Last month, FOV Ventures hosted its inaugural Vantage Point Demo Day, showcasing 15 promising startups to over 100 investors.

The event highlighted European founders building the next wave of billion-dollar companies at the intersection of Spatial Computing, Generative AI, Gaming & 3D Tech.

As part of the event, we conducted two roundtable discussions with industry leaders, focusing on:

1. The impact of generative AI on gaming and interactive media

2. The current and future state of spatial computing

These discussions aimed to cut through the hype and examine how these technologies are being used today, while also exploring their future potential.

In the post below, we'll unpack key insights from these roundtables:

• The current state of the market

• Key investment areas

• Challenges and considerations for investors

• Future outlook and opportunities

But if you would prefer to watch the recordings, you can watch them below.

Current State of The Market

At first glance, Generative AI and Spatial Computing seem to have followed divergent paths.

ChatGPT became the fastest-growing consumer app in history, while VR has slow been marching towards its inflection point. However, the overlap between these categories is more significant than many realise.

Generative AI has undoubtedly captured the tech scene's attention - 75% of the latest YC batch classified as 'GEN-AI'. Yet, questions linger about the sustainability of AI businesses.

At the top end, reports suggest OpenAI has spent $8.5 billion on AI training and staffing, potentially facing a $5 billion loss. At the startup level, the challenge remains building defensible AI businesses. As A16z’a Troy Kirwin notes, "It's not just a hardware problem now. It's more about reducing friction, making it accessible [to existing workflows]."

The reverse might be true in spatial computing - once overlooked by skeptics as another tech bubble, it is showing promising signs.

At the top end, Meta's (expensive) Reality Labs division saw a 27.9% year-over-year revenue increase. At the startup level, The Quest store boasts around 600 apps, with Meta reporting that roughly one in three generate millions in revenue. Triptyq Capital’s Bertrand Nepveu, "I think we're almost there. We need cheaper devices. So I think the Quest 3S will help with that."

Market sentiment for both technologies reflects a balance between perception and reality.

Troy, from A16z’s games, shared details of their gen-ai survey which revealed that while 70% of individuals are excited about AI in gaming, only 35% believe the rest of the industry shares their enthusiasm. Similarly, while some consider the Apple Vision Pro a flop, the Quest 3 is currently Amazon's top-selling console.

At FOV Ventures, we see the convergence of these technologies as a crucial investment frontier. Here's why:

1. Emerging use cases are bridging the gap between generative AI and spatial computing. We're witnessing this convergence firsthand with startups at Vantage Point and in our portfolio.

   As May-may from Meta points out, "We're starting to see some new categories emerge - especially categories that help people pursue their existing interests and hobbies such as Piano Vision."

2. The professional sector is embracing this convergence, creating opportunities for businesses today.

   Urho from distance.tech "We really want to be focusing on actual field use cases. So focusing on how to bring mixed reality as part of automotive, like everyday journeys that we all have, how to bring it to the aerospace in a proper way."

3. Future roadmaps of major players like Snap, Meta, and Apple indicate a continued merging of AI and spatial technologies, presenting opportunities for investors tomorrow.

   Emanuel from Sceneario3d.com predicts, "I definitely see every pixel being generated live... in the next five to 10 years."

By showcasing both technologies at our demo day, we are trying to shed light on where the next generation of computing is taking shape.

Key Investment Areas

The typical investment thesis for AI or VR is often illustrated by the 'White Space' concept. While broadly accurate, this perspective requires nuance in today's rapidly evolving tech landscape.

Each update from major players like OpenAI or Meta can potentially render numerous 'broad' startups obsolete, especially those built on previous iterations. As both headsets and AI models become more sophisticated, many startups find their value propositions diminishing. We've seen this with PDF readers becoming early casualties in AI, and Apple's ARKit having a similar impact on AR platform startups in 2017.

For both AI and spatial computing apps, the challenge is shifting from pure innovation to effective distribution and marketing. Success is likely to favour those who can effectively reach and engage their target audience.

A significant opportunity for startups lies in applying AI to Spatial Computing. This convergence can translate AI's benefits - such as fast learning and data synthesis - to 3D/spatial applications. These can be narrowly focused problem solvers in areas like healthcare, education, entertainment, and logistics, or contribute to broader ecosystems like those of Meta or Apple.

Tools and Infrastructure

One of the most promising investment areas is in tools and infrastructure that enable creators to harness AI within spatial environments.

Bertrand and Triptyq's investment in ShapesXR - "the Figma of XR" - exemplifies this . As demand for spatial content grows, tools streamlining the creation of 3D assets, environments, and interactions become increasingly crucial.

It's not difficult to envision how AI could further enhance these tools, creating even more powerful creative platforms.

Content Creation and Optimisation

AI and spatial computing are two coming tidal waves for content creation. On the Generative-AI side, Emanuel from Scenario reports that some studios are seeing up to 80% of AI-generated assets being production-ready without touchups for certain use cases. This efficiency is opening new avenues for immersive storytelling and interactive experiences.

Applying similar concepts to Spatial Computing, Bertrand's investment in Masterpiece Studio becomes relevant. The studio enables generative 3D asset creation, animation in VR, and placement in 3D scenes, all from within headsets.

As AI tools for video production (like Pika AI) and 3D creation (such as Roblox Studio's efforts in generating 3D worlds) continue to advance, their application to spatial computing remains largely unexplored territory.

Emerging Use Cases Beyond Gaming

While gaming remains a strong use case for both AI and spatial computing, other sectors present exciting investment opportunities. May-May highlights the success of fitness and wellness apps on the Quest platform, while education stands out as another area ripe for innovation. The intersection of AI-powered personalisation and immersive spatial experiences seems poised to disrupt how we learn skills and retain information.

Urho's company, Distance, is exploring applications in automotive and aerospace: "Our solution allows you to turn the whole windshield into a portal to mixed reality where each pixel can have a distinct depth." This innovation opens up new possibilities for safety, navigation, and user experience in transportation.

Other industries, including healthcare, architecture, and manufacturing, are also prime for disruption.

As AI sophistication grows, we're witnessing the emergence of more intelligent and responsive spatial environments. Troy discussed the potential of AI in enhancing non-player characters (NPCs) in games, but this concept extends far beyond gaming. Intelligent virtual assistants that understand context and interact naturally within spatial environments could transform our interface with technology in daily life.

Urho encapsulates the excitement around this convergence - "I'm so excited about AI in the mixed reality context, which is probably the most natural way for you to interact and most expressive medium for AI to be influencing your world and participating in that one."

Challenges and Future Prospects

One of the primary challenges in both AI and spatial computing is the varying levels of technology maturity and market adoption. Troy & a16z’s aforementioned survey revealed a telling statistic: "Over 50% of respondents said that it's model quality and accuracy" that's holding them back from adopting AI.

In spatial, the challenge is slightly different. The roundtable discussed how, people now, they say, OK, it's not Star Trek thing anymore, but it is all about price point. This marks a crucial turning point, but price remains a barrier to widespread adoption.

We can expect rapid advancements in both fields. As AI models become more accurate and efficient, and as devices become more affordable and user-frictionless, we'll likely see accelerated adoption across various sectors.

But Emanuel also highlighted a critical issue in the AI space — "Copyright has to evolve as well not just IP but copyright meaning the AI content the generated content being eligible for copyright that's not really the case yet.”

Yet, uncertainty creates a market for innovative solutions.

Blockchain-based authentication systems for media could emerge as a crucial verifiable proof of authorship and ownership for AI-generated content. Startups developing for this, or enabling internal generative tools at the B2B level, could offer a bridge between existing copyright issues and current AI opportunities.

In spatial, the interaction between augmented reality and the physical world also raises privacy and property rights questions.

This opens doors for companies developing privacy-preserving AR technologies or creating frameworks for digital property rights in shared spaces. Imagine startups offering "digital zoning" services for AR content or AI-powered privacy filters for live AR feeds.

Convergence and New Possibilities

Despite these challenges, the future outlook for AI and spatial computing is incredibly promising, particularly as these technologies continue to converge.

For instance, AI-powered virtual assistants could become more spatially aware, offering contextual information and assistance based on a user's physical environment. In education, we might see AI-driven, personalized learning experiences that adapt in real-time within immersive, spatial environments.

The near future holds exciting prospects for new hardware releases that could further drive market expansion - the new Quest 3S, and a potential Apple Vision 2 could gradually lower the barrier to entry, potentially leading to a more consistent uptake in user adoption and content creation.

For investors, this convergence represents a particularly exciting opportunity.

Despite the dominance of big tech players in both AI and spatial computing, there's still significant potential for disruptive startups. The roundtables discussed how we might see a studio of maybe 30 people produce a AAA game at a reduced budget because of AI. This democratisation of development, powered by AI and accessible spatial computing tools, could lead to a new wave of challengers to established players.

More advice from Urho rings true: "As an early entrepreneur, if you can figure out that equation where your solution is actually significantly cheaper, better, or easier than the old ways, funding and sales will be relatively easy..."

At FOV Ventures, we remain committed to supporting founders who are pushing the boundaries in these fields.

The startups showcased at our Vantage Point Demo Day represent just a glimpse of the innovation happening at this intersection. As these technologies continue to evolve and converge, we anticipate seeing groundbreaking solutions that will fundamentally change how we work, learn, and interact with the world around us.