Finnish startup Varjo has raised $54m in fresh funding just 18 months after the launch of its first virtual and mixed reality headset, in a sign that there are still investors willing to back this sector.

But although the hype around consumer uses of VR (virtual reality) and XR (mixed reality) has died down from its peak in 2018, Timo Toikkanen, newly appointed chief executive of the company, told Sifted there is a strong interest in business applications.

“If you think of this market you have all kinds of companies and submarkets within it — there are consumer use cases and gaming and so forth. We have never been in that space,” says Toikkanen.

“From the beginning, we believed that the most value-added use of these advanced technologies was in the business world. And whilst many companies have pivoted back and forth, we have stayed true to that course.”

Some of Varjo’s biggest clients are in the automotive sector, with carmakers using the headsets to allow designers to completely redesign the interiors of the car virtually before going to the expense of actually doing it. Medical research and astronaut training are two other use cases.

This is a very different model to companies such as those pushing into VR movie cinemas, VR arcade games and VR consumer headsets — where there have been high profile failures in recent years as consumers have found the product too clunky and expensive.

Eye tracking technology

It was back in early spring 2019 when the team at Varjo demonstrated the first version of their VR headset to Sifted and various investors at EQT Ventures at the office in Stockholm.

At the time EQT Ventures were excited about the company. In comparison to many other VR headsets, the view inside Varjo’s headset would not just change depending on how the user’s head tilted and moved but could also follow the gaze of the user — so-called ‘human-eye resolution’.

“From the moment we saw Varjo’s human-eye resolution virtual and mixed reality platform in action we knew the team was onto something transformative. It was a real ‘wow’ moment when we realised we could see every single detail and read text,” says Ted Persson, partner at EQT Ventures.

By producing VR headsets and combining the product with mixed reality software the company has been able to attract a range of business customers in areas such as research, manufacturing and the aerospace sector.

“Obviously when you are building for consumer markets, you have a price point perspective, we think about this the other way around. We are building technology not primarily starting with ‘What does it cost?’ but ‘What does it take to design a car cheaper?’ ‘How do you train an astronaut faster?’ and ‘What does it take to solve that particular problem for the enterprise?’” says Toikkanen.

From cars to astronauts

It has gone pretty well for Varjo since the start in Helsinki in 2016. Car manufacturers like Volvo Cars, Audi and Kia have jumped to use Varjo for their car design and manufacturing, allowing engineers to test prototypes more easily.

Aerospace company Boeing is using Varjo’s products for simulation and training pilots but also for astronauts for its Starliner programme with NASA.

Including the latest round, the company has raised about $100m in total. With prior backers such as European venture capital firms Atomico and EQT Ventures, the tech fund of Volvo Cars and the Finnish venture capital company Lifeline Ventures, new investors are now coming on board.

The Nordic-based capital funds NordicNinja and Tesi, as well as the Zürich-based Swisscanto Invest, are all new investors. NordicNinja, with strong connections with Japanese business, should help the company with overseas expansion plans.

“With the new investors in this round we were hoping to expand our network towards particularly Japan and that is where NordicNinja comes in. Second to the United States, Japan is the largest market and is super important to us,” says Toikkanen.

But the Americans are missing from the list of investors.

Due to the travel restrictions set up as a way of limiting the spread of Covid-19, the Varjo team was unable to meet any of the US investors in person.

“Without being able to travel to investors to demonstrate our product, it was a very peculiar time to close a funding round,” says Toikkanen.

The situation has caused an issue not just for Varjo but for most companies raising money during 2020. Toikkanen said that as a result, he has noticed that existing investors have been taking a larger chunk of the follow-up investment in startups than normal.

“There were so many external circumstances limiting companies meeting investors. Our round turned out to be very similar to those in that perspective,” Toikkanen says and adds, “but we are very happy how it turned out in the end.”

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