Facebook Inc. (FB) has taken a dive into the virtual reality space, announcing a $2 billion deal to acquire Oculus VR Inc., a virtual reality headset maker founded in 2012
Betting big on the prospects of virtual reality technology, Facebook Inc. (FB) announced that it had reached an agreement to acquire Oculus VR Inc. – a virtual reality headset maker founded in 2012 – for $2 billion.
Under the terms of the deal, Facebook will shell out $400 million in cash and 23 million of its own shares to Oculus shareholders. The shares are worth around $1.6 billion. The total value of the deal could go as high as $2.3 billion if Oculus meets certain performance targets, on which condition its employees will receive a further $300 million, said analysts.
Oculus VR was a 20-month old crowd-funded startup whose sole product is a virtual reality gaming headset called the Oculus Rift. The device is currently available only to game developers for $350.
California-based Facebook’s latest acquisition target signaled its entry into the virtual reality space and marked the company’s entry into the hardware business. The move was significant because it reflects the company’s focus on disruptive technologies as a path for growth and innovation.
“One day, we believe this kind of immersive, augmented reality will become a part of daily life for billions of people,” wrote CEO Mark Zuckerberg, in a post on his Facebook profile. “Imagine sharing not just moments with friends online but entire experiences and adventures,” wrote Zuckerberg.
The move to buy Oculus was the social network’s second blockbuster acquisition in 2014. It came a month after the company announced a $19 billion deal to purchase the wildly popular messaging startup WhatsApp Inc.
Facebook has ambitious plans to accelerate the development of virtual reality technology; not just for gaming purposes, but also for a variety of different applications ranging from remote business meetings and immersive content viewing for sports, to education and healthcare.
“We feel we’re in a position where we can start focusing on what platforms will come next to enable even more useful, entertaining and personal experiences,” wrote Zuckerberg in his Facebook post. “We’re going to focus on helping Oculus build out their product and develop partnerships to support more games.”
As part of the deal, Oculus VR would operate as an independently-run subsidiary of Facebook, much like WhatsApp and Instagram – the photo-sharing service acquired by the social media giant in 2012.
The Rise of Oculus VR
Irvine, California-based Oculus VR was founded in 2012 by Palmer Luckey and its current CEO Brendan Iribe after they introduced a prototype headset at the E3 gaming conference in Los Angeles. The headset was followed by a crowd-funding campaign on Kickstarter, where the company raised just over $2.4 million.
Since then, Oculus has secured over $90 million in funding from a number of venture capital firms, most notably Spark Capital, Matrix Partners, and Andreessen Horowitz. Other early investors in Oculus include Founders Fund and Formation 8.
In June 2013, Oculus raised $16 million in a funding round led by Matrix Partners and Spark. Then in December, private equity firm Andreessen Horowitz jumped onboard with a $75 million investment that valued Oculus at $300 million. Marc Andreessen is a Facebook board member and a partner at Andreessen Horowitz, which owns part of Oculus.
Venture capitalists and seed funders now stand to make an almost 20-fold return on their bets on Oculus. Luckey, who is only 25 years of age, wrote in post on Reddit: “Oculus’ somewhat unpredictable future just became crystal clear: virtual reality is coming, and it’s going to change the way we play games forever.”