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The Story Behind Meta, the AR Startup That Just Had Its Assets Sold to a Mystery Buyer

“It’s a pretty dramatic moment in my life.”

To say that Meron Gribetz, co-founder of the augmented-reality headset startup Meta, has had a busy couple of months is an understatement. Meta made headlines in September when it furloughed most of its workforce after an investment round from China failed to go through. Since then, Gribetz has tried non-stop to raise new funding and keep the company alive. “I was feverishly, constantly on the road, 24/7.”

This week, he admitted in an interview with Variety that those efforts ultimately failed, leading to the sale of Meta’s assets. Gribetz didn’t disclose the identity of the purchaser, but promised that the new owner would continue to support Meta’s existing products and its users. “The Meta assets have a future,” he said. “That future was not so clear a few months ago.”

The story of Meta’s demise is as much about the augmented and virtual-reality industry as it is about hardware startups, their founders, and their often futile attempts to compete with billion-dollar companies. Variety spoke with numerous sources, including former employees of the company as well as Gribetz himself, to find out what happened.

An industry with lofty promises

Meta was founded in late 2012, and launched a successful Kickstarter campaign for its first developer kit headset in March of 2013. But the company didn’t really get much public attention until Gribetz unveiled the second version of his company’s headset during a TED Talk in early 2016. The talk, which is still available online, describes augmented reality as a transformative technology, capable of bringing humanity together and freeing us from the isolation of the mobile phone.

“In the next few years, humanity is going to go through a shift,” Gribetz told the TED audience. “We are going to start putting an entire layer of digital information on the real world.” He promised that in just a few years, mobile AR glasses would allow consumers to access these digital layers everywhere. Gribetz also talked at length about building more human-centric interfaces, and moving away from the user interface metaphors of desktop computers and mobile phones. “As a neuroscientist, I always dreamt of building the iOS of the mind, if you will,” he said

That kind of sky-high thinking wasn’t totally out of the ordinary for an industry that still had to sell the general public on its vision. Magic Leap’s CEO Rony Abovitz, whose company wasn’t going to unveil its own headset for another two years, was at the time also busy telling the world about the earth-shattering potential of spatial computing. “It’s hard to think of an area that doesn’t completely change,” Abovitz told a reporter that same year.

One notable difference was that Magic Leap had managed to raise close to $800 million by early 2016, and would go on to raise another $1.5 billion in the following years. Meta, on the other hand, was in the middle of raising its series B when Gribetz took the TED stage, which brought the total amount of funding raised by the company to a comparably small $73 million.

That didn’t stop Gribetz from making some pretty bold claims. “This is gonna replace phones in not too long,” he said. Gribetz also promised that his company’s entire staff would simply use the Meta 2 going forward for all of its computing needs. “We are all going to throw away our external monitors and replace them with a truly and profoundly more natural machine.”

Manufacturing problems and shipping delays

Gribetz was great at selling Meta’s vision, but internally, the company was struggling early on. Two former employees told Variety that the Meta 2 development was plagued with challenges, which included flickering displays and other hardware issues during the manufacturing process.

This didn’t just cost the company a lot of extra money, but also delayed shipments. The Meta 2 headset was supposed to ship in 2016, but the company didn’t begin making it available to the general public until August of 2017. It didn’t sign its first commercial distribution deal until early last year.

The hardware that ultimately shipped was both more advanced and less powerful than some of the products made by its competitors. Thanks to a different approach to optics, the Meta 2 offered a much wider field of view than Microsoft’s HoloLens, for instance. Meta’s headset also sold for about half the price. But it required users to connect it to a desktop computer, making it unsuitable for a lot of the enterprise in-the-field work that HoloLens is known for.

CREDIT: Courtesy of Meta

The company’s Meta 2 headset.

“The Meta 2 had its successes and it had its drawbacks,” admitted Gribetz, who described the development of the device as a learning process. “We did something ambitious, and we did our best.”

Shipping delays and hardware shortcomings also had an effect on sales, according to former employees. Internally, Meta was forecasting to sell 10,000 units of the Meta 2, and predicting that it would be able to sell 10 times as much once it introduced the next version of the headset.

One former employee estimated that the company sold fewer than 5,000 Meta 2s, while another put the number closer to 3,000. Even developers who did buy the headset didn’t seem to get all that much out of it. Repeat usage was very low, with only around 10% of owners still turning on their headset after three months, according to an employee with access to the company’s analytics tools.

Gribetz declined to discuss actual sales numbers with Variety, but said the company came close to hitting the sales goals it had communicated to its board. “The Meta 2 almost sold out organically,” he added.

Even if Meta had sold its entire inventory, it likely wouldn’t have made a whole lot of money on the headset. The Meta 2 was still a device primarily geared toward developers, and priced aggressively. One former employee even told Variety the company lost money on every headset it sold. Gribetz disputed that. “We were making a very, very modest amount of profit for each headset,” he said.

Elusive funding and an empty office floor

At the same time, Meta was looking to raise more funding for the development of the next version of its headset — and Gribetz quickly hit roadblocks. “The funding environment in the U.S. and Europe pretty much dried up,” he recalled.

To keep the lights on, Meta raised a significant amount of debt financing, with one filing from early 2017 pointing to $10 million in liabilities. And to get enough money for the next version of its headset, Gribetz went to China, where investors were still generously spending on AR and VR, and generally seemed more willing to take risks.

Many AR and VR companies had been taking the road to China around 2016. But doing business in the country came with its own set of challenges. “It’s not as straightforward,” recalled Gribetz. He worked with Chinese venture capital companies for many months trying to close Meta’s Series C funding. “I took 25 trips to China,” he said.

During that time, a big new cash infusion always seemed just around the corner, former employees told Variety. At one point, Meta even rented out another floor in its building, effectively doubling its office space, in anticipation of a slew of new hires that were supposed to be made after the funding closed. It never did, and the entire floor remained empty for months.

Furloughs, layoffs, and an eviction notice

These days, visitors to Meta’s former office find few traces of the startup, save for an eviction notice from the building’s landlord. The company left its existing offices in September, when it became clear that Gribetz’s hunt for new funding had come to a standstill.

A deal he had struck in China fell through, something that Gribetz blamed on the escalating trade war between the two countries. That trade war, and new Chinese regulations about investments in foreign companies, killed an already secured cash infusion, and put the survival of the company in doubt. “We ran out of cash,” said Gribetz.

CREDIT: Janko Roettgers / Variety

An eviction notice, posted at Meta’s deserted former offices.

As a result, Meta furloughed the vast majority of its staff, keeping a small team of around 15 employees around to work on a path forward. Meta put out a press release that suggested it was in the process of securing new financing, and had plans to open new development centers in China and Israel. Internally, the company was also looking at other ways forward. One idea was to license Meta’s intellectual property to a computer maker, and focus on developing its operating system and software.

Gribetz was able to raise a small amount of bridge funding, but the necessary Series C round didn’t materialize in time. Meta laid off all furloughed staffers a month after word of its struggles first became public. From that point, the gears moved at a fast pace: The bank securing Meta’s debt recently pulled the loan and sold the company’s assets to a new owner as part of a so-called UCC auction. “Nobody was expecting that it happened so quickly.” Gribetz said.

Word of the untimely ending of the company first surfaced last week, when AR/VR news site Next Reality News unearthed court documents from a lawsuit against Meta. In November, Meta’s attorney withdrew from that lawsuit. When the court asked the company to retain a new counsel, its chief financial officer John Sines responded that its assets had been sold to a third party. “Meta Company is insolvent,” Sines wrote.

CREDIT: Court document

Meta’s chief financial officer John Sines first revealed the asset sale in a court filing.

Meta’s official response to that story was puzzling, to say the least. “Contrary to recent industry rumors, the company remains in full operation and continues to develop, sell, and support its products, working with a team of engineers and product specialists,” it said in a press release issued a week ago.

It’s possible that the release was written while the company leadership was still holding out for a 13th-hour miracle, which ultimately didn’t materialize. This week, Gribetz acknowledged in our conversation that Sines’ filing had been accurate. “I’m no longer the owner of the company,” he said. “The assets changed hands to (the) new owner.”

Augmented reality is hard

The trade war clearly didn’t make it easier for the company to secure funding, but some have also blamed Gribetz for the company’s demise. A source close to one of Meta’s funders bluntly alleged that the former CEO had run the company into the ground, and didn’t cut spending until the very last minute.

A former employee said he felt himself reminded of Meta when he read “Bad Blood,” the book chronicling the downfall of the infamous blood testing startup Theranos. Gribetz constantly quoted Steve Jobs, and was more show than substance, according to that employee — criticism that was also echoed in a recent Glassdoor review of the company.

However, Gribetz also continues to have supporters among former employees. With lots of charisma and big ideas, he was the right person to sell brands and potential investors on the vision of AR, said one ex-employee, who argued that this was necessary to introduce an entirely new product category to the world.

Gribetz himself acknowledged mistakes during his conversation with Variety. “I was learning on the job,” he said. Given the chance of a do-over, he would focus on a “killer app” — a must-have-use case for the product that clearly differentiates it from existing technology — from day one.

However, he also defended himself against suggestions that the company spent too much, and said he took pride in the things that Meta did achieve. “We spent less than a tenth of the resources of our competitors to build a product that was competitive with them,” Gribetz argued.

Perhaps the best post-mortem for the company came from Barmak Heshmat, a former optical engineer for Meta, who recently held a TEDx Talk that was a kind of reality check for the entire AR industry. Companies had talked up AR for too long, Heshmat said, without mentioning his former employee by name once.

The hard truth was that the technology was still struggling with technical limitations, he argued. “AR image quality is gonna suck for a very long time.”

Heshmat also seemed to directly refute his former boss, who less than three years before had promised that his company would get rid of all of its computer monitors in favor of its headset. “This thing is just not gonna replace your cell phones or monitor screens any time soon,” he said.

“AR/VR is hard,” conceded Gribetz this week. “It requires more money and more expertise than anyone in the industry expected.”

Money, one might add, that Meta ultimately just didn’t have.

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