Metaverse; the next frontier 💰

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A Wild Wild West of investment opportunities

Prior to discussing the Metaverse’s potential investment opportunities, we must first try to establish what the Metaverse is. Many definitions exist today; the fact that the metaverse is too new to define precisely (similar to the internet in its inception), and that there is a lot of marketing hype, is not helping in bringing much clarity.

The combination of virtual reality (computer generated environment) and augmented reality (computer generated inputs in physical world) are widely accepted by BigTech as the core of the Metaverse.

Gaming is the first industry that comes to mind in that context, with games such as Fortnite and World of Warcraft where players can already interact with each other as avatars, buying and selling goods. Opportunities abound already re potential investments in that space. It doesn’t mean they are always great opportunities, when considering valuations (high), competition (high) and traction (hit or miss). However, there will be some great success. A highly diversified investment strategy will be wise to implement in order to generate positive financial returns.

Fitness is an other industry with interesting applications and traction already. The Wii released in 2006 by Nintendo is probably the most well-known grandfather of fitness in the metaverse…who knew we were already metaversing when hitting that tennis ball in our living-rooms 15 years ago. Similarly to gaming, committing capital to several players is the best option to benefit from this space.

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For both gaming and fitness, angel investors can already find interesting deals on online platforms. I actually just invested in a couple of them. One, in the fitness industry, has seen nice traction ~US$850K revenues in 20–21 and 200K installs in Q1 22. Valuations are not cheap — US$30.5M in this context- but it is the price to pay to play. I will give more details on this investment opportunity in the next edition. As always, I focus my investments on companies that already have revenues (meaning the founding team can and want to sell!) and preferably with experienced founding teams.

Financial services is another area with great investment opportunities when it comes to the metaverse. Applications are plentiful and the obvious one is payments. I won’t dare going into the cryptocurrency space, but will rather focus on the less sexy payment infrastructure space. My reluctance to address cryptocurrency is linked to my finance background and my concerns when it comes to having currencies outside a clear regulatory framework, but I realize that it is not a popular perspective in the tech space.😀 Centralized Bank Digital Currency is definitely my digital currency of choice (once this happens, I give you that!)

Financial Services in the Metaverse” panel

Last week, I participated in a “Financial Services in the Metaverse” panel, which reminded me of one of my prior lives as an Innovation Executive at a large bank. Panelists all had examples of “innovations” in the space, such as JPMC (of course!) establishing a presence in the metaverse. FMP, this type of initiatives will not generate any interesting returns, just the usual shiny objects trap big corporations fall into when they don’t have a deliberate strategy. However, enabling payments to power the growing AR/VR ecosystems is where the massive opportunity lies. In addition of digital currencies and established players such as Paypal, or your good old credit and debit cards I can see the development of payment systems (and currencies 🙄) specific to the different universes. Think about Epic (Fortnite) that developed its own payment system, “Epic Direct Payment”, for its players. So now you are not only investing in a gaming company but also an e-commerce and payment company. Not bad! In the same vein than Facebook just started as a website to connect Harvard students, I believe we will see the same type of behemots emerge in the next 10 years.

The billion dollar question is how and where do you find them? One of the big differences with the 2000’s is that these behemots will unlikely be all coming from Silicon Valley 💪 China is an obvious location, due to their size, but also language and regulatory barriers. South America, where we have seen multiple extremely successful technology companies emerge in the last two decades, will also have their own champions; once again language and size support this direction. We can expect winners coming from more traditional geographies, such as North-America, and Europe (Nordics and Eastern Europe are on my radar). It is not always easy to invest in foreign geographies in early-stage as angel investors, however the geographical arbitrage and opportunities are worth the extra gymnastic.

In terms of selecting the companies per se, the same criteria apply in the metaverse too, however I want to mention 2 key differences; 1) valuations, 2) diversification. Valuations are somehow out of control the second the word “metaverse” is uttered. I am a bit more flexible in terms of multiples in order to participate; I do keep my head on my shoulders though (revenues, revenues, revenues) and I am not ready to invest at any valuation. I also realize that many of the companies popping up in the space will not be successful, which leads me to more small checks to hedge my “bets”.

Hope you enjoyed reading this piece and that it generated some food for thoughts for your next investments! 🚀

It is challenging to be a successful startup entrepreneur, investor or advisor. Knowing best practices and pitfalls, maximize the probabilities of success! Good luck 🙂