The Business of Virtual Reality
You’ve had this amazing research idea that you suspect might be of enormous benefit to patients who suffer from hemigolania. You know that it will reduce treatment time, rapidly enhance their quality of life and save the health service enormous amounts of money, and many people a lot of misery. In fact, effects of your bright idea could be a revolutionary exploitation of virtual reality.
Deciding that the idea is worth pursuing, you forge ahead, obtaining funding to carry out the necessary research. Then after three years of hard work with a dedicated team, you find that your intuition was correct. Eventually, your original scientific insight is fully supported and experimental studies are published in very high-ranking journals.
So, what’s next?
Together with your team, and in discussion with your institution, you decide that this is something worth bringing to market. That means forming a spin-off company, and seeking investment. Of course, that’s not the end of the road, but really the start.
Next, your institutional technology transfer department sends a series of business advisors to meet you. You describe the idea and you show demonstrations. Your eyes widen as they start to question you on things that you don’t have a clue about. They talk in huge numbers: 10 million in 2 years, 50 million, a valuation of 100 million. They say: you need a CEO, you need marketing managers, you need a CTO, you have to explain the whole idea at a meeting in 2 minutes, actually 1 minute, plus you need slides, actually a video, and by the way, this video has to run for 30 seconds and needs to encapsulate and explain the entire idea, including the financial return to investors.
This goes on for months until your head is spinning and then, just when you’ve come up for air, these self-same business advisors start talking about something called an “exit”. A what? They introduce themselves to you by saying that they have been through 20 “exits”, but you wonder what’s so remarkable about that, because you’ve been through thousands of those. With information overload, your immediate reaction is to seek the nearest exit.
Of course, that’s not the end of it, as now a range of seemingly crazy people are telling you things like “You’re doing everything wrong!” – but you don’t know what you’re doing at all, let alone realise what you’re doing wrong. They keep telling you about the “real world” yet despite all of this, they are immediately enthusiastic, often even before you’ve told them about the fundamental idea of the invention.
Eventually you are introduced to an investment group that seems to be serious. No crazy stuff. They call you back for several discussions and demonstrations 5 times over the course of a few months. Through all of this contact you’re almost friends by now, and then they say the magic words, “Make an appointment to come back next week and we will make you an offer.” Finally, you’ve got the investment you need to convert your idea into reality. However, when you go back the next week to finalise all of the particulars, the investors unexpectedly turn around and say, “We’re not going to invest. Thank you. Bye.”
Now you wonder – What have I let myself in for?
Based on what’s just happened, you realise that just maybe you’re rather green when it comes to understanding the ins and outs of the business world. Apparently no means no, yes doesn’t mean yes, but you don’t know what it means, and apparent enthusiasm can also mean a complete lack of interest.
After navigating your way through that murky and muddy water, suddenly, some clarity appears. You are introduced to someone who appears sane. This person will be your mentor and help to put together a business plan and a business model for you. They teach you about the business model canvas, the business value proposition, and all kinds of strange new ideas, and then after a few weeks they present the business plan to you. You see a financial forecast, devised from looking at international market penetration that illustrates your company will achieve hundreds of millions in revenue within five years. You ask where the figures come from, but there’s no answer except, “This is a business plan and its purpose is to convince the investors.” Not quite what you were expecting to hear, so you ask where the forecasts come from. Their rather abrupt answer is, “They are forecasts.”
OK so you realise that this isn’t scientific. You wonder whether you could do the same in your research – make up some numbers and say “But they are forecasts” when challenged by the referees – but you don’t think that this methodology would work in science.
Two years go by, and you’ve now partnered with a CEO and realised that she has to lead the charge. You had been earlier that: “The CEO you appoint must be as good and known in the business world as you are in the scientific world. It has to be someone you completely respect, and from whom you will accept orders”. Amazingly, such a person was found after many false starts.
The CEO has experience in medical products. The first thing she wants to know are the results of your clinical trials. You show the experimental data. But these are not clinical trials. You have to do the clinical trials or no investor is going to look at this. “But I’m not developing a drug, this is just virtual reality.” “It doesn’t matter you are positing a clinical outcome. Because it is not a drug you won’t need millions and millions to run a clinical trial. In fact, I have friends who would likely fund the clinical trial in return for options.” “Options?” “Well they sort of get shares, but not now.” “When?” “When the options materialise.” “Oh right.”
Just when you seem to be getting a handle on things, someone asks: “Do you have a CE Mark for your product”. “A what?” “A CE mark…. You can’t do a clinical trial for a product unless you have a CE mark.” “Maybe you should combine the CE marking with FDA approval.”
You find out that to have a CE mark you cannot use the software that was developed for the experimental work. It is not that anything is wrong with it, but rather you have to have documented and tested every line of the code following certain standard procedures. Without that you cannot possibly get the CE mark. Also, you have to hire experts to help you get the CE mark, and you have to pay for the whole process. This can run into tens of thousands!
So, to get the investment to run the clinical trial, you have to already have money to be able to afford the certification process. Also, it can take a very long time.
Kind of back to square one
Meanwhile people are needlessly suffering from hemigolania.
Let’s fly through a wormhole into a Parallel Universe. In the Parallel Universe shortly after your scientific papers were published and you had set up the company, you were approached by a huge international investor that specialises in the medical field. They offer significant funding in return for 40% of the company. (Turns out that the chief investor’s husband suffers from hemigolania). They take a seat on the newly formed Board and place a trusted person in the CEO position. You’re the CTO and your team has migrated from the research institute to the company and things are really looking up. You learn early about the CE mark problem, and anyway you have enough resource to completely redesign and redo all the software, and the resources to do the certification.
After some years you have a successful clinical trial finished. Your CEO is busy arranging appointments and demos and going for “Series B” funding. You’ve been meeting with potential clients, both in the national heath and private hospitals. The demos are really successful and very appreciated. The videos of patients are very emotionally compelling. The data speaks for itself. It’s a no brainer, it will save the health service millions.
“Sorry the doctors don’t like it.”
“The department line manager doesn’t like to introduce new gizmos because they upset the staff.”
“We don’t have resources right now – err you know, government cuts – but this may be something we can look at in a few years.”
“It’s great, very, very good, but sorry we don’t have time or the resource to implement this into our procedures.”
“There are very serious ethical concerns with using virtual reality, because it can change people.”
But you don’t take no for an answer. You, your CEO and your Board press on. You realise how important contacts and networking are. One member of your Board happens to know the head of a huge hospital group in Boston, USA. You go there. There is a massive level of genuine enthusiasm, and your product is installed in 5 hospitals on a trial bias. A year goes by and the results are incredible. The nurses, doctors and patients love it. It reaches the news, it is featured on the BBC World Service.
Your local health service complains about why a local invention had to be first introduced in another country. “Why didn’t you tell us or give us a chance?”
It took nearly ten years, but finally that idea you had about starting a VR company which would improve the lives of people has come to fruition.
After all it was worth it.
Conclusion: Get a really good and well-recommended business mentor with a strong history of company formation, investment raising, and a great business network. Ignore all other advice. If you’re lucky the mentor may become your CEO.
A founder of Virtual Bodyworks.
Immersive Fellow, Digital Catapult.