With His Startup Struggling, This Man Put His Life Savings On the Line. Two Years Later It’s Worth Millions
How do you know when to keep going and when to give up? It is a question nearly every startup founder has had to ask themselves—not to mention long-distance runners, struggling artists and even serial monogamists. When it comes to business, nobody knows the fraught, awake-at-midnight, should-I-stay-or-should-I go worry better than Steve Zhao. He is the founder of Sandbox VR, a multi-million dollar startup with A-list investors that nearly didn’t happen.
“Back in 2017, when we had no investors and very few customers and absolutely nothing left in the bank, a lot of people thought I should give up,” says Zhao with a laugh. “And to make matters worse, there had been a total mind-shift around virtual reality: from being the darling of 2016, it was a total outcast. The signs were not good.”
Zhao had launched the business a year earlier with a big bet and a small bet. The small bet was that Sandbox VR would be a platform for gaming and grow over time into a games developer. The big bet—which seemed unlikely at the outset—was to build the biggest, most immersive VR set in history, to be used at Sandbox VR gaming centres.
When the small bet failed for a number of reasons—number one being that at-home VR never really took off—Zhao agonised over whether to try and implement the big one. He knew his game was good, as it was in the top 20 percent of games purchased, but the market just wasn’t big enough, and his investors weren’t interested in funding another round.
“Not many people bought hardware,” he explains in his hybrid California-Hong Kong accent. “And people who had the hardware then didn’t use it—it just collected dust. It made it very hard for all games developers, and we lost all our money. It was in early 2017 when I turned to the company and said, ‘It’s time for the big bet.”
Zhao spoke to his engineer and asked him to help them create the most immersive VR experience imaginable, one that would be used outside the home in specialist experience centres, where customers can have a full-body experience, along with motion tracking sensors and moveable platforms. This required a lot of space and a shift of thinking.
“I was committed to the cause and so was my team,” he says. “But the investors were very discouraged, and they looked at what we were trying to build—an original platform, with an in-store experience and only six people in the company—and said, ‘no thanks’. Nobody invested. Fortunately, after working for 10 years, I had saved up a pretty good nest egg. I took all that and put it into Sandbox, because at least then I could say I’d done my best. But it was a pretty big underdog story—six people in Hong Kong building a project nobody was interested in.”
For the next six months, Zhao and his team worked day and night. Together, they built an experience they really believed in and rented a top-floor store in a backstreet in Causeway Bay, one that Zhao describes as, “literally the crappiest street, with the shittiest landlord, one noodle bar and zero foot traffic”.
But word quickly spread on social media. They were hoping to fill 60 percent of their slots, but within days 100 percent of their appointments were booked for the next nine months. People started skipping work to play and customers even flew in from Japan and China to try it.
“I guess what we provided was a hardy social experience that feels like real life,” says Zhao. “What does it really feel like to be attacked by zombies and rats and revive friends and jump off a cliff? Our customers know now. I loved watching people jump and dance around, and fathers hold up their daughters to protect them—it’s highly social and highly emotional.”
It was a pretty big underdog story: six people in Hong Kong building a project nobody was interested in
— Steve Zhao
Alibaba soon took notice and before long they had raised another HKD$3 million. But the question remained as to whether this would be a fad that was confined to Asia, or whether it would work globally. How to prove that? By taking their entire investment and opening a store in Silicon Valley, one that was double the size of the Hong Kong store and 30 minutes from the Facebook and Google campuses.
“The reaction in the US was pretty mixed at first,” he says. “VR outside the home was not compelling and investors were hesitant, but once we opened the store, they all started saying, ‘Holy shit, this is beyond anything that my imagination could have dreamed up’.”
In California, investors likened Zhao’s work to the early days of black-and-white cinema, arguing that not since those days has the medium of expression changed as significantly. With Sandbox VR, they believed Zhao had created an entirely new medium. The result? Investment totalling US$68 million led by the Andreessen Horowitz Cultural Leadership Fund and joined by legendary entrepreneur and investor David Sacks. Soon after came investment from Hollywood's elite, including Justin Timberlake, Katy Perry, Orlando Bloom and Will Smith.
“I was pretty thrilled, I’ve got to say,” says Zhao. “This way we get to be the platform, the distributor and the publisher. We’re very grateful because they have given us, and VR, new life.”
Even in his wildest fantasies, Zhao in 2017 could never have imagined that his big gamble would have paid off so dazzlingly. But it takes guts to keep going when everybody tells you to give up. How did Zhao know not to listen and to continue on his path?
“Sometimes you have to bow out,” he says. “Which is why having transparency is so important when it comes to working with a team. We asked each other if we were going in the right direction, talked about it constantly and in the end my team said they honestly believed in the project. If they had said no, I would’ve realised that we missed the mark and cut our losses, but that didn’t happen. To anyone in a similar situation, I would say, forget the ego and ask yourself and your colleagues if you honestly really believe this is going to work out. If the answer is yes, then go for it. At least if you fail, you fail big.”
See more honourees from the Technology category of the Gen.T List 2019.