Steven Zhao On Raising $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.

Sandbox VR has attracted funding from top-tier investors like Andreessen Horowitz, Gobi, Katy Perry, and Alibaba Hong Kong.

In this episode, you will learn:

• Steve 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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About Steven Zhao:

Steven Zhao is the founder and CEO of Sandbox VR, a leading developer of virtual reality games and apps. Steven has over 10 years of experience in the gaming industry, having founded Blue Tea Games HK Ltd in 2006 and served as its CEO until 2016.

Blue Tea Games is best known for developing the popular Dark Parables series of hidden object games.

Before his career in gaming, Steven interned as a QA engineer at Intuit from June to September 2005. He has a bachelor’s degree in computer science from the University of California, Berkeley.

Steven Zhao received their Bachelor’s Degree in Electrical and Electronics Engineering from UC San Diego.

Connect with Steven Zhao:

• LinkedIn
• Crunchbase
• TheOrg
• Golden

Read the Full Transcription of the Interview:

Alejandro Cremades: Alrighty hello everyone and welcome to the dealmakerr show. So today. We have a really exciting founder. We’re going to be talking about all the good stuff that we like to hear building scaling financing and all the above. We’re going to be talking about putting all your savings into your business. You know taking your company out of. Almost bankruptcy into really scaling it and going in rocket ship mode and then also you know how they dealt with for example, getting funding from from some of the best vcs or even surviving covid so without farther ado let’s welcome our guest today. Even so welcome to the show. So Steven so give us a walk through memory lane. How was life growing up because I know that even though you were born in China you came to the us to San Francisco quite early in your in your life.

Steven Zhao: Thank you for having me.

Steven Zhao: Yeah, immigrant parents I came when I was one years old I grew up in San Francisco and pretty much have um, a pretty standard upbringing went to college and ucsd studying electroengineering but during that time I found my passion in game development started making game selling them online. And I built my first company out of my own dormitory and after I graduated I went to Hong Kong first created a pc mobile game company and went from there.

Alejandro Cremades: So how did you get into the whole gaming thing because I know that that was say during the college years. But how did you get into it. Okay.

Steven Zhao: I love playing games I grew up on Mario Zoda um and final fantasy so I wanted to see well I want to create my own games and I want to be able to kind of Yeah yeah, I love the whole creative process of it and it just became ah you know a passion hobby of mind. That eventually became something I could actually make money from and it was timed very well because internet gaming was ticking off so you know independent studios were just popping up left and right including myself.

Alejandro Cremades: So then tell us about how the first company came together. Okay.

Steven Zhao: So one day. Um, we were donating games I was working with a publisher and I realized I need to start you know growing my team we were making a little bit of money and I decided you know what? Why don’t I try doing this another country so in 2009 I packed my bags and went to Hong Kong and at that time I hired um, you know 2 artists to help me out and within the course of 4 Years it grew to a team of 45 people donating pc mobile games.

Alejandro Cremades: So then so then tell us about like how were you guys making money there. What was the monetization model talk to us about that. Okay.

Steven Zhao: Yeah, so um, the way it works is people go to a website and they’ll try a game for an hour and if they like it they will pay probably between $6 to $20 to play the full version of the game and each of our titles are usually around you know 6 to 10 hours long so we we have a team that will create you know 2 titles every year and just create that cadence and we would build like rooty deep stories and sequels and and just stuff like that.

Alejandro Cremades: So whatever. Ah happened you know with a company because as they say you either succeed or you learn and in this case, it was big lessons. You know to be learned and you ended up winding down the operation. So why? what happened.

Steven Zhao: So we did very well for pc games and I felt like I got a bit too comfortable when mobile came along I ignored it I thought that you know there weren’t going to be enough people to play games on the phone until when I realized it was too late. That you know when we decided going to mobile. We were faced with fierce competition. We didn’t have the necessarily skill set or the knowledge and how to attack on a mobile industry. So for the you know following 3 years of you know, trying to make it work in the mobile industry. We weren’t able to secede. I went from a team of 45 just down to a team of 5 by the end of 2016 and the learning lesson I had was you should never build games on what’s popular today because by the time you’re done nine months later it’s gonna be old news. Your job is to figure out what people want in the next year or so.

Alejandro Cremades: So at what point did it become apparent that it was time to pull the plug because I mean you were 10 years you were 10 years in so I mean is is is not easy.

Steven Zhao: Um, it was around. Ah.

Steven Zhao: It was around 2015 Um, that was our biggest game that we’ve ever done and we’ve even gotten support from Apple They featured our title. But even with that in mind we were not able to turn a profit from that title and I felt like we’ve done everything we could with a resource that we had. And we were fighting against company with more and more resources So we’re like okay that’s it I’m going to need to wind this company down.

Alejandro Cremades: What was that the roller coaster of emotions like for you because I mean it’s not like a couple of months project you know over almost a decade there you know, pushing this forward I mean what? what was that like for you of just being at peace with it.

Steven Zhao: I think it was it was definitely a slow burn because it was a pretty drawn out 4 year process to make mobile work I mean personally for me because I’ve been doing games since college it was you know I think a realization is maybe for the first time I’m not. Good at what I’m doing and that was very tough because I built my identity around building reallyy great games and for a time period. We’re doing really well because of that. So so it brought a lot of introspection and you know a lot of uncertainty and a lot of lack of confidence kind of like ending. 2020 twenty 2015.

Alejandro Cremades: So at what point you know we see you you ended up putting the the plug on this but at what point you know that’s the idea of Sandvox Vr you know, come knocking. So.

Steven Zhao: It was you know funny thing it was also in 2015 um I think that was you know one of many lucky breaks I had because at that time the vr industry was blowing up in 2014 Facebook bot oculus.

Steven Zhao: 15 and 2016 the first commercial headsets available. The playstation headset the oculus headset an htc five. So there was a lot of buzz around that time and for me because I knew how to build games. You know, um I figured is this another opportunity to try something new. Vr was this brand new medium that no one knew about and for me, it felt like a redemption because my mistake of being late in mobile could be redeemed by being very very early in vr so what I’ve done was um I told my team that was remaining saying hey I’m going to start a new company. I think it’s worth fighting for um, you know to try to build a new future in vr and then luckily I also have a group of friends who believed in that vision and they told me if you start a new company. What invest in you. And asked actually how the company was formed. It was formed by a group of friends who all pitched in a little bit of money to get this company off the ground.

Alejandro Cremades: So then for the people that are listening to get it. What ended up being the business model of Sandbox Vr How do you guys make money.

Steven Zhao: Yeah, so Sandbox Vr is we open physical retail locations where you can book tickets online to play any of our experiences so we have original titles that we built like zombie experiences but we also work with branded titles. So we’ve lately partnered with Netflix to bring scrid game and also the za scenario justs rebel moon inside sandbox we have 47 locations today with over 100000 customers coming in every month so the short of it is insideandbox. You are basically inside this immersive world where you can embody the character and play a narrative journey with you and your friends you can physically interact with each other and you can have this very high intense moment.

Alejandro Cremades: So then at what point do you realize hey I think we are into something here at what point did it feel like you guys were turning a corner because I know that you are literally putting all your savings into this thing until you guys were able to hit product Market fit. Okay.

Steven Zhao: Well, certainly not in the beginning. Um, when we really started building our sandbox. It was in 2 16 you know with fresh funding from my friends. Um, we actually pivoted in the beginning we were. We started with just building games for the quest and for the htc 5 just like a lot of vr studio. But my learning lesson from the mobile days was never built for the current always built for the future. So when we thought deeply about it. We felt the future was like the matrix right? So you can physically interact with one another. Um, in this large space and play these highly immersive experiences and that’s just not something that can be done in your and living room. There’s a constraint of space. But there’s also limited by just a headset alone will not give you that outcome and even if you reduce you know the cost of the head settinging improve the technology. Over the next ten years you still won’t get there so that was the moment we realized that we have to build something outside of home and that really sucks for us because I know nothing about retail. You know, seven years ago and I don’t know how hard it was I didn’t know how to even start it. But I knew that this was the future. So um, we’ve actually separated to a separate project where we built the infrastructure um to enable this matrix experience which is how can you physically play an experience where you can touch a friend’s shoulder.

Steven Zhao: Vr and actually physically touched them in real life That’s how you create a deep immersion. So what happened was in the n of 2016 when we launched our first vr consumer game it it did it was like a top 10 percent game but the market wasn’t big enough so we end up ah losing money on that project. And we felt oh man this is going to be very difficult to make it work and that was true for many vr developers. So in 2017 we put our our our aches into this like location based project. Um, but in 17 it was also known as the winter of Br because after Christmas people realized that. Not many headsets were sold and those that were sold um were not very retentive people use it and they put it on the shelves and they leave it alone so ah, Vc did not want to invest in vr in 17 and that was when we needed the money the money that I raised for my friend. It wasn’t that much. Um, so we went out in pitch and we we’ve gotten a few things that really was very difficult for us number one was you know you’re you’re basically doing retail you’re doing vr and you’re doing content 3 things. That Vc. Don’t want to invest in and you’re doing all of them together. So that was very hard and you know because my team was formed in Hong Kong the geography was also really difficult because they didn’t know we we have the talent necessary to do that and number 3 you know we were not the only copy doing.

Steven Zhao: You know outside of home vr the biggest company raised $50000000 with a team of probably 50 to hundred people. We were just a team of 6 people. How are you going to beat them right? So so we had so many stuff against us at that time and we only had about three months of runway left you know starting in 2017 so I told myself okay, the only way to make this work is if I basically take my took my life savings and reinvest it back into the company and before I done that you know I talked to my friends I talked to my parents I was like hey should I do this. And you know all them said no you know, save the money do something out continue life. You know, get married. Don’t dump everything into that company because it’s very hard. You’ve done your best already. But a part of me felt that you know this was gonna be the future. You know we. Genuinely felt at least I genuinely felt that people wanted this because it’ hot immersive is’s very social and I think people will get really meaningful connection out of this so I didn’t listen to any of them I just put on of money that I had into the company and I told my team hey. Only have six months left this is all the money I have should we all fight for it if you disagree I’ll just disband the company. But if we all fight for it. Let’s do it. So luckily my team all agreed to fight for it and then we decided to take basically the concept that we had at that time and bring it to market.

Alejandro Cremades: How many people how many people were on the team at that point.

Steven Zhao: Because the um it was 6 people. It was 6 people we have to build the technology infrastructure that enables full body play with a group of people and because it was a brand new platform. We also have to create our own content on top of that. And because this only happens to us out of home. We also have to build a retail center.

Alejandro Cremades: And how was the journey to of raising money because you guys have been able to raise money from top vcs. So I guess first question is how much capital have you guys raised in total and then what was the journey of raising the money.

Steven Zhao: Yeah, in total including venture debt. We raise almost a $100000000 today. Um, but you know at that time in 17 how do we get to that journey was kind of fast forward six months we launched our first location in Hong Kong and then ah right off the bat. You know we launched it. We got picked up by a media and it went viral and we sold out a hundred days worth of tickets from morning to night and you know nothing sells like traction and that’s when we got our first institutional Vc that was Goby Vc auddibaba Hong Kong fund they came in and said you know what? this is the best vr we ever tried. So we’re gonna give you the first check. So that was the first validation we had and that was that was only about like 3 to 5000000 I mean looking back. It wasn’t that much but to us at that time it was like um it was a saving Grace. So we took that money and then we were able to build multiple locations. We had a project we work with Imax we disfranchising and then you know one of the ah bottlenecks. We’ve got 10 at that time was like hey your project is great but I don’t think it works outside of Asia. And that kind of pissed me off because I grew up in the us I know this we work in the Us. So I decide. You know what we’re gonna put it in the middle of Silicon Valley so we put it in San Mateo in the hillsdale ma that was in June of 2018 and then that’s when we pitched to Silicon Valley Bcs

Steven Zhao: And and it was a tough time too because 3000000 to do retail business to build your own content. It’s not a lot and we we pitched to 50 people before we went to Silicon Valley and Allum said no and I can understand why it’s ah it’s a very you know unusual business of three things that. Investor Don want to invest in but when we launched in Silicon Valley same thing happened you know people heard about it people want to be part of it. They were booking. We were like sold out for weekends. Um, and then Bc started to come and then one day Andreessen Horowitz I remember during a week and mark andreesen came to a location on a Sunday on you know on flipops and he just tried out experience with Andrew Chen and Apple came out. He’s like whoa this is pretty cool and then the partnership came and played and basically they did our term sheet for series. A. And it created a lot of validation for us.

Alejandro Cremades: No kidding I mean when it comes to signaling and and and validation when you have like a Vc like that betting on you. How did that change things you know and and how did you see a shift on the way that you were perceived by the pc community.

Steven Zhao: I think it went from before en increase and funding at least in the eyes of like general vcs or American vcs it was like oh yeah, you know Sampas probably couldn’t work because they’re a team in you know Asian Asia doing something that’s very shall out be with retail with content with vr to oh Sandbus could work because they have a team in asia they able to be very conscious of how they allocate a resource and you know individually you know vr gaming and ah retail wouldn’t work. But once you combine them. It’s like 1 plus 1 plus one equals to 10 so it changes the whole narrative and it created a lot of validation for us across many fasted in terms of you know getting ips soon after we got in an ip for star trek. Um. For real estate. We started to work with Brook field and Westfield to bring sandbu to other locations across the us. So and then we also got the additional funding from celebrities including Katy Perry will Smith and Kevin Durant so it just created a lot opened a lot of doors for us and allows us to scale pretty aggressively. And that’s basically what we’ve done. We went from one location in the us back in 2018 to about 7 at the end of 2019 and we thought okay, you know we have all these locations open now and then we’re ready to do our series. B.

Steven Zhao: And then Twenty twenty happen so so that was basically the next um, hurdle of our a burner attorney.

Alejandro Cremades: And yeah, no go no kidding because I know that they when Covid hit almost. You guys went to like nothing So what happened there and how were you guys able to bounce back.

Steven Zhao: So essentially we were pitching our series b meaning that we needed more capital to scale growth and then you know soon we’ve learned that everything was in lockdown. We were told to shut down all our operations. All the locations that we had we lost more than 100% of revenue like how do you go over 100 % because we actually had to refund customer and we cannot even open us door at all. So it was um.

Steven Zhao: Oh it. It was really tough at that time. But I think fortunately we were lucky to have good investors in Andreesen and in alibaba and goby and kraft to to really get us over the hurdle. They gave us an emergency funding and they said okay, why don’t you guys fight through this and and try to get out of it. Because fundamentally their belief was which we also believe was we had a great product. It’s just where the world was right now. So as long as you can weather out the pandemic. You know people are going to be pent up. They want to go out. They want to meet other people. They want to spend time with their friends and family. And they’ll go to a sandbox. So we fought? Um, but the first thing I had to do which was really tough was we had to let go 80% of our team. So and not only that. Um, after we let go of.

Alejandro Cremades: M.

Steven Zhao: You know of the team. The people that stay we had to continue to motivate them to stay with the company and that was really tough and we didn’t know how long.

Alejandro Cremades: How do you do that? How how do you do that because I mean obviously people are seeing that they things are crumbling and people are leaving and you’re letting go people. You know they’re probably thinking hey we’re gonna be next. So how do you How did you go about? um. Doing it I think with with a level of transparency and and authenticity so that the people that would stay you know would really stay and would be fully committed versus thinking hey I’m going to be next I rather just have one foot out and and and start looking around. How did you guys go about balancing that.

Steven Zhao: And and that did happen. Um for the folks as state. There were about another um, good amount that actually left in the next you know 3 to five months so the first thing I did is all we started with communication like being very transparent about everything that’s happening. And just being no bullshit about it that like look we’re in a really bad spot right? This is the reality I’m not gonna sugar code anything because I think you deserve the truth and then the next thing I’m gonna say hey is hey we also have investor that believe in us right. Because this is a future that we want to build and um and I give them a very clear plan. It’s like okay this is what we’re gonna do in the next twelve months to get past this and it’s just a very clear outline of what our outcome is and how do we execute to it which essentially was. We had to cut cost to the bone but this was an opportunity for us to really optimize our business every single facet of our store level pnl has been rigorously like inspected and optimized right? because when we can reopen and you have such an optimized pnl. Then um, we’re going to be able to grow very quickly out of it. So so.

Alejandro Cremades: Short What point does the up What point do you see the clouds disappearing.

Steven Zhao: It was around when things really got better. It was around the beginning of 2021 so it was pretty much a twelve month process of just getting past that and of course during that time we also have to go through chapter 11 bankruptcy. Because we had all these leases that we could not fulfill and there was no way for us to pay it so going through bankruptcy allowed us to restructure all our debt but that was the only way to survive and then we’ve been able to get out of that within nine months but during 2021 when vaccination you know started to kick in and then people felt much more comfortable reopening the world. Um, what we’ve seen is which was true. You know twelve months before that people were pent up. They want to go out. They want to have a reason to go out and they want have a safe place to go out. And Sandbus was all of that and I remember because all the moths were empty at that time but a hundred percent of our customers book ahead online and then when they got into the mob because it was so empty we actually had to meet them at the parking lot to guide them to a store but man. The moment they’re in and they were playing I experience it coming out sweating laughing having fun. They would tell us that they needed it. They needed this so and because you know we spent twelve months optimizing our pnl. These stores were phenomenally profitable.

Steven Zhao: Numbers higherred than some of the best retail business that ever that could have gotten and because of these 2 in combination. We went to landwind and say hey you know we’ve proven that we can get 80 to hundred percent of customers to book ahead and go to your location and then because our economics are so strong we can work out a deal with these landlord. So they end up funding the buildoff for our subsequent stores and maybe.

Alejandro Cremades: So So so I mean here here you are you know, like bouncing back you know and and and now one thing that is like absolutely unbelievable is that you guys are now scaling like crazy I think that for the talking about you know turning a corner here. For the people that are listening to to get an idea on the scope and size right now of the operation I mean anything that you can share that you feel comfortable with.

Steven Zhao: Yeah, um, you know we have over 100000 customer every month now. Um I mean as a company we’re expected to hit you know over $70000000 this year. Um.

Alejandro Cremades: Wow.

Steven Zhao: You know back in 2020 where we just because it was shutdown. We were just a couple million dollars in revenue so we went a long a really long way going from where we were and we were you know how to go to Cho eleven we could have died during that process.

Alejandro Cremades: no kidding. So kidding so so now obviously it sounds like a blue skies ahead and Steven which is incredible I guess as you are thinking ah ahead and and thinking into the future if I was to ask you? You know if you were to go to sleep tonight and. You wake up in a world where the vision of Sandbox Vr is fully realized what does that world look like.

Steven Zhao: There would be a San bus in every neighborhood will have new content releases every single week and you know we’ll work with some of the biggest Ip holders to bring their world into sandbox as far as creators. And um, there will be a reason for people to go out more to and build these you know human-to human connection I mean that’s our vision and if we can fulfill that you know for us. It’s like becoming the new movies.

Alejandro Cremades: That’s beautiful. So always he you know that’s talking about the future I want to talk about the past but talking about the past with a lens of reflection if I was to put you into a time machine and let’s say I bring you back in time you know I bring you back in time to that moment where. You are still. You know you see San Diego you know getting your degree. They’re in electrical and electronics engineering you know let’s say it’s about 2005 where you’re about to get your degree and to venture into the world of being an entrepreneur and let’s say right there on the ceremony. Of getting your graduation. You know you’re able to sit down next to your younger self and you’re able to you know tap that younger Stephen and give that younger Steven 1 piece of advice for launching a business. What would that be and why given what you know now.

Steven Zhao: I would say a lot of knowledge can be taken from what other people write about so one and piece of advice I would give is read a lot read the success and failures from others so you can incorporate them into your own. Rucktwarf.

Alejandro Cremades: That’s beautiful now as they say you know like history too repeats. So it’s nothing like getting influenced now by and and inspired by you know other stuff that you have around you. So 1 thing is Steven here that I like to do is I’d like to thank you to thank you for. For the incredible you know time that you’ve graciously graciously you know, given us and truly it has been an honor to have you with us. So thank you so much for taking the time to be on the dealmaker show today Steven.

Steven Zhao: Well thank you for having me all Ajandro and thank you for your time.

 

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