This VR startup impressed Andreessen Horowitz so much that the VC firm flew back from Vegas to hammer out a $68 million deal at In-N-Out

In Sandbox VR founder Steve Zhao's thinking, his company goes against all the major trends in technology and investing.

But Sandbox VR is also a lot of fun when you experience it — which has helped the virtual-reality startup raise $68 million from top-tier investors, led by the Sand Hill Road stalwart Andreessen Horowitz.

The round was joined by Mike Maples from Floodgate, Stanford University, TriplePoint Capital, CRCM, and Alibaba. It's an interesting investment for those firms, as interest in early-stage virtual-reality investments has cooled lately. But Sandbox VR is a peculiar VR company — instead of making hardware and software you can use at home, it creates experiences in malls and other public locations that you have to travel to and that aren't available elsewhere.

Sandbox VR was started in Hong Kong, where it quickly found an audience.

"When we first opened in Hong Kong in 2017, when we opened the location, for the next 60 days we were sold out from morning until night," Zhao said.

At the time, Zhao was running the Sandbox VR system on the cheap — it uses a lot of pricey VR hardware, and Zhao had to create the software to stitch it together as well as the content that people experience. The company was close to running out of funds at one point. Now the company has 45 employees, seven locations in the US, Canada, and Asia, and a war chest to expand.

Sandbox VR provides a virtual-reality experience — you and your friends gear up, donning some of the latest VR headsets and high-tech computer backpacks, and are dropped into a virtual world, whether it's a pirate ship, a zombie invasion, or a vision of what Hong Kong could look like in 2088. It costs about $40 per person for an hourlong experience, which you book online.

Sandbox VR plans to use its Series A to expand to new locations and create different experiences — games — for people to play at Sandbox locations.

"We have locations planned for LA, Austin, New York, and Chicago, and we've inked multiple deals with Westfield malls across the country," Zhao said.

Though investing in new retail locations and content can be expensive, the Sandbox VR team believes it can keep the new locations booked up with enough new groups to make the investment worth it.

Kanye West and Marc Andreessen are fans

Sandbox VR expected a difficult fundraising process but was helped by a couple of factors, including that its experiences are basically designed to go viral on social media. 

"We are in three sectors that just aren't hot right now: There's VR, which is in nuclear winter, there's content, which is never hot, and there's retail, which basically nobody invests in — and we're a company that's in all three of them at the same time," Zhao said.

Part of how Sandbox VR markets itself is through social media. Participants get video of themselves all rigged up and can share clips of themselves as the characters inside the game.

"Seeing it on Instagram is going to be one of the really killer secrets of this business," said Andrew Chen, an Andreessen Horowitz partner. "When you are having such a good time, and it creates a video of you and all your friends screaming and ducking and like all this happening, and it's so fun, that's this leap that so many people share."

He added: "They've cracked the code on getting new customers in to try the experience, and I think that's really special."

Lots of Silicon Valley insiders have tried the game at Sandbox's location in San Mateo, California — but so have some celebrities, like the rapper Kanye West, who posted about it on Twitter.

"He was cool as a cucumber inside the experience, and we were worried: 'Is he having fun?'" Sandbox VR's chief product officer, Siqi Chen, told Business Insider. "But he came out of there super, super excited. He's tried a bunch of VR, just like me, and when he tried Sandbox it was just different.

"It was pretty surreal to walk through the mall, Kanye and Ben were there — it was insane that day," he continued, referring to Ben Horowitz, the Andreessen Horowitz general partner.

Another group of players who loved the experience were the partners of Andreessen Horowitz, which eventually led the startup's Series A. Sandbox VR's founders said Andreessen made an "offer you can't refuse," though the company isn't disclosing its valuation.

The overall vision for the company is to create a "Star Trek"-like holodeck, a concept that's alluring to technical and nerdy Valley venture capitalists.

"The next day after trying Sandbox, some Andreessen partners flew to Vegas to try out other VR experiences," Zhao said. "That same night, they flew back and called us up to meet at In-N-Out, and after three hours, at 1 a.m. in the morning, we hammered out a deal on a napkin."

Andreessen "told us he believed in the holodeck," Zhao said, "then he asked how much would it cost to have one in his house."

That might not be possible, but soon there's likely to be a location in a mall near him. 

Source: Business Insider, January 2019

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