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UPDATED: Facebook to Acquire Oculus Rift Virtual Reality Headset Manufacturer For ~$2B

March 25, 2014
by Nathaniel Mott

Facebook today announced that it intends to acquire Oculus, the Los Angeles-based company making the crowdfunded Oculus Rift virtual reality headset, in a deal worth up to $2 billion. The deal will be made in a mixture of cash ($400 million) and stock (23.1 million shares worth approximately $1.6 billion based on the stock’s current value) and provides for an “additional $300 million earn-out in cash and stock based on the achievement of certain milestones.”

The acquisition marks Facebook’s first entrance into the hardware market, and will offer the company control over the virtual reality headset expected to define the market even as Sony, Microsoft, and other companies are developing their own products.

Facebook explained the rationale behind the acquisition in its blog post:

While the applications for virtual reality technology beyond gaming are in their nascent stages, several industries are already experimenting with the technology, and Facebook plans to extend Oculus’ existing advantage in gaming to new verticals, including communications, media and entertainment, education and other areas. Given these broad potential applications, virtual reality technology is a strong candidate to emerge as the next social and communications platform.

‘Mobile is the platform of today, and now we’re also getting ready for the platforms of tomorrow,’ said Facebook founder and CEO, Mark Zuckerberg. ‘Oculus has the chance to create the most social platform ever, and change the way we work, play and communicate.’

Zuckerberg expanded on those thoughts in a Facebook post:

This is really a new communication platform. By feeling truly present, you can share unbounded spaces and experiences with the people in your life. Imagine sharing not just moments with your friends online, but entire experiences and adventures.

These are just some of the potential uses. By working with developers and partners across the industry, together we can build many more. One day, we believe this kind of immersive, augmented reality will become a part of daily life for billions of people.

Oculus offered its explanation for the sale in its own blog post:

At first glance, it might not seem obvious why Oculus is partnering with Facebook, a company focused on connecting people, investing in internet access for the world and pushing an open computing platform. But when you consider it more carefully, we’re culturally aligned with a focus on innovating and hiring the best and brightest; we believe communication drives new platforms; we want to contribute to a more open, connected world; and we both see virtual reality as the next step.

Most important, Facebook understands the potential for VR. Mark and his team share our vision for virtual reality’s potential to transform the way we learn, share, play, and communicate. Facebook is a company that believes that anything is possible with the right group of people, and we couldn’t agree more.

PandoDaily spoke to Oculus investor and board member Antonio Rodriguez of Matrix Partners today who called the deal an “incredible financial outcome” and described the negotiation process as very fast from start to finish.

“I think that’s one of the big advantages of being a strong founder CEO is the ability to run quick process – Both knew what they wanted, moved quickly .” Rodriguez says, referring to both Facebook’s Mark Zuckerberg and Brendan Iribe.

Matrix led Oculus’ June 2013 Series A round and participated in its $75 million Series B in November of that same year, maintaining its status as the company’s largest outside shareholder. The company has sold more than 70,000 units to date across its first- and second-generation products and offers Facebook the opportunity to enter the Apple-like territory of combining hardware, software, and services models.

Today’s announcement marks the second high profile exit for the LA startup ecosystem following Yesterday’s $950 million acquisition of Maker Studios by Disney.

This deal represents Facebook’s first foray into hardware and the company’s first marquee acquisition outside of its core social verticals of photos and messaging. While the rationale may not be immediately obvious to outside observers, Rodriguez calls it highly strategic and a big bet on the next generation platform – virtual reality and wearables.

“It’s almost an Android-like bet, but one with a lot more zero’s on the back end,” he says.

Oculus’ founders and its investors had no intentions of selling and were not actively pursuing buyers, Rodriguez tells me. Rather, the company was fully committed to building a massive, category-defining company. It’s a narrative that doesn’t fully jive with today’s news, but obviously the company felt like Facebook’s resources could help them achieve that goal quicker and on a bigger scale.

“[While it hasn't done consumer hardware] Facebook has terrific systems engineering, as evidenced by their open compute program,” Rodriguez says. Zuckerberg also promised Iribe and his team the king of autonomy that he famously granted Instagram and Whatsapp as part of their acquisitions.

“We certainly felt a level of commitment to the vision and autonomous execution or this would not have happened,” Rodriguez says.

Oculus investor Chris Dixon (who, disclosure, is a personal investor in Pando) wrote about the acquisition and why he initially invested in the company on his blog:

Virtual reality has long been a staple of science fiction. In real life, however, attempts to create virtual reality have consistently disappointed. Oculus was founded on the contrarian belief that the right people at the right time could finally deliver on the science fiction promise. Hardware components had become sufficiently powerful and inexpensive, and the pioneering engineers who invented 3D gaming were eager to explore a new frontier.

Last year, my partner Gil Shafir and I spent time studying Oculus and virtual reality technology more generally. The more we learned, the more we became convinced that virtual reality would become central to the next great wave of computing. We were therefore thrilled when we got the chance to invest in Oculus later on.

UPDATED: Facebook to Acquire Oculus Rift Virtual Reality Headset Manufacturer For ~$2B

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