Virtuix Equity Crowdfunding Deal Analysis

2016 is shaping up to be the year virtual reality finally goes mainstream.

Facebook’s highly anticipated Oculus Rift VR system goes on sale this March. HTC’s Vive goes on sale in April. Samsung’s Oculus-powered VR Gear went on sale last November. Sony expects to launch the PlayStation VR, with up to 100 game titles, by summertime.

The timing of these rollouts is great news for the startup we’re looking at today: Virtuix.

Virtuix (a private startup) will soon be raising up to $15 million from anyone, not just accredited investors, through SeedInvest. Sources I’ve spoken to say the deal will launch in February/March.

This is the most interesting equity crowdfunding deal I’ve seen so far. Past investors in Virtuix include billionaire Mark Cuban, musician Nas (Nasir Jones), as well as noted VC firm Maveron.

We don’t know yet at what “valuation” the startup will be raising money. That will come after the current preview period is over on SeedInvest, and the company has had time to judge investor demand.

But that doesn’t mean we can’t analyze the company’s fundamentals. So today we’re going to dig into this startup and see what it’s made of.

The company’s main product is the Omni. It’s already “pre-sold” more than $2 million worth of units. Here’s a picture of the device, which is available for pre-order for $699.

The Omni is designed to make virtual reality more active and immersive. Virtuix describes its product as an “omni-directional treadmill.”

In other words, the Omni allows you to walk, run and jump while staying in a small confined space.

This system is arguably the best way to make VR truly immersive. When you can look all around a virtual world, it would feel unnatural if you couldn’t move toward something.

The Omni achieves this impressive feat using low-friction materials and high-tech sensors. The platform you stand on is “slick” and so are the special shoes you wear. Advanced sensors transmit your movements into data, which controls your VR “avatar.”

The easiest way to understand this technology is to watch a video of someone using it. Go here to watch a recent clip of Virtuix’s Omni in action. (Note: Virtuix posted that video one month ago, and it has more than 186,000 views. Impressive. I mark this down as a positive signal.)

HTC’s Vive will take a different approach, using lasers embedded in walls to section off a “virtual room.” I don’t think this is an attractive solution. Most people’s living rooms don’t have an abundance of space as is.

A Complement, Not a Competitor

Importantly, Virtuix’s Omni doesn’t compete with most of the VR headsets coming to market soon.

It adds to the experience of using a VR headset like the Oculus Rift or Sony’s PlayStation VR.

Here’s how Barron’s writer Tiernan Ray described the Omni after trying it at the 2016 CES, the largest electronics tradeshow in the U.S.

It was fun, and actually not a bad workout. Omni definitely adds something. Unlike sitting in a chair playing VR, I had a sense that I was moving to someplace as my legs moved. I felt like I was running to a point in space, even though in reality I was doing a bad version of Michael Jackson’s moonwalk.

Virtuix has generated a large amount of press buzz. This is critical for an entertainment-based startup to succeed. Positive press coverage is the lifeblood of companies such as this one.

The buzz around Virtuix should continue to build as the company moves closer to a live equity offering that anyone can participate in.

Intellectual Property

The company currently has nine pending patents on its hardware. It’s hard to say if they’ll be granted or not. Unknowns such as this are simply part of early-stage investing.

We do know that Virtuix has attracted venture investment from large reputable firms. Typically these types of investors will ensure that patents are filed correctly. But clearly, the pending status of the patent applications represents some risk.

Online Research Findings

There’s a lot you can learn about private companies online. You just have to know where to look.

Google Trends is a great place to start. Trends, if you aren’t familiar, is a free tool Google provides that tracks interest in almost any keyword you can imagine. The chart below shows significant search interest in Virtuix’s VR system.

This chart shows monthly data up to January 2016. Interest in Virtuix is clearly in an uptrend. And the last data point, representing this month, shows only around 13 days of data. We can safely expect the final January Trends data to show near-peaking U.S. interest.

Note: Trends can be a valuable research tool. But it doesn’t work for every deal. Many are too early to have generated enough search interest in their businesses. Or maybe they’re in “stealth” mode, or they sell a specialized product to large businesses. In either of those cases, you won’t get much insight from Trends. But in the case of Virtuix, it’s quite handy… You can learn more about how Trends works here.

A startup’s social media accounts can also be revealing. And Twitter is usually a good place to start. With Virtuix that was certainly the case.

The first Tweet that stood out to me was this one. It’s a video clip from CES 2016.

The clip shows a user in shorts and a cutoff shirt trying out the Omni. Closer inspection, however, reveals that this is no ordinary techie… It’s Palmer Luckey, the founder of Oculus VR.

If you aren’t familiar with Oculus, it was purchased by Facebook for $2 billion in 2014. Its virtual reality headset will debut to consumers this spring.

The fact that Mr. Luckey is aware of the Omni, and interested enough to try it, is encouraging. Oculus would be an extremely valuable partner for Virtuix. And it could potentially be an acquirer as well, down the road. I mark this down as another positive signal.

Not All Sunshine and Roses

Before deciding whether or not to invest in Virtuix, it’s highly advised that you consider the not-so-positive aspects of this deal.

First, the company has 31 employees, roughly half of them engineers. That’s a lot of overhead. Virtuix has raised only around $6 million to date. It’ll need to raise quite a bit more money to continue paying salaries and to achieve mass production.

Also, Virtuix has historically had trouble meeting “expected shipping” deadlines. It originally expected to ship the Omni in 2014. Then it was 2015, and now Q2 2016.

However, we must consider that the VR systems the Omni aims to improve have also pushed their deadlines back. So in some ways Virtuix has been hampered by the delay of other manufacturers.

Hopefully the company’s capital raise on SeedInvest will enable Virtuix to deliver its product by the end of Q2. But we can’t ignore the fact that it’s failed to meet self-imposed deadlines in the past.

It’s simply a negative signal to be weighed against the positive ones. For me, it’s definitely not a deal-killer. It simply requires more investigation. We need to find out how Virtuix plans to meet its current deadline of Q2 2016.

I reached out to Virtuix’s team earlier in the week, but haven’t heard back yet. (I imagine it’s a rather busy time for them, and I didn’t give much advance notice of this article.) If and when I do hear back, I’ll update this post.

I should also note that Virtuix is not alone in delayed shipping. It’s a common problem with Kickstarter-funded “pre-order” campaigns. The Pebble Watch and Coolest Cooler are two other popular Kickstarter campaigns that missed deadlines in the past. The Pebble, at least, has gone on to be a big hit.

Even Oculus has had to repeatedly push back its delivery date. Consumers who backed the project early on Kickstarter have been, at times, furious over delays.

I’ll keep everyone updated on the Virtuix campaign as it progresses.

Also, I’d love to hear what readers think about this deal. Would you invest (assuming a reasonable valuation)? Drop a note in the comments and let us know.