SPACInsider contributors Anthony Sozzi and Sam Beattie this week compiled their three favorite potential SPAC targets among companies making products for the coming augmented and virtual reality worlds. We look at why they are compelling and why each could be a fit for a blank-check merger.

Virtual reality (VR) and augmented reality (AR) have caught the fascination of technology investors since well before the invention of the smartphone. But, despite large-scale investment in the space, the companies have generally failed to create a product market to match the scale of the invested capital.

Venture capital investments in VR/AR have dropped for three successive years from 2018 to 2020 and they are on track to notch another slight decline in 2021, according to Pitchbook. But, despite this, there are signs that the technology has finally matured to an approachable price point and has found enough commercial applications to really come into its own.

Facebook – I mean, Meta Platforms (NASDAQ:FB) – seems to think so anyway. Facebook not only renamed itself, it is also tying itself around the latest buzzword of “the metaverse.” And while this launch presentation was heavily meme’d, it follows a wave of thought through Silicon Valley about where the combination of cloud computing, internet-of-things (IoT), and blockchain will lead.

Combined, these technologies allow for massive amounts of information to be accessed in a way that is both connected and immersive. That latter quality is a capability that AR/VR devices are poised to provide.

Magic Leap

One great example of some of the silly futurist stuff of yore suddenly having concrete use is Magic Leap.

Among the applications Magic Leap has developed is the Mixed Reality Viewer which allows up to four individuals and doctors interact with 3D representations of medical scans to collaboratively plan, train or discuss surgical interventions with patients. In the future, it plans to expand these uses to provide mid-surgery tools in the operating room and it already has about 150 devices in use in the healthcare sector.

While this is its most commercially proven use, it has also developed solutions for the manufacturing sector. These are mostly targeted at training and giving workers live guidance in high-precision techniques during builds. This would allow new initiatives and product changes to occur throughout large industrial groups without the need to physically send experts out to all production sites for instruction.

Plantation, Florida-based Magic Leap has developed 13 software applications for its proprietary headset in total and it aims to gain adoption in the defense sector as well. Last month, it announced a $500 million funding round bringing its total outside funding to $3.98 billion and post-money valuation to $2 billion. Given that the company, founded in 2010, is now moving into commercialization, it could be the perfect time for a transition to public markets to reshuffle its cap table with a focus on the future.

Magic Leap’s last capital raise already did so as it is designed to fund the rollout of its second-generation headset Magic Leap 2 in 2022. This model is designed to be more lighter, more discreet and provide a wider field of vision, which is expected to provide for more nimble real-world applications.

Decentraland

But, while B2B applications tend to be the proving grounds for new technologies, most of the public attention on the AR/VR space is what possibilities it will unlock for individual consumers.

A cynic’s take on the Facebook rebrand might be that the company is dodging some heat on the Facebook brand while trying to force some sort of return on its $2 billion acquisition of VR headset-maker Oculus in 2014. That’s a reasonable take for the generations that have grown up with VR having been constantly bandied about as a revolution that never quite came.

Younger generations have been building immersive worlds on game platforms like Minecraft and Fortnite for years now, however. Minecraft is by far the most popular game in history with over 200 million copies sold and 126 million monthly players as of May 2020. While its average player is a 24-year-old male, 54% of boys in Australia between the ages of 3 and 12 said they play the game in 2018.

If the metaverse is indeed coming, there is a vast crop of youngsters that are ready to wander around in it and they’ll want to do some shopping there. The sales of in-game items already makes up about a third of the $150 billion in total gaming revenue and it its growth is outpacing that of the game sales themselves.

Decentraland has launched a higher-res competitor world to Minecraft and has already set itself up as a marketplace for creators and traders of in-game items to manage their digital assets. This has traditionally been a low-margin business for anyone other than game developer holding the IP. But, Decentraland has set up a system ready for the 2021 digital economy to help all sides of transactions get value.

For one, transactions on its platform run on its Etherium-based cryptocurrency MANA, which currently has a fully diluted market cap of $350 million. Its digital assets are also secured on the blockchain, making the platform well set-up to host non-fungible token (NFT) items and events.

Aledia

Just as semiconductors have been a critical resource for a wide range of new technologies, AR/VR headsets rely on some components that are not currently being produced en masse.

In particular, any screens that are to be placed close to users’ eyes for prolonged periods of time need to meet certain specifications without eventually causing eye damage. There are also necessary resolution limitations the closer one gets to the screen.

Grenoble, France-based Aledia has racked up 197 patents attacking this problem with micro-LED displays that use nanowires to show 3D images on either transparent or opaque display surfaces. It has raised $167 million in outside funding since its founding in 2011 from investors including Intel (NASDAQ:INTC) and Tokyo Electron (TYO:8035).

Because its piece of the puzzle is manufacturing the silicon wafers that make the display functional, but not the wider hardware, Aledia’s products are brand-agnostic and may end up rising with the tide regardless of which players win the battle for end users.

Aledia’s last capital raise, which brought in about $94 million in October 2020, was aimed at funding the capex for its expanded production facility in France. A further SPAC deal could give it more fuel to burn and help it target more international expansion.