Virtuix is raising a Series A-2 round, selling preferred equity at a pre-money valuation of $65,000,000. That price is very high among typical equity crowdfunding offerings — but not without reason. Virtuix has raised over $20 million in capital so far from investors like Mark Cuban, Scout Ventures, and Maveron. It also holds 14 issued patents (with six more pending) for proprietary technology that has taken years to develop. This valuation seems a bit high for the company’s current revenues — but is not unreasonable given its funding history and extent of intellectual property.

Virtuix has conducted internal primary research to determine its market size. The company estimates that 14 million households in the U.S. compose its serviceable market, defined as households with annual incomes of at least $50,000 who own a gaming device already and would consider purchasing a $2,000 Omni. This data doesn’t seem entirely unreasonable, but perhaps skews a bit optimistic. Virtuix believes that households with total annual incomes of $50,000-to-$70,000 might consider an Omni purchase, but a $2,000 spend on brand-new, discretionary technology might not be top priority for the average American family, particularly given the lasting impact of the COVID recession. 

That being said, the market for virtual reality video games is growing rapidly. The global “virtual reality in gaming” market was projected to hit $11.56 billion in 2019, with an estimated CAGR of 30.2% between 2020 and 2027. That’s a significant growth rate, in line with consumers’ continued high expectations about the futuristic potential of VR gaming. Omni treadmills only appeal to a narrow sliver of that market, though, given the products’ high price point. Likely only a few million people in the U.S. are willing to purchase this product for many years to come, so Virtuix’ market size is relatively small. 

Virtuix was founded by Jan Goegeluk, a finance professional who built the Omni prototype around his day job as an investment banker at J.P. Morgan. Jan has been running the company ever since, for almost eight years. He holds B.S. and M.S. degrees in mechanical engineering from the University of Ghent in Belgium and an MBA from Rice University. 

Virtuix’ President and COO David Allan is a long-time business executive with 25 years of experience at engineering and manufacturing companies. Allan speaks fluent Mandarin and splits his time between Taiwan and China. Allan has helped Virtuix secure its supply chain in China, a significant cost advantage that contributes to the companies’ strong margins. 

Overall, the Virtuix team is deeply experienced and offers a wide range of skill sets in engineering, gaming, business, and international manufacturing.

Virtuix is building groundbreaking technology and has developed a significant competitive moat with 14 issued patents and six more pending. The company has already generated buzz ahead of the launch of its Omni One at-home treadmills, with a recent article in The Verge and unprecedented interest in its pre-offering on SeedInvest. 

Virtuix is not the only company building VR gaming treadmills, though. Cyberith, KatWalk, and several other companies offer similar products, though the Omni seems to win out among most technologists’ reviews. Other competitors do not seem to have achieved such widespread distribution as Virtuix either. Omnis have been shipped to 45 countries, and Virtuix has already been generating significant revenue from commercial sales in advance of its consumer product launch.

Virtuix Omni products seem to outrank competitors, and the treadmills’ proprietary tech is patented several times over. Virtuix has also established sales channels nationwide for commercial products and has generated buzz ahead of its consumer launch. All told, Virtuix is well differentiated from less prominent competitors.

Over the last seven years, Virtuix has sold over $10 million worth of products in 45 countries. In 2019, the company generated $1.6 million in revenue. Revenue increased by over 100% to almost $3.9 million in its fiscal year ending March 2020. Virtuix’ product margins are strong. In its most recent fiscal year, $3.9 million in revenue was matched with $2.95 million in expenses for almost $1 million in gross profit. 

The company is operating at a net loss, one that increased between 2019 and 2020. In ‘19 the company lost $2.67 million, up to $3.58 million in 2020. Higher net losses for the fiscal year ending March 2020 were due to increased general and administrative expenses — not product development expenses, which is somewhat surprising given that Virtuix is on the verge of launching a major new consumer product. 

Overall, Virtuix’ performance is strong and shows high growth potential upon the launch of the company’s in-demand consumer VR treadmill. Gross margins are particularly promising, though increased G&A expenses last year are a caution for prospective investors.

While a certain group of early adopters and VR enthusiasts are undoubtedly going to purchase the Omni consumer product — and probably rate it highly given the popularity of Virtuix’s existing commercial treadmills — the real question lies in Virtuix’s mass-market appeal. Virtuix stakes a claim that households nationwide will shell out $2,000 to buy the Omni treadmill. While that might be true, it seems unlikely. 

The company further speculates that its business model will be as sticky as Peloton’s, with initial revenue from the physical product plus higher-margin recurring revenue from game subscriptions and one-off purchases. This uncovers a major question: are Virtuix games as high-quality as games sold for other gaming systems? If games aren’t that interesting, the Omni treadmill threatens to become a very large waste of space. Virtuix develops games in-house, but almost definitely does not boast the game development talent of major gaming competitors creating for PlayStation and Xbox. 

Ultimately, Virtuix could be a big boom or a big bust. If the company’s consumer VR treadmill launch underperforms, it may struggle to earn its high valuation and generate returns for investors. There are also significant question marks about how consumers will respond to both the physical product and Virtuix games.

Again, Virtuix could be a big boom or a big bust. In a big boom scenario, early adopters absolutely love the product and evangelize it strongly in popular media, creating an insatiable consumer demand for Virtuix. The company does have the potential to achieve Peloton heights: at one time it seemed ridiculous for consumers to buy a $2,000 spin bike, but now Peloton is one of the most successful consumer brands in recent memory. Virtuix promises much more innovative tech, albeit to a smaller market. 

Assuming Virtuix can make a splash with its at-home consumer product, the company has undeniably prepared to build a successful empire. Its depth of intellectual property is a strong differentiator, and its manufacturing operation in China (spearheaded by its accomplished Mandarin-speaking President and COO) gives it an advantage in quick, low-cost production. And remember, Virtuix still operates a thriving B2B business whether or not its consumer product is successful. That business has shown strong revenue growth in recent years and will likely grow even more by feeding off buzz from the Omni at-home launch. 

Frankly, the Virtuix Omni One product is simply very cool. It’s the kind of product that can mesmerize anyone for a moment, and Virtuix has strong potential to build a highly loyal network of gamers. If the product is as functional as it is futuristic, it could be a huge success. 

Virtuix has been producing futuristic virtual reality treadmills for seven years, with strong success providing commercial gaming products for entertainment venues. Now the company is poised to launch Omni One, a revolutionary at-home VR gaming treadmill allowing players to truly immerse themselves in games.

In short, Virtuix has the potential to fall flat — or be a huge success. It’s simply too soon to tell whether the Omni One will generate the consumer buzz of a Peloton bike, or whether it appeals to a limited market of people willing to buy $2,000 for a video game system. The company offers strong signals, including an experienced team, solid margins, and a portfolio of patents, but net income decreased in 2020 and investors will buy in at a high valuation. Therefore, Virtuix has been rated a Neutral Deal. 

For questions regarding the KingsCrowd staff pick or ratings for this company, please reach out to support@kingscrowd.com. 

Analysis written by Katy Dolan.