Hong Kong's Sandbox VR was nearly killed by Covid, but it now has global ambitions amid surging demand

Hong Kong-Based virtual reality start-up Sandbox VR plans to expand to 40 locations around the globe, more than tripling the 12 shops it already has, in a rebound after Covid-19 pushed it into bankruptcy, company founder and CEO Steve Zhao said in an interview with the South China Morning Post.

The expansion is a dramatic turnaround from 17 months ago, when the start-up was forced to shut down its VR arcades during the pandemic, said Zhao, who created the firm on the 16th floor of a back-alley building in Hong Kong. In September 2020, the company filed for Chapter 11 bankruptcy in the US and Zhao later got rid of the entire research and development team, eventually shedding 80 per cent of his workforce in total.

One reason the pandemic took such a heavy toll on Sandbox VR is that getting the fully immersive experience of its video games requires physically going out to its stores where people can don its headsets and haptic vests and use other custom equipment. Zhao said he realised the company could survive because one store in the relatively business-friendly US state of Texas, which the company was able to keep open.

Sandbox VR uses a variety of equipment for its location-based VR experience, including backpack computers, motion sensors and haptic vests. Photo: Handout

“People booked ahead online and then they would … drive to our location to play,” he said. “We were like, wow, people are willing to do that.”

As Covid-19 restrictions have eased in many markets, consumer demand for VR experiences has exploded. This pent up demand resulted in a 20-fold increase in revenue over eight months last year, Zhao said. The company was able to reopen its arcades last April, and it has opened stores in five new locations since July, including in Austin, Texas, and Las Vegas, Nevada, in the US and in Shanghai.

In November, the company secured another US$37 million in funding in a Series B round led by Andreessen Horowitz. The firm led the company’s US$68 million Series A back in 2019, making Sandbox VR its first VR investment since 2013. The company is also backed by Alibaba Group Holding, owner of the Post.

With its latest funding, Zhao said that Sandbox VR – which is not affiliated with The Sandbox metaverse platform owned by Hong Kong-based Animoca Brands – is looking to expand and to add three to five new VR games in the next 12 months.

Zhao, who started in the industry as a game developer, said the company has not been able to release any new games since the start of the pandemic. The company previously launched five VR games, the most famous of which is a Star Trek-themed title produced in partnership with Viacom CBS.

Sandbox VR chief executive Steve Zhao. Photo: Handout

“Our goal is to get to four teams running concurrently by the end of this year,” he said. “So our goal is to be able to release like three to five experiences per year, by the end of this year.”

Sandbox VR has room to grow to get back to where it was before the pandemic. Its workforce remains significantly reduced, with about 40 employees now, down from around 100. But Zhao said he has learned how to run a company with a much leaner team.

Sandbox VR’s new arcade in Shanghai, which marks its first in mainland China, was also a learning experience for Zhao. Prices at the shop in Xintiandi, the city’s premium commercial area, are almost as much as in the US. At 268 yuan (US$42) for 30 minutes, customers are paying more than six times the price of an average movie ticket in the country last year.

But Zhao said that cracking the China market remains a tall order. “China is definitely a lot more competitive than the US. And you have a lot of strong retailers,” he said. “So it’s not like we’re competing against other VR [arcades]. We’re competing with the bubble tea shops.”

Under this new expansion, Zhao is looking to bring Sandbox VR’s arcades to more countries, including a new location in London this year – its first in Europe.

Despite the recent emergence of new Covid variants that have resulted in another round of restrictions in lockdowns in some areas, Zhao said he continues to be excited about the future of Sandbox VR, which opened its first arcade in Hong Kong in 2017.

“For us, it’s like we have fought this battle before. It’s like the second year of the war,” he said. “We’re much better at it now.”