E75: Greg Castle (Anorak VC) on the Biggest AR/VR and Spatial Computing Opportunities

0:03Welcome back to Turbentime VC, the podcast where we discuss the art and science of building successful venture firms. VC to VC. In this episode, I sat down with Greg Castle, the managing partner of Anoran Ventures, a seed stage firm focused on emerging technologies. Anoran's early investments include Oculus, Angeril, Flexport, Flock Safety, and Rec Room. Up ahead, you'll hear Greg discuss spatial computing's future and how the industry's biggest players are quietly positioning themselves for the next great computing shift. Please enjoy.

0:38Greg, it's almost been four years since I last had you on the podcast. Welcome back. Great to be here. So Greg, by way of introduction, for those who didn't yet listen to the first one, why don't you briefly introduce Anorak and how you came to get it to where it is today? First of all, shame on you for not listening to the first one if you haven't. Exactly. Second of all, Anorak is a VC firm. We're focused early stage. Been investing out of the firm since 2016 as an angel investor myself. I've been investing since 14. And we invest in companies that are leveraging emerging technology to provide a competitive advantage in a variety of fields, everything from waste management through manufacturing.

1:25I got my start in the video game industry in 2010 and got my start as a venture capitalist by making an angel investment that came good in Oculus. And that kind of kickstarted my VC career. I developed a reputation as somebody who knows maybe a little bit more than others in VR and AR. and I leveraged that to get into great deals and to eventually start Anorak. So we are pre-seed and seed. We're writing checks anywhere between 250 and 500K. And I'm based in LA and my partner is based in San Francisco. That's a great overview and Oculus is quite the win to build off of. Our last episode is a deep dive into AR VR and I want to do the same here and how it's evolved since we've last spoken.

2:19You call it spatial computing. You like that phrase. Why don't you unpack what that phrase means to you and unpack a little bit the vision that got you and has kept you so excited about the space? So I broadly bucket a bunch of different categories into spatial computing, and I broadly define it as kind of computing in the third dimension. So traditionally, Traditionally, we were dealing with the input was, well, originally punch cards and vacuum tubes and things like that, but eventually moving on to keyboard and mouse and basically inputting information into computers manually. And you were trying to do a variety of things by inputting this information into a computer from simple computations to simulations to just storing data.

3:13And as time has gone on, we've started to develop tools that enable us to more easily capture the real world as it exists, both capture and do things with, compute and things like that, and also recreate the real physical world in 3D. And that started with, you know, 3D game engines with John Carmack back in the day. Video games was one of the main areas that kind of pushed this whole thing forward. There were simulations before that, but in terms of the general public, you know, when you needed to, or when you wanted to recreate a whole 3D environment for gaming purposes, that was an incredible feat to do.

4:00And so, you know, whether or not you're talking about recreating the whole 3D environments for gaming, for simulation, whether or not you're talking about understanding 3D environments using computer vision, you're talking about interacting with 3D environments, AR, VR, robotics, all of these areas are using a lot of the underlying systems. same technological principles. And I kind of bucket them all together in this kind of category of 3D spatial computing. Can you say more about those principles or more about like what, if we understand them, helps us predict what's to come? Yeah. I mean, when leveraging the power of computers was relegated to people inputting using a keyboard.

5:00There was this kind of meat bottleneck of how do you get information into the computer so that you can do things with it. We're at a place now with compute where you don't need to input everything manually. We have all of these amazing technologies that enable us to bring in vast amounts of data using things like computer vision and RGB cameras, LiDAR sensors, all these different things that enables computers to amass massive amounts of data in order to be able to do different really interesting things with them. And that's really been a step change. And it's resulted in the need for all of these other massive areas of technology like cloud computing and storage and all these different things because we're able to pull in so much more data now.

5:56I mean, this isn't really a new thing, right? This has been a gradual evolution that's been going on for some time. But when I was first getting going, there were a couple of funds that came out that were just focused on like AR, VR and some of these other areas. And I really felt as though there was a lot of shared knowledge, shared technology amongst a bunch of these different spatial computing areas that I didn't want to come in and just focus on a specific vertical. I wanted to come in and kind of explore and invest in this whole kind of emerging area of spatial compute. Totally. So let's make this a bit more visual or concrete for folks, let's say we're doing our next episode in 2028, or even we're talking in 2038.

6:47Let's say the Anorak vision materializes. How is the world a little bit different if some of the hypotheses that you have about these spatial technologies come true beyond your imagination? What changes? We've been talking so far a lot about ingesting data, But I think also a more natural way in which we interact with technology will also come to fruition. And that will be not necessarily staring at a screen in front of you and having headphones on yourself. I think that, you know, we will, as we are able to understand what's going on in space, as computers are able to understand more and more what's going on with space, in space, in kind of the world, the ability to create more natural interactions with technology will progress and evolve.

7:42You know, I think we've made advancement so far, but it is still a rather clunky way in which we interact with most technologies. I think the phone being the most obvious one, this small rectangle that so many of us spend hours and hours and hours on every day, there is going to be better ways to interact with technology, whether or not it's our glasses, it's voice, it's whatever it is, I think that will certainly evolve. this conversation that we're having right now, I don't know if it's 2028 or 2038, but it's likely that it won't just be me staring at a screen talking to you through a webcam.

8:30It'll probably be something much more immersive where we really feel like we're in a presence. I mean, right now, if I look at my 3D environment right now, the little box that I'm interacting with you in maybe makes up 2 % of my total vision. I don't really feel like I'm with you right now. I feel like we're having a conversation, but I know that I'm in my office and I know that I'm talking to you. And it's not the ideal way to interact with people. We just had our, a bit of a tangent, but we just had our annual LP meeting in person. And it's the first time we've held our annual LP meeting for the first time in three and a half years.

9:13And there is just nothing like being together with people. All of the visual cues that you get from somebody, you know, being physically with them, being able to do different activities with them. It's just, there's nothing like it. And I think that we've got a ways to go. So I think, you know, if you're asking me what things are going to be like 10 years from now, I think how we interact with each other over distance is going to change and be much more immersive. I think how we interact with technology is going to change and be much more immersive. Those are probably two of the main things. That makes a lot of sense.

9:49Building off that, how should we think about how AR and VR are going to intersect or what kind of use cases might make sense for either? What's a mental model or framework for thinking about that? So, in terms of how they're going to intersect, look, the technologies that they're using are quite similar. VR is harder from a technical standpoint very much because with VR, you're basically just replacing the environment with a digital environment. For AR, you need to understand the environment around you if you're going to, it depends on what level of immersion you want with AR. But if you're going to place objects accurately, you know, if I'm going to go to a party and I'm going to see names floating above people's heads and notes about the last time we met them, like understanding an entire environment is really challenging.

10:41So, you know, a bunch of shared technology, but AR is definitely harder. I think that, you know, where I get excited about VR, I think from an entertainment standpoint, it's great. To date, we've seen some amazing gaming experiences. Anybody who's shot on an Oculus headset and had some time in it has probably played one or two great games. We're beginning to see communication applications that are getting better or that are out there. You can easily kind of see that. I think where we haven't yet, where we're just really starting to see some traction is in training and education, which I think is going to be radically transformed by virtual and augmented reality.

11:31You know, we as humans learn three-dimensionally, and there have been many studies that have been put out that prove that if you are actually, you know, doing things yourself, that time to absorb and retention is vastly improved. And, you know, I think we're just scratching the surface there and I'm really excited for what that future looks like. You know, medical, education, manufacturing. There's just so many different areas that I think are going to be, you know, where VR training is just going to become the standard and for good reason. AR, I think that we're farther out from. There are some people that are making good progress there, but, you know, I think we've still got a little while.

12:18But I don't necessarily see like an intersection of the two in the future. I think that they serve different purposes and that's the way it will be. Yeah, totally. Hey, we'll continue our interview in a moment after a word from our sponsors. Hey everyone, Eric here. In this environment, founders need to become profitable faster and do more with smaller teams, especially when it comes to engineering. That's why Sean Lanahan started Squad, a specialized global talent firm for top engineers that will seamlessly integrate with your org. Squad offers rigorously vetted top 1 % talent that will actually work hard for you every day.

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13:30Increase your velocity without amping up burn. Visit choosequad.com and mention Turpentine to skip the wait list. So we've looked at the future. I want to kind of reflect on the past. If you were to look back at kind of the different waves of kind of the inflection points, let's say, within VRR or spatial computing more broadly, how would you characterize the different waves or step changes along the way? Of spatial computing specifically? Sure. Well, I think it has, it's certainly evolved over time. It continues to evolve. It's difficult for me to think of like specific inflection points. I certainly think that Oculus was an inflection point.

14:15I think that Google Glass was an inflection point for very different reasons, right? I think Oculus is a very positive inflection point. I think Google Glass did what it was supposed to do for Google, which was help them understand how people would react to an AR device. And I think that they learned a lot. I think people often point to Google Glass as a massive failure, but I think Google would probably disagree with that. I think that they put it out as a beta and they obtained a ton of data from it as to how people react and all that stuff. It was never going to be something that moved the needle from a revenue standpoint or anything like that.

14:51I think it was an experiment. And I think from the perspective of an experiment where you go out and you test a hypothesis, I think it was incredibly successful. It showed that people are more concerned about privacy perhaps than we thought. But if I'm honest with you, and this is one of the challenges, I think. And look, I'm no computer historian, right? There are people who you can talk to who are way smarter than me in this, who will probably point to early RGB sensors, early computer vision models. There were definitely a bunch of things in the past where we made advancements in software where we were able to start to classify objects.

15:32When we saw them, we were able to do like simple things like that. So I'm sure that there were a bunch in the past. I don't know them off the top of my head. I think, you know, one of the challenges for AR VR specifically is that really we only have one player that's really pushing the industry forward. And consumers don't win when there's one player. Consumers win when a lot of people are excited about a specific industry and start to come out with competing products and are always kind of one-upping each other, right? Whether or not you're talking about the automotive industry or you're talking about the mobile phone industry or the laptop industry, whatever it is.

16:14In the past, competition has always been a good thing for consumers. We just don't have that in AR-VR. We have one company that is investing a huge amount of money for how long we don't know. I mean, I don't think that Mark is going to give up on AR-VR. I think he's going to keep on pushing it forward, but we're missing that. I would say that if another company came out with another headset, that would probably be another inflection point. If Microsoft really got behind, I mean, the HoloLens is a great piece of hardware. You could say that that was perhaps one of the inflection points. It was still very bulky.

16:53You could almost argue that that was still kind of a beta product. I think another inflection point, although we don't know when this is going to happen, but when Apple comes out with a headset, that will certainly be a massive inflection point. My partner always says this. He's like, nobody has the ability to make something cool like Apple does. Computer watches used to be the sign of a total dweeb, right? Calculator watches. Apple watch comes out, boom. Wireless headphones used to be Jabra headsets that made you look like a total nerd. AirPods come out, boom, everybody's wearing them. Like nobody has the power to do that like Apple does.

17:31And when Apple decides that they're ready to get into the industry, even if it is for like a very pro product, you know, where they're just catering to maybe a relatively small number of people, like they do with some of their super powerful high end PCs, it will be a game changer for the industry. And what's it going to take for them to get that conviction or for, you know, meta to, you know, I mean, zooming out, we're going through this AI moment. And of course, there's been all this buildup for AI for decades. And similarly within VR, I'm wondering what's it going to take for there to be this, you know, even a smaller version of what's happening now with AI, but this VR moment.

18:13Well, Apple doesn't do anything half-assed, right? Like Apple doesn't put out beta products. Oculus was happy to put out a DK1, a DK2, get a bunch of feedback from developers. Apple doesn't do that. So Apple will do it when they damn well please yell. When they really think that the product is ready to have an Apple logo on it. What's it going to take for others to get into the industry? I mean, it's funny. I like this might be like a little bit of tinfoil hat conspiracy theory and I have nothing to base this on, but my gut tells me that like Microsoft and Google and Apple and a bunch of the other larger technology companies are quite happy to watch Zuckerberg burn a tremendous amount of money to really understand, like he's proven that he's, this is kind of unprecedented.

19:11Like As far as I know, there haven't been a lot of CEOs in the past who have been willing to go as far as Mark has gone. And if I'm Microsoft and Facebook is doing a ton of the heavy lifting in terms of developing the technology, in terms of getting developers excited, etc., in terms of experimenting with safety and all those different things, I'm sitting back and I'm happy to watch how things go. And then when I'm ready to make a move, I'm going to make a move. It's not like they're sitting there not doing anything, right? Like they are definitely, you know, working on projects, working on partnerships.

19:57Like I think that there's no doubt in anybody's mind that the future of technology is not going to be these rectangles that we carry around in our pockets. Like, I think everybody in the technology industry understands that there's going to be, you know, there are going to be better ways to interact with technology. It's just a matter of timing, you know? It's the same as us in venture. If the timing is off with your bet, then it's a bad bet. Totally. Too early is the same as too late. I'm intrigued by this kind of, you know, air glasses take over the phone. Like, is it going to happen incrementally?

20:34Like, what do you think is the first use case that's going to transfer over to what we do with our phones to what we might put on for glasses? Or how do you think that transition might play out? So I think just accessing information in a more natural way is probably the first thing. I think audio is kind of the sleeper here. If your phone knows where you are and your phone knows what your schedule is and you have it on you, it being able to relay information without necessarily visual cues, I think is kind of where we will start to just become very merged, you know, with technology. You know, it's not the singularity, but the issue right now is that AirPods still only last, you know, maybe a day.

21:23They get uncomfortable after a little while. And so it's still not a complete interaction. To be honest with you, I actually think a lot of the issues that we have with why we still use the rectangle is ergonomics. Like whether or not you talk about the ergonomics of VR headsets or earphones or whatever it is, they're just not comfortable to wear for long periods of time. And it is still relatively taboo to like, you don't want to be having a conversation with somebody who has AirPods in. but once those AirPods become tiny, maybe once they even become to a point where you don't even see them and you have the ability to customize a whole bunch of different things about them and it has the ability to understand when is a good time to feed you information, when is an inappropriate time to feed you information, all of those different things.

22:18I think that that is where, you know, that is when we will all have these kind of assistants that are just in our ears and that have the intelligence to be able to interact with you in a way in which perhaps a human assistant would. A human assistant isn't going to come in and tell you a piece of news when you're in the middle of a podcast, when you're having a conversation with somebody else. They're going to understand context. They're going to understand what's happening around you and they're going to feed you information when it's appropriate. So I think that that is probably going to be the next kind of step function in, you know, change, should we say, and how we interact with technology.

23:01And, you know, we're kind of talking about AR, VR, but I'm talking about audio. But like, this is why I bucket a whole bunch of things under the same umbrella of spatial computing. It's really computers understanding what's going on around you in the environment, where you are, all those different things. And I think it's all kind of part of the same thing. Totally. Yeah, I'm imagining a, you know, almost a personal trainer for life in all meetings being like, hey, you know, this person's upset at what you said, or, you know, say this, or kind of, you know, on a podcast, like, you know, remember this about Craig, or, and maybe this is also where kind of spatial computing and AI can intersect, potentially, in terms of, you know, or chat, GPT, like, like thing in terms of giving you the right information in the right context when you need it.

23:49Completely. So let's say that you're, you know, Mark Zuckerberg made you his, his signature advisor for thought experiment, given your Oculus experience. And why don't you first explain what you see his strategy to like, what's his hope and his kind of approach to what he's doing with Metaverse? And what advice would you give him? Or what would you do if you were him, perhaps? Okay, this is just gonna be my unabashed advice. Do you know what a nerd trap is? Have you heard that phrase? Yes. People say crypto is a nerd trap sometimes. It's something that gets nerds excited, but doesn't have like real outcomes or something.

24:27Yeah. So I think that VR and Oculus has become a bit of a nerd trap for Mark. You know, when I hear him, when I watch Oculus Connect or whatever the hell he calls it now, Meta Connect. And when I hear him talking about Oculus, I think maybe he's gotten a little bit better about this, but he goes so deep into the technology way too frequently without really focusing on why people should care. Nerds care, sure. Super cool. Like a bunch of the technology that he's doing, he's pushing forward. You know, he's pushing forward a bunch of technologies that have broad applications that will hopefully benefit humanity.

25:11And I love that. That's really cool. And as a nerd myself, I like a lot of that. But as somebody who wants to see VR and AR succeed broadly, he needs to focus a lot more on why people, the average person should care and what are the benefits to them in their everyday life. How is it going to improve their lives, their relationships, their free time, et cetera? That is my advice to him. And I think that There's probably, you know, I don't know from a strategic standpoint how this would look, but I do think that doing things with the Kronos Group and with some of the other kind of organizations that are trying to push the entire industry forward would be beneficial.

26:02They do a lot of things behind closed doors. And I think if we're looking to make AR and VR much more of a reality, I think we need to help push the entire industry forward, not just Meta. We need to get a whole bunch of people involved in order to kind of make this happen. Yeah. When the Metaverse announcement came out, there was some big concern in the crypto community just about, hey, is this decentralized future actually going to be pretty centralized? And I think Meta was trying to take 50 % off of kind of interactions that happen within their universe. And so, yeah, it'll be interesting to see how the centralization versus decentralization plays out.

26:46Yep. From a strategic perspective, what use cases do you sense that he's most excited about? Or you kind of outlined the future that you see. Do you think he sees a similar future? Do you think he's excited about a different future? Do you think he has certain use cases in mind? How would you outline what you know of that perspective? You know, they're certainly excited about gaming. I think they're excited about exercise and fitness. I mean, Mark's comments from the beginning have been like, you know, all about connecting people. And that's been, I think, part of his rallying crime, kind of how he's tied and this whole strategy into the core strategy of Meta.

27:29It's this ability to connect people in more real ways. but yeah I think fitness gaming general connectivity you know certainly they're pushing horizons hard although doesn't really seem to be getting the traction that I think that they had hoped but that kind of central location for people to get together I think like the social element of of VR is what they are you know where they're kind of most excited about spending most of their time on. Yeah. So I asked you a question for Facebook or for Meta, and you kind of detailed a little some advice for Apple as well. What about Microsoft? If Satya made you his special advisor, what advice would you be giving them slash what do you identify as their strategy at the moment?

28:15In the beginning, it seemed as though Microsoft was taking the same approach that they've taken throughout their history, which is focus on the software and let other people build the hardware. that has changed a little bit in recent times. Like they've definitely pushed, you know, their surface products and they've gotten into hardware as well. But I think that that strategy is a sound strategy, like just focusing on the software. Like when Microsoft first started to go, that seemed like what they were doing. They were working with Lenovo. They were working with Dell. They were working with HP.

28:50They were working with all of these different companies to produce a variety of different hardware products that were going to be ultimately powered by some version of Windows. So I think that that was a sound strategy. And that is the strategy that I would probably continue if I was them. Like, you know, partner up with others to develop the hardware and you guys develop a unifying software in order to power these things, essentially. They started to do that a little bit. And then to what I was saying beforehand, I think that the uptake was probably slower than some expected. The impact on bottom line, less than what a lot of people in the industry hoped.

29:43and you know it seems as though Microsoft really pumped the brakes on their efforts there and I can't say I blame them and I think that they are probably waiting in the wings you know developing and making sure that when they feel the industry is ready there and so I think I think that's a sound strategy. Do you see Google as doing something similar or how should we think about Google in this space? Yeah, I'm not exactly sure about Google. I mean, Google has Android and they did just recently announce, I think, that they had major cuts in their AR VR department. Clay Bavor, who headed that division for like 12 years or something, I got recently left and has his own startup now.