pile of debt that dates to its acquisition by Apollo Global Management in 2014. Another dairy-fueled restaurant chain with private equity ties was also in the news, as The Cheesecake Factory lined up $200 million in funding from noted franchise investor Roark Capital Group.
 

6. Imperiled apparel

The traditional retail industry was already in trouble. The coronavirus has dumped a whole 55-gallon drum of fuel on the fire, sparking a new wave of closures, layoffs and other woes. This week brought a report from Reuters that Neiman Marcus is boring down on a Chapter 11 bankruptcy protection filing. It also brought news that Sycamore Partners is attempting to terminate its agreement to pay $525 million for a 55% stake in Victoria's Secret, a move that's set to provide a test of whether the pandemic is sufficient legal grounds for breaking a deal. 

7. Travel transactions

Apollo Global Management and Silver Lake agreed this week to take a $1.2 billion stake in Expedia, mere days after both firms made debt investments in Airbnb. Reports emerged this week that Apollo is also among several suitors vying to restructure Virgin Australia, one of many airlines around the globe in dire straits due to a sharp decline in business.

8. Layoffs roundup

Magic Leap was far from the only company with VC or PE backing to make job cuts this week, as the coronavirus crisis continues to send unemployment to previously unimaginable levels. Interior design startup Houzz, coding specialist Lambda School, mattress retailer Casper and talent management giant Endeavor were among the other names reported to lay off workers in recent days. 

9. Debutantes

IPOs remain few and far between, but Friday brought stock-market debuts for two companies with prior VC backing. One-time fantasy sports unicorn DraftKings consummated its reverse merger with SBTech, a sports gambling site, and began trading on the Nasdaq. And ORIC Pharmaceuticals, a developer of cancer therapies, raised $120 million in a traditional IPO and saw its stock spike more than 50% in its first day trading. 

10. Psychedelia

It wasn't long ago that marijuana was illegal across the entire US, considered a taboo substance that did much more harm than good. But in the past decade or so, public opinion has rapidly shifted, and the healthcare benefits of cannabis have been embraced. Will the same thing happen for psychedelics? Peter Thiel seems to think so. A German startup called Atai Life Sciences that's exploring medical uses for mushrooms and other psychedelics announced this week that Thiel was among several investors in a new $24 million convertible-note round.