Week in Review - COVID wipes out the arcade

Saturday, August 29, 2020 • By Lucas Matney

Howdy friends, welcome back to Week in Review. This past week, I wrote about Apple’s war with Epic and this week I’m talking about the unsurprising death of the techie arcade.

If you're reading this on the TechCrunch site, you can get this in your inbox here, and follow my tweets here.

The Big Story

As much as I'd like to continue to reflect on the Apple/ Epic Games feud and how Epic dodged a bullet this week when a federal judge pushed Apple not to cut off their Unreal Engine development accounts, I will refrain from going too deep!

This week, I wrote a little diddy on how COVID was killing VR arcades. It was fairly uncontroversial because the big players are all going out of business and it already seemed like a pretty rough investment.

"Virtual reality arcades weren't exactly crushing it pre-pandemic; the small industry was already a bit of a Hail Mary for the virtual reality market, which has failed to push consumers to adopt headsets on their own and saw arcades as a way to warm up the general public to VR's role in entertainment. Lackluster consumer interest and the throughput difficulties associated with quickly moving users through experiences were among the biggest challenges facing VR arcades…

The fact is many of these startups were pushing up against current realities on multiple fronts and were attempting to seriously shift the landscape of 21st century digital entertainment, attempts that seemed daunting from the start.

As massive movie theater chains struggle to see how the pandemic will affect their industries in the long-term, it isn't surprising that many of these startups have failed to see a light at the end of the tunnel and have shut down operations or been sold off. I suspect investors will be reluctant to back new efforts in this space and that the time horizon of COVID-19 will force current entrants toward pivots that look dramatically different from pre-COVID-19-era business models. (One caveat is that the VR arcade market certainly looks different in the United States compared to markets in countries like China and Japan where virtual reality arcades seem to fit a bit more snugly into popular gaming culture.)

If VR arcades survive or are reborn, it will be due to some pretty massive shifts in consumer behavior and VR adoption.

Virtual reality, as an industry, is in a tough spot. In the United States, it's essentially only Facebook keeping the space alive in a meaningful way, and the company seems to be barreling ahead in its efforts to build a mainstream future for the technology on its own terms. Earlier this summer, Facebook announced that it was pulling its top-selling title Beat Saber from arcades for good by August. Since the acquisition of Oculus back in 2014, the ecosystem that sprang up around Facebook's VR efforts has receded meaningfully, leaving the company in a lonely position once again."

I don't think there's going to be a huge crew of people mourning the death of these arcades, but their fall does ten to exemplify just how difficult it is shift entertainment habits in consumers.

Your software should be a solution, not a problem.

Trends of the Week

TikTok CEO resigns
Sometimes you join a role and you think you know what you’re getting into, but I’m guessing TikTok CEO Kevin Mayer’s imagination wasn’t quite good enough to capture the worst case scenario that has unfolded. Read more here.

IPO season is roaring towards us
This was a bizarrely busy news week but the biggest unexpected development was the outpouring of S-1 public documents that emerged. We got Palantir, Snowflake, Unity and several others. Read more (and listen) here.

The ReMarkable 2 improves on the original in every way
I don’t know what it is about this weird little device but I definitely find myself reading every story written about the thin “paper replacement” e-ink tablet. My colleague Devin Coldewey reviewed their latest version this week. Read more here.

Image Credits: Photo by Jesse Grant/Getty Images for Disney

TechCrunch Disrupt

Benchmark used to be the quintessential Silicon Valley venture firm. It was small. It was focused. It was aggressive while also remaining founder friendly. It stuck to its knitting when it came to its fund size, raising fund after fund in the $450 million range.

Over the years, the world changed. Some of the biggest brands in the venture business now manage many billions of dollars, having raised a series of increasingly enormous funds over the last decade. They now oversee massive "talent teams."

Not Benchmark. In fact, by operating much the same as it did when it was founded in 1995, raising roughly the same relatively conservative amount of capital every time it closes a fund and running the firm with a handful of general partners — no principals, no associates, just executive assistants for each partner — Benchmark is no longer the stereotypical venture firm. Instead, it has become an anomaly.

Who is keeping the firm on this path? While seemingly all of the firm's partners maintain a relationship with Benchmark (no matter if they were investing in the late '90s or a decade ago), Peter Fenton is now the firm's most senior member. It's Fenton to whom Benchmark's most famous investor, Bill Gurley, is passing the torch as he steps away from an active role at the firm, 21 years after joining it. It is Fenton who — poached from Accel back in 2006 at the age of 33 — has also outlasted other peers, including Matt Cohler and Mitch Lasky, both of whom moved on from actively investing on behalf of Benchmark in 2018.

Fenton has also been key in establishing the current team at Benchmark, including by being the first to reach out to general partner Sarah Tavel when she was still a partner with Greylock .

We don't know how involved Fenton was in bringing aboard the two other general partners who've joined Benchmark in recent years — Eric Vishria and Chetan Puttagunta — but guess what? We're thrilled to have the chance to ask him that question and many more during this year's TechCrunch Disrupt, where Fenton is joining us this year in a somewhat rare public appearance.

We can't wait to talk with him. As someone who has long been considered a top VC yet also managed a low profile, Fenton is someone who we're genuinely eager to talk with about a wide range of issues, from how an apparent exodus from the Bay Area might impact the local startup scene, to his thoughts on rolling funds, to whether Benchmark would ever sponsor — or even try to manage — a SPAC. (We wrote recently about how these work; Bill Gurley wrote soon after about why they might make more sense than they have in the past.)

We're also wondering: Will Fenton take on a higher-profile role on behalf of Benchmark? Given the firm's outsize returns — its early bet on Uber alone reportedly produced more than $7 billion in returns to its limited partners — that wouldn't seem necessary. Then again, firms like Benchmark and Sequoia stay on top precisely because they go that last mile.

Either way, you won't want to miss Fenton at this year's show, which is shaping up in every way to be an incredible program. Disrupt 2020 runs from September 14 through September 18 and will be 100% virtual this year. Get your front row seat to see Fenton live with a Disrupt Digital Pro Pass or a Digital Startup Alley Exhibitor Package. If you act before Thursday, August 27 at 11:59 p.m. PDT, you can even save an additional $100 during our flash sale! We're excited to see you there.

-Connie Loizos