He Raised $100 Million To Build An Immersive Virtual Reality World For In-Person Interactions

Steven Zhao has had an inspiring entrepreneurial journey that started from humble beginnings to groundbreaking innovations in the world of virtual reality. He is the dynamic founder behind Sandbox VR. His story is a testament to resilience, innovation, and the relentless pursuit of a dream.

In this exclusive interview, Steven talks about his experiences with sinking all his savings into his business, pulling it back from the brink of bankruptcy, and then taking it into rocket ship mode. He also reveals how he successfully raised funding from the best VCs and survived COVID. Read ahead to learn more about this exemplary founder.

Listen to the full podcast episode and review the transcript here.

A Passion Ignited

Steven Zhao’s journey began in China, but his entrepreneurial spirit truly took root in San Francisco, where he moved with his family at the age of one. Growing up loving games like Mario, Zelda, and Final Fantasy, Steven discovered his passion for game development during his college years at UCSD.

Studying electrical engineering by day and creating games by night, Steven was enthralled by the creative process. His first taste of success came while still in his dormitory, selling games online.

This early venture laid the foundation for his career in game development, which soon led him to Hong Kong, where he launched his first PC and mobile game company.

As Steven recalls, the timing was perfect since internet gaming was just kicking off, and independent studios were mushrooming across the globe. Initially, he developed free games and worked with a publisher. However, Steven soon realized the monetary potential of the industry.

The Birth of a Gaming Company

In 2009, with a modest team of two artists, Steven’s company began producing PC and mobile games. Over the course of the next four years, the company grew to 45 people.

Their monetization model was straightforward: players could try a game for an hour and, if they liked it, pay between $6 to $20 for the full version.

Each of their titles was between 6 and 10 hours long, with deep, story-driven themes and multiple sequels. Steven’s team would create two titles every year and build that cadence. However, the rise of mobile gaming caught Steven off guard.

Believing that mobile games wouldn’t gain traction, he was slow to pivot, which led to a steep decline. Despite efforts to break into the mobile market, fierce competition and a lack of expertise forced him to scale down significantly. By 2016, the company was reduced to just five employees.

Lessons Learned and a New Opportunity

Reflecting on his experiences, Steven learned a crucial lesson: always build for the future, not the present. The industry evolves quickly, and what works today could become redundant within the next few months.

Around 2015, Steven and his team produced their biggest game ever and even got support from Apple, which featured their game.

However, they could not profit from that title even though they had dedicated every resource to the game. Steven realized they were competing against companies that had far more resources than them.

The final four years of the company involved a painstaking transition to mobile gaming but for the first time, Steven was forced to face up to the fact that the industry had advanced too much. Since college, he had built his identity around gaming and created some really great games.

After a lot of introspection, uncertainty, and lack of confidence, Steven decided to wrap up his company after a 10-year stint. This decision came just as the VR industry was starting to take off.

The acquisition of Oculus by Facebook in 2014 marked a significant turning point for VR technology. By 2015, commercial VR headsets, including the PlayStation, Oculus, and HTC Vive headsets, were becoming available.

Seizing this opportunity, Steven decided to pivot once again since he knew how to build games. He envisioned a future where VR would offer immersive, interactive experiences that couldn’t be replicated at home.

This led to the birth of Sandbox VR in 2016, funded initially by friends who believed in his vision.

Building Sandbox VR

Sandbox VR’s business model revolves around physical retail locations where customers can book tickets to experience VR games.

These aren’t just any VR games; they are fully immersive experiences where players can physically interact with each other in a virtual world, which is an intense experience.

With titles ranging from original creations to partnerships with brands like Netflix’s “Squid Game,” Sandbox VR has captured the imagination of gamers and VR enthusiasts alike.

Steven and his team have original titles and zombie experiences but also offer branded titles. As he explains, Sandbox has 47 locations with over 100,000 customers coming in every month.

Learning from his experiences with his first company, Steven was determined to think into the future. He saw the gaming world as “The Matrix,” a reference to the Wachowski film, that would have to break the confines of the limited spaces of living rooms.

Steven also saw that a headset alone could not give players the complete experience and outcome even if the cost of the headsets lowers with advancing technology.

He and his team realized they would have to build something outside the home, which was a problem since they were unfamiliar with the retail space.

Their solution was to create a separate project where they built the infrastructure to enable The Matrix experience, where players can touch a friend’s shoulder in VR and actually physically touch them in real life to create a deep immersion.

Navigating Challenges

Steven and his team launched their first VR consumer game in 2016, making it to the top 10% of games. However, the market was not big enough, and they ended up losing money on the project. Like other VR developers, Steven was also concerned about being able to make it work.

In 2017, the team invested in a location-based project, which came to be known as the Winter of VR. That’s because, post-Christmas, they realized that few headsets were sold and people were not really using them.

VCs were hesitant to invest in Sandbox. Further, Steven started the company in Hong Kong, where his team was based. VCs weren’t convinced that Sandbox had the talent to build VR games. The biggest company for out-of-home VR has also raised $50m with a team of 50 to 100 people.

In contrast, Sandbox had a small team of just 6 people, and VCs were doubtful they had what it takes to beat the competition. By 2017, Sandbox had just three months of runway left.

Since Steven was convinced that VR had a great future, he invested all his life’s savings into the company despite his family and friends trying to dissuade him.

With six months of runway and complete unconditional support from his team, Steven built the technology infrastructure, enabling full-body play with a group of people.

Because it was a brand-new platform, they also had to create their own content. They also had to build a retail center and launch the location in Hong Kong.

Despite the hurdles, their innovative concept quickly gained traction and went viral, selling out tickets for 100 consecutive days within the first day.

The Crucial Series A Funding

The success in Hong Kong caught the attention of investors, leading to their first institutional funding from Gobi VC and Alibaba Hong Kong Fund.

Although the initial checks were from $3M to $5, the money validated Steven’s efforts. He used the funding to expand Sandbox VR, including opening a location in San Mateo in Silicon Valley in 2018.

This move was crucial in gaining the trust of American VCs, including Andreessen Horowitz, whose investment was a significant validation of Sandbox VR’s potential.

As before, Steven had to face misgivings from VCs since the company and its team were from Asia. They weren’t convinced it could work in the US.

However, after getting the first check, everything started to change. It changed the entire narrative. Soon, Steven got the IP for Star Trek and started working with Brookfield and Westfield to bring Sandbox to other locations across the US.

They also got additional funding from celebrities, including Katy Perry, Will Smith, and Kevin Durant, which opened a lot of doors and allowed them to scale aggressively. Sandbox went from one location in the US in 2018 to seven by the end of 2019.

As Steven reveals, they raised a total of $100M for Sandbox, including venture debt.

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Surviving the Pandemic

The pandemic in 2020 posed an existential threat to Sandbox VR. Forced to shut down operations and refund customers, the company faced a financial crisis.

However, the belief in their product and support in the form of emergency funding from investors like Andreessen Horowitz, Gobi, and Alibaba Hong Kong enabled them to weather the storm.

They restructured their debts through Chapter 11 bankruptcy and optimized their business model during the downtime. However, Steven had to let go of 80% of the team and cut back their costs to the bone.

Throughout the crises, he maintained complete transparency about the situation and the challenges the company was facing.

By 2021, as vaccinations rolled out and restrictions lifted, Sandbox VR experienced a surge in demand. Customers, eager for social and immersive experiences, flocked back, driving phenomenal profitability.

Steven remembers that customers wanted a reason and a safe place to go out, and Sandbox was all that. After months of running empty, 100% of customers booked ahead online and were crowding parking lots.

The stores were phenomenally profitable since Steven had spent months optimizing his profit and loss.

Sandbox numbers were higher than those of some of the best retail businesses, with 80% of customers booking ahead. The company’s economics were so strong that they could work out a deal with landlords and have them fund the build-offs of their subsequent stores.

A Bright Future Ahead

Today, Sandbox VR operates 47 locations, serving over 100,000 customers monthly. The company is on track to generate over $70M in revenue this year, a remarkable turnaround from the dark days of 2020.

With ambitions to become a ubiquitous entertainment destination akin to the new movies, Sandbox VR is poised for exponential growth. Steven envisions a Sandbox in every neighborhood with new releases every week.

He foresees working with some of the biggest IP holders to bring their world into Sandbox, which will give creators more reasons to go out and build these human-to-human connections.

Words of Wisdom

Steven Zhao’s journey offers invaluable lessons for aspiring entrepreneurs. His story underscores the importance of building for the future, adapting to market changes, and the power of resilience.

He aptly advises, “Read a lot, learn from the successes and failures of others, and incorporate those lessons into your own journey.”

Steven Zhao’s journey from a dorm room game developer to the visionary founder of Sandbox VR is nothing short of inspiring. His story is a beacon of hope and a blueprint for success in the ever-evolving landscape of technology and entertainment.

Listen to the full podcast episode to know more, including:

• Steven Zhao discovered his passion for game development during his college years, laying the foundation for his career.
• Zhao learned to pivot and adapt, recognizing the importance of building for the future and not just the present.
• Despite setbacks in mobile gaming, he leveraged lessons learned to pivot to VR technology successfully.
• Sandbox VR’s unique business model offers immersive, interactive experiences that can’t be replicated at home.
• Surviving the pandemic through strategic restructuring and investor support, Zhao showcased remarkable resilience.
• Sandbox VR has grown to 47 locations, generating significant revenue and serving over 100,000 customers monthly.
• Zhao emphasizes the importance of continual learning and adapting, advising entrepreneurs to read extensively and learn from others.

 

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